Warren Buffett has an op-ed calling for higher taxes on the rich that has been sent to me by just about every liberal I know, every liberal I’ve ever heard of and, I understand, was found in alien radio transmissions detected by the revived SETI network.
I’m hesitant to disagree with a titan of finance like Buffett. And, in fact, if you push aside the class warfare gibberish and straw manning of the opposition, I think he makes some valid points:
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.
What he’s dancing around is that we tax people a *lot* less for flipping money around than working. If you’re a doctor making six figures saving people’s lives, you’re taxed at a marginal rate of 33%, plus state taxes and payroll taxes. But if you make money on credit default swaps, stock market gambling and housing flips, you’re taxed between 15-20% with no payroll tax. We conservatives always say that incentives matter. You don’t have to be a rocket scientist to see why so many of our best and brightest have moved from making and building and doing things to playing with money and wrecking the economy.
Buffet also debunks a talking point I’ve grown tired of. The argument that the rich are taxed too much is based on what percentage of income tax they pay versus what percent of income they take. However, this fails to account for all taxes, specifically capital gains taxes.
However, Buffett isn’t completely in Earth orbit. He complains about the payroll tax not applying to the rich. But first off, the Medicare tax does apply to the rich, at least for income. And second, the Social Security tax is capped because benefits are capped. You can remove that cap if you want (and give us a gigantic marginal rate) but you then have to stop pretending Social Security is anything but a welfare system.
But the biggest problem with Buffett’s article is his laser-like focus on the “mega-rich”. He ignores that, for Democrats, “the rich” start at $250,000 and most of the “rich” are closer to $250,000 than they are to $10 million. Of course the mega-rich will be fine no matter what the tax system does. They’ll buy enough Congressmen to create loopholes and exemptions for them (Buffett himself is heavily invested in “green” technologies which are getting tax benefits). It is the “not-so-mega-rich” who are most sensitive to tax policy.
To wit: Buffett does not mention the AMT at all, which is a huge regulatory and financial burden on the not-so-rich. He says nothing about the small business that drive the economy, many of which pay taxes as individuals and many of which are about to get hammered by PPACA taxes. He conspicuously fails to mention Sarbanes-Oxley, which may a bigger burden on our system than taxes. And he fails to note that the higher marginal rates of the past were leavened with huge tax shelters which benefited … the mega-rich like Warren Buffett. He also doesn’t talk about the inheritance tax, which can hit small business very hard. Ted Frank has claimed that one of the ways Berkshire-Hathaway makes money is by buying business that have to sell because of the inheritance tax.
In short, this crosses me as a very rich person arguing for a tax system that will hit him, but hit the competition harder. Haven’t we danced that dance enough times?
The more we debate tax policy, the more something along the lines of Simpson-Bowles looks like a smart idea. Eliminate as many loopholes, deductions and exemptions as possible; eliminate the distinction between capital gains, stock income and earned income; lower the marginal rates into the 20’s. This would bring more revenue to the Feds while minimizing the tax burden on investors and business owners. And it would especially do it without knee-capping those who compete with Warren Buffett.