Stop Coddling the Super-Rich by Warren E Buffett

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

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.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. 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.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

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At the same time, let's stop coddling the 50%+ that pay NO TAXES, let them share in the sacrifice as well. It is time for a FLAT tax for all. Tax every penny earned starting with 5% on every penny earned by those earning up to $50,000. 8% for those earning $50,000-$250,000, 10% for those earning $250,000- $500,000, 12% for $500,000-$1,000,000, 15% on $1,000,000-$5,000,000 and 20% on anyone over $5,000,000. No deduction at all, no mortgage deduction, no marriage deduction, to childcare deduction, nothing, you earn it, you pay on it. The percentages and brackets are just suggestions but everybody pays.

If you are below the poverty level, you still pay income tax even if you get food stamps, Mainecare, whatever. This would motivate people to earn their way and have everyone contributing. Other's have suggested this before and it is really good idea.

Also do away with corporate tax since that is double dipping. Tax when it goes to someone as income. And do away with capital gains and inheritences as taxes have already been paid on these as well and that is double dipping stiffling investment, savings, and discouraging small business.

Tax everyone...equally.... agreed. Warren Buffett would agree with your suggestion, which is not new.

So, what's the problem?

Oh, the Tea Party (formerly known as the Republican Party). They WILL NOT increase taxes...period.

Here's a good, local example of the attitude in Washington that has us in the "no compromise" situation we are in now. We have just enough of this type of person in this country today to destroy it.

I won't compromise
By William Van Tassel
Published on Wednesday, Aug 17, 2011 at 12:12 am | Last updated on Wednesday, Aug 17, 2011 at 12:12 am 3 Comments

A New York Times/CBS poll rates citizen disapproval of Congress at 82 percent, due to partisan politics and failure to compromise.

I’m fine with that. While leadership consists of many immoral, liberal Democrats and several corrupt or wimpy Republicans, I do applaud the unwillingness of new Republicans to compromise with the liberal/progressive element.

I don’t want to compromise with people who think it’s fine to kill unborn children; with people who believe in stealing money from my rich friends and giving to the undeserving; with those who think same-sex marriage is moral.

I don’t wish to cooperate with a racist president who has a chip on his shoulder against Western civilization; who has built his life on the backs of taxpayers; who was elected only because of his race and giving a good speech at the 2007 Democratic Convention; who is loose with my money.

I wouldn’t compromise with senators and representatives who are consistently dishonest; who have little understanding of world and national history. I’d never compromise with a person such as John Kerry, who wants the media to censor the speech of true conservatism.

I won’t compromise with a president and his minions who call the tea party terrorists, while refusing to put the same label on the real terrorists from the Middle East.

I think partisan politics is great, especially when one side is nearly right and the other totally wrong. However, it makes little difference if the nation itself is reprobate, as is the U.S.

William Van Tassel, Turner

SJ Link

I’ve been thinking about “the 50%+ that pay NO TAXES” a lot lately, and have done some reading, listening, and watching.

First, these so called tax free citizens do pay taxes. They pay excise, payroll, Medicare, sales, and property taxes (if they are lucky enough to own property), just to mention a few.

Second, Obama’s critics claim that if the top two tax rates were increased as proposed for the “wealthy”, it would generate a paltry $700 billion over ten years. Just a drop in the bucket according to the President’s critics. Almost not worth bothering with.

Third, "the 50%+ that pay NO TAXES" control approximately 2.5% of the nation’s wealth. This translates into approximately $1.4 trillion dollars. If "the 50%+ that pay NO TAXES" were to give to the government one half of everything they own, that would equal $700 billion dollars.

A trivial increase in the top two tax rates for the wealthy = a paltry $700 billion dollars

One half of everything "the 50%+ that pay NO TAXES" of this country (the POOR) owns = $700 billion dollars.

Think about it…

When billionaire investor Warren Buffett speaks, people tend to listen. So when the Oracle of Omaha called last week for drastic tax hikes on earners like him, President Obama cheered, and the rest of us at least took notice.


Buffett's plan wouldn't even dent the deficit.
Unfortunately, Buffett didn't bother to estimate either how much his tax proposal could generate in revenues, or the real multi-trillion-dollar dimensions of the federal debt problem. By remaining vague on both counts, he leaves the impression that a bigger tax contribution from the superrich can make a significant difference, when in fact, we might be lucky if it added five cents on the dollar.

As we have explained, the debt problem presents Washington with two painful choices: Either cut spending, with virtually nothing regarded as sacrosanct, or hike taxes, with virtually no income brackets spared. The "millionaires and billionaires" often cited by the president can certainly pay more—a possibility Barron's has put on the table—but there simply aren't enough of them to make a huge difference by themselves.

The Barron's tax proposal echoed Obama's: Raise rates on the two top income brackets and boost estate taxes. It was therefore more ambitious than Buffett's, which would hike taxes only on those earning a million dollars a year or more.

But while never saying so explicitly, Buffett did appear to recognize that most of the heavy lifting must therefore come from spending cuts. Speaking about the 12 members of Congress who are supposed to reduce the debt over 10 years by $1.5 trillion, he declared it "vital…that they achieve far more than that," and called it "job one for the 12…to pare down some future promises," from which "big money must be saved."

But where were the dollar signs for his spending cuts and tax hikes? Buffett offered none.

Here are some figures. Based on its most plausible scenario, the nonpartisan Congressional Budget Office projects that the federal debt held by the public will rise from 69% of nominal GDP to 101% in 10 years. Barron's set as a modest 10-year goal simply keeping the share at 69%. That still means the debt would continue to grow, but no faster than nominal GDP. (The euro-zone nations have a goal of 60%). It turns out that, in order to achieve the 69% goal, spending would have to be cut, or revenue raised, by nearly $7.6 trillion over the next 10 years.

In a follow-up article to Buffett's, the New York Times estimated that Buffett's proposal would raise about $500 billion in extra revenue over 10 years. That means the proposal would roughly make a mere 6.6% contribution to that $7.6 trillion goal.

What's more, even that $500 billion revenue estimate could be way too high. Anyone reading Buffett's article would get the impression that an altered tax structure does not alter behavior. ("People invest to make money," he declares, "and potential taxes have never scared them off.") But just consider the $340 billion that is supposed to come from high taxes on capital gains and on dividends.

Research has shown that the 2003 tax cut on dividends induced corporations to make more dividends available to shareholders. Might a tax hike—to 50% on dividends taken by Buffett's million-dollar-plus earners—cause that policy to go in reverse? And at that 50% rate, might many of the very rich forgo stock purchases and start channeling funds into tax-free municipal bonds and other tax-sheltered vehicles?

The super-rich can contribute their pennies. The real dollars will come from spending cuts.

Alexander Nevsky wrote:The real dollars will come from spending cuts.

Increasing taxes and cutting spending will not do it. The Tea Party is not willing to require that those who can, pay more, and the average citizen is not willing to give up the social programs.

The (real) dollars will have to come from growth, a la Ronald Reagan.