We Americans are aspirational, even when it comes to taxes.
While very, very few of us make in the Warren Buffett range, we believe that we one day could join the Oracle of Omaha in the top income tax bracket.
That must explain why almost every working stiff just scraping by doesn't want ol' Warren, whose $47 billion net worth last year made him the world's third richest man, to pay more in taxes even though he says he should.
In fact, most of those commenting about Buffett's recent New York Times op-ed piece are really angry at him.
"If we ever get there, which we might, we don't want to pay more taxes, so just shut up," say all these hopeful future millionaires.
Did I mention that most of our national tax aspirations also tend to be delusional?
Taxes through the decades: In talking about the Buffett tax outcry with my fellow Bankrate blogger Judy Martel who follows the fun topic of wealth, I noted that our progressive income tax rate system actually has been going the other direction, at least during my and, I presume, most of the lifetimes of those who are so ticked off at Buffett's tax-me-more audacity.
In the decade in which I was born (1950s; you can guess at the precise year), top tax rates of 90 percent were common.
But having short tax memories, we all focus on 1986. That's when the Reagan Administration's historic tax act -- and yes, having been on Capitol Hill then, I do recall that there was an edict that the tax law be prefaced by that descriptor; only kidding, sort of… -- gave us lower individual income tax rates that we've used as a baseline since.
My fellow Texan W went Ronnie one better with his series of tax cuts in 2001 and 2003.
So now we have a 35 percent top rate and historically low rates on investment income. It was the 15 percent top capital gains and qualified dividends rate that most investors now face, and likely will through 2012, that Buffett focused on in his call to Stop Coddling the Super-Rich.
As soon as his column appeared, lots of folks took Buffett to task for ignoring the taxes that corporations pay before issuing the lower-taxed dividends to shareholders. That, they say, is tantamount to double taxation. It's the same argument that is employed when folks discuss the death, sorry, the estate tax.
Thanks, but that's the proverbial apples and oranges. My receipt of dividends, tax-favored qualified payments or not, is my personal tax issue, not that of the company issuing them. Would a lower corporate rate help me because the company might do better and pay investors more? Maybe.
But Buffett is talking solely about individual income taxes, specifically the dwindling amount of taxes paid in recent years by the richest Americans.
Millionaire specific taxes: Buffet proposes to raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. For those who make $10 million or more, Buffett suggests an additional tax rate increase.
Millionaire taxes are already on the books in several states (Maryland, New Jersey, California, Connecticut, Hawaii, Oregon and Wisconsin).
A surtax on the wealthy was examined, and discarded, in the health care reform debate, although the final version of the law does include an added 3.8 percent Medicare tax, beginning in 2013, on wealthier investors.
And earlier this year, the Fairness in Taxation Act was introduced in the House. It proposes five new rates for the ultra wealthy, starting at 45 percent on incomes of $1 million to $10 million and topping out at 49 percent on incomes of more than $1 billion.
Investments and taxes: As you've guessed, that bill has gone nowhere fast. Such taxes are antithetical to low-tax, business growth proponents.
They note that keeping investment tax rates low encourages people to save money and invest in stocks, maintaining the flow of capital into the economy and providing, as long as the market doesn't totally tank, retirement cushions for investors.
Buffett responds to that with the "don't let the tax tail wag the investment dog" argument. He writes:
"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."
The bottom line from the Berkshire Hathaway head is that to get out of the current fiscal doldrums, everyone's going to have to pay. And he thinks that the tax laws should require those who are able to pay more to do so, not just allow them to voluntarily fork over more cash to Uncle Sam.
I have a good idea what the ol' blog's readership is going to say here, but I have to ask. Do you agree with Buffett? Should the wealthy be taxed at even higher rates?
Let me know by voting in the poll below and/or leaving your thoughts in the comments section.
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