Warren Buffett's higher tax crusade
Wednesday, August 17, 2011
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.
Free polls from Pollhost.com
In the 1950s and 1960s the tax rate were higher but no one paid those rates because of all the loopholes and potential to get away with things. This is a constant lie by the left. The tax rates were higher but the effective tax rates during the 1950s and 1960s were much lower.
Posted by: John Stephens | Friday, March 09, 2012 at 01:46 PM
The American politicians against increasing the taxes of the rich are actually assisting the rich in becoming poorer as we speak …. just as the Greek government in refusing to increase taxes has debased their own currency into default mode. Are the wealthy and middle classes richer or poorer when their stock market collapses and banks wont lend to them ?
The same applies in the USA …..the answer is to increase taxes of those that can pay so that will help keep the value of all their assets from collapsing to Nil. The ramifications are horrendous if the American politicians don’t think outside the square and worry too much about their own political survival. The Congress members themselves should be able to explain the real wealth benefits of increasing income taxes to protect their constituents assets would be a compelling argument surely
I should add that increasing taxes on the wealthy is a small price to pay to help to protect their own capital wealth. In contining to resist the proposed tax increases, your politicians are not doing their voters any favours if as a result of world perceptions the USA financial system is weakened by the increasing deficits then financial markets continue to dive by such a magnitude that ALL CAPITAL GAINS over many generations will be wiped out completely in so few months time.
If only your politicians and your treasury officials could explain this simple reason why all businesses should pay increased taxation. It would be a WIN WIN for everyone including us in Australia who have invested so much of our Superannuation funds in your stockmarkets.
For those of you who fear giving too many benefits to the poor, you should not be concerned as they in true Keynesian spirit will spend that government outlay back into the businesses who worry so much about paying an increased tax. The multiplier effect would benefit your sales and the residual net profit increase will be measured x 10 or more price earnings ratios. At its simplest explanation, if a business pays an extra $1,000,000 in tax and if $500,000 would go to reduce the deficit the other 50% or $500,000 is quickly returned in the way of increased sales amount, then, surely your price earning ratios after expenses should return you back the original $1,000,000 in the form of a capital gain. Everybody wins and the stock markets in the USA do not obliterate your total capital during stock market jitters.
An important observation I’d like to make is that until recently I would have said that in USA you had a system of having an elected dictator who had enormous power. This belief was shattered completely during the recent haggling by congress regarding increasing your borrowing and interest payment limits if i understood the fuss to be about. I instead saw your President as being financially impotent and having no power whatsoever unless your various congressmen agreed to comply with your Presidents wishes.
As far as what government role should be, appears to been lost in history as government officialdom took more and more power away from your citizens who let their rightful rights be stripped away from them and now in the hands of a group of dictators in your Congress, but not your President. This has not always been a bad thing in my opinion especially during the G.W BUSH jnr Presidency when thankfully your administration made sure he did not stuff up completely. However, your Congress have destroyed the role of the President when it refused to deal with President Obama’s wish recently making him look like an impotent lost politician. It was not a good look and i believe your Congress made a terrible error in judgement and did then and now put at risk the asset values of all the wealthy they seek to represent. It was a serious matter which needed to be resolved much earlier when the world was looking at your government for leadership…IT FAILED MISERABLY.
Luckily the general public will forget and others did not view it in the way I have described it…but for your god’s sake can we see some responsible Congress leadership on these matters in the future? gillysrooms.blogspot.com from Australia.
Posted by: Gilbert Boffa | Wednesday, September 28, 2011 at 11:01 PM
this would be a learning for us.
Kent, WA 98030
Posted by: George A. Smith | Sunday, August 21, 2011 at 12:40 PM
its interesting analysis about fiscal matters is reflecting in this writing.
Posted by: Accountants London | Thursday, August 18, 2011 at 03:28 PM
Why don't we have an auto adjusting rate that raises everyones taxes on a progressive scale to a point that eliminates 50% of the debt in 10 years.
Once the debt is lower the tax rate would self adjust based on the remaining debt.
Posted by: nobiggovduh | Wednesday, August 17, 2011 at 09:13 PM
Advice: If you plan to participate in the poll, don't deactivate your pop-up blocker when requested to do so.
Posted by: Ed | Wednesday, August 17, 2011 at 02:00 PM