The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

On Warren Buffett


I’d like to make a very simple argument about Warren Buffett: I think that we should evaluate Buffett’s arguments as we would the arguments of an economist at the University of Chicago or Iowa, or a research associate at the Center for American Progress or the Heritage Foundation, or the founder of a successful hog farm or a boutique nail salon or a consumer internet business. Buffett’s arguments aren’t new, and they aren’t, in my view, convincing or even interesting. I recognize that at least some people will lend more credence to Buffett’s belief that he and other successful investors and entrepreneurs should pay higher taxes because he is “putting his money where his mouth is,” not unlike a young adult calling for the restoration of military conscription.

I guess there’s something interesting about, say, a 19-year-old upper-middle-class student at an elite university telling the reading public that she should be required to fight and die in Iraq and Afghanistan alongside people from different social backgrounds, e.g., volunteers from families with a tradition of military service. I’d be more interested in the question of whether conscription would give us a more effective military, that could achieve the strategic objectives set out by our elected leaders at the lowest possible cost in human lives and material resources. One could argue that the military is a distinctive institution in a democracy, and that a focus on cost effectiveness is bloodless and wrongheaded in the extreme, e.g., the idea shared national sacrifice should be at the heart of how we shape our military institutions. I don’t find this view very credible, and I imagine that it would be exceptionally difficult to implement in practice. But of course sentiments on this question will vary.

As for tax policy, what really matters is how rates and structure shape the broader economic environment. More narrowly, I think it is reasonable to place somewhat heavier emphasis on how tax policy impacts the long-term interests of those in, say, the bottom half of the wealth and income distribution, or the bottom third or the bottom tenth. 

There is a great deal of disagreement regarding the policy mix that best serves the interests of the broader economy. Part of the problem is that there are many moving pieces and confounding variables, and we don’t have, and we might never have, good experimental knowledge on core public policy questions. Like Buffett, and unlike many of my fellow conservatives, I tend to think that we might need somewhat higher tax revenues in the medium-term. Unlike Buffett, I believe that raising marginal tax rates is not the best way to raise revenue. 

I’m of the view that conservatives should only agree to higher tax revenues in exchange for structural entitlement reform, which, so far at least, hasn’t been on the table. (And by structural reform, I mean something along the lines of the Medicare competitive pricing concept we’ve discussed in this space.) Indeed, I find it strange that any sensible person would talk about the tax system in isolation from what the tax system should actually buy.

There are a number of red flags in Buffett’s op-ed, and I’m afraid I can’t tackle them all. I will not a handful of them:

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.

I’m curious: does Buffett think that it is a coincidence that aggregate income has soared as the rate paid has decreased? He might argue, reasonably enough, that there are underlying factors that account for the surge in income, and that the highest earners haven’t been responding to tax incentives. The global economy has changed in important ways that have redounded to the benefit of high earners. But if that is true, he might want to revisit the previous paragraph:

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.

Could it be that that job creation has been weak due to a number of complicated factors, e.g., labor market regulation, the rising cost of non-cash compensation, changing dynamics with the nontradabale and tradable sectors of the economy, a “global labor glut,” etc.? Might job creation have been worse in the absence of changes to the tax code? 

Warren Buffett is obviously an exceptionally brilliant person, and a legend in his own time. His advocacy for higher taxes on the rich has won him the adulation of hundreds of thousands, if not millions, of people, not just in the United States. Adulation, alas, can’t be taxed, which makes me wonder if Buffett is shrewdly diversifying his asset base. 


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