Here are a few thoughts on Warren Buffett’s column in today’s New York Times:
Buffet complains that “while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.”
First, nothing in federal or state law requires taxpayers to ferret out and claim every available tax break. Yet Mr. Buffett, it seems, is quite adept at limiting his tax burden. He writes that he sent the IRS a little over $6.9 million last year, about 17.4 percent of his taxable income.
To put his tax burden in perspective, consider that in 2007 the “total effective federal tax rate” of the wealthiest 1 percent of taxpayers was 29.5 percent, according to the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.
For 2008, the IRS itself reports:
For returns reporting positive adjusted gross income, the top 1 percent of taxpayers had an average tax rate of 23.3 percent; the top 10 percent of taxpayers had an average tax rate of 18.7 percent; and the bottom 50 percent of taxpayers had an average tax rate of 2.6 percent.
But those statistics refer only to the wealthiest 1 percent of taxpayers, most of whom dare not dream of the riches earned by the likes of Mr. Buffett. What about the “super-rich” to whom Buffett refers in his op-ed?
No matter how one cuts it, Buffett’s total federal tax burden of 17.4 percent is below the norm for the “super-rich.” Among the wealthiest 0.1 percent of taxpayers, for example, the average tax rate in 2008 was 22.7 percent. Even among the top 400 taxpayers, Buffett still fared well. The average rate among this elite group still came in at 18.1 percent. Clearly, Mr. Buffett’s tax accountants earned their fees.
Buffett also argues that his tax burden is considerably below those of his employees. He writes that his 17.4 percent tax burden was “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 this is accurate, Buffett ought to loan out his tax team to his employees. The same IRS tax data indicates that our tax code is an enormously progressive one, in the sense that, on average, high-income taxpayers fork over a much higher percentage of their income to the IRS than do the less well-heeled. Let’s say Buffett’s employees are in the top 10 percent of all taxpayers. If so, they appear to be vastly overtaxed. In 2008 that bloc’s average tax rate stood at 18.7 percent. (If you’re wondering, the average tax rate for all taxpayers in 2008, according to the IRS, was only 12.2 percent.)
Buffett writes toward the end of his piece:
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.
The super-rich, it seems, need to “be told to pay more in taxes.” That, indeed, seems to be the case. Consider the experience in Massachusetts. When offered the opportunity to voluntarily pay more taxes than state law requires, the super-rich in one of our most liberal enclaves have just said no. In the wake of a cut in the state income tax in 2000, a local citizens group launched a successful effort to appease those who opposed the tax cut. As a result, since 2003, the Massachusetts state-income-tax forms contain a check-off box allowing taxpayers to elect to pay at the old, higher rate. As Massachusetts political analyst Jon Keller reports in his book The Bluest State:
In the first year [2003] this . . . option was available, 843 of the state’s two million tax filers opted to pay the higher rate. By 2006, that microscopic number had slipped to 527 — one-fortieth of one percent of all taxpayers.
My suspicion is that when Mr. Buffett says that his investment behavior is not influenced by marginal tax rates or other nettlesome provisions in the tax code, he betrays his true motivation for making that next billion. For him, investment is a sport from which he apparently derives great pleasure. Why not project that same mindset on his other fabulously wealthy friends? If we could clone Buffet a thousand-fold, surely we would all be wealthier and the making of tax policy would be easier. Out with behavioral economics! Be gone the supply-side school!
But what about the millions upon millions of small business owners for whom the marginal tax rate does make a difference? What about those investors and entrepreneurs who invest to make a profit? For them, the current environment of tax-code uncertainty and several agencies’ regulations-on-steroids approach is a show stopper.
Little wonder why there is so much capital on the sidelines awaiting a positive, pro-growth signal from Washington.
— Michael G. Franc is vice president of government studies at the Heritage Foundation.
Why is it Mr. Buffet and his estate hiring tax lawyers and CPA's every year to review his taxes? Is he afraid of underpaying his taxes?
Reply to this commentLinkReport AbuseI'm sure Mr. Buffett is a busy guy, and so here is the address:
Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
According to the website, he should make his check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public.
Every GOP Presidential candidate on the GOP side should have a bunch of these printed up on business cards to hand out at rallies populated by Democrat hector-vists.
Reply to this commentLinkReport AbuseDid he say Taxable Income or Income. There is a huge difference obviously. How much of his income is tax free bonds ?
Reply to this commentLinkReport AbuseIf most of the decent, mega rich have signed a pledge to give away their fortunes, they could sign a similar pledge to pay whatever amount of tax they believe is fair. There's a line for voluntary contributions on the Form 1040, so these folks can give away as much as they want to the U.S. Treasury. Warren Buffet and friends would be happy and guilt-free, it would prevent a nasty battle in Congress and those who aren't as decent and/or mega rich wouldn't be required to participate. These folks are supposed to be smart, no?
Reply to this commentLinkReport Abuseseems to me that instead of taking his earnings in the form of dividends he could just as easily pay himself a salary of 100 million ... then lets see what his tax rate is ...
Reply to this commentLinkReport AbuseThe problem with this approach is that guys like Buffett can't pay themselves huge salaries. These guys own next to NOTHING in their own names. Why? Not just because of taxes. If Buffet's marginal rate was 0 he would still have to shield his assets from liability. Who wouldn't love to get in front of Buffet's car and get hit from behind? He is a big target for people who want to sue. Keep in mind, I disagree with his tax the rich rheotoric, but the idea that he can just hike his own salary is off base.
Reply to this commentLinkReport AbuseHey, you pious, holier-than-thou millionaires and billionaires! Hokkoda provided the address.
WRITE THE FREAKING CHECK AND LEAVE THE REST OF US ALONE!
Is that clear?
Reply to this commentLinkReport AbuseMr. Buffett's column reminds me of the book I read in college: "How to Lie with Statistics." I loved the little "and payroll taxes paid on my behalf" slipped in there. Of course, payroll taxes will not change the percent he pays at all, but his employees pay 6% plus another 6% is paid on their behalf. Right off the bat, he adds 12% to their marginal tax rate. Even at that, I sincerely doubt his figures. My doubts come from personal experience as a regular schlub who uses Turbo Tax. I have made a variety of incomes throughout the years, all through actual income, not investments, and the highest percentage I have ever paid when I take into account all taxes paid (federal, state, Medicaid, Social Security, property) is about 25%. Now I'm not calling Mr. Buffett a liar. He probably did an informal survey around the office and his employees told him what percentage they thought they were paying. Unfortunately, the truth is somewhat different when it comes to the real numebrs. The other inconvenient truth is that Mr. Buffett can round up that tax check to the nearest $100 million anytime he feels like it. I won't hold my breath. Thanks for playing, Mr. Buffett.
Reply to this commentLinkReport AbuseAs I wrote on the media blog yesterday:
Buffet "complains" that he pays a lower tax rate than many people who work for him and earn much less. Well Warren, next time don't hire all the accountants and lawyers to lower your rate and voluntarily pay the statutory rate. Don't use the capital gains rates and no one made you take all of your deductions. Pledge that next time it's "Warren Buffet - Super 1040EZ filer"!
What a hypocrite.
Reply to this commentLinkReport AbuseBuffett, like most other rich liberals, has had the ability to help individuals "make ends meet" for decades yet has, apparently, chosen not to (to any great extent).
Had he taken a tenth of his wealth and sought to aid people, directly, absent any tax benefit, I'd consider his perspective here more closely. However, the fact that he, apparently, does not feel compelled to act in this manner and is advising that he will act on such generosity only if like people are similarly coerced indicates to me that he is other morally blind or simply interested in advancing his preferred political philosophy by gimmickry.
If he really cared he'd have acted on this in any number of ways. That he advocates forced redistribution of wealth by the state to achieve what he and his billionaire pals could do voluntarily means he hasn't a wit of sense about what freedom really means.
Reply to this commentLinkReport AbusePlease be sure that you are comparing apples to apples; I suspect that Buffet is including FICA in the 33-41% his employees pay, while the maximum individual FICA contribution is not even a rounding error at Buffet's level -- about 25 thousandths of 1 percent.
We can argue about how to handle the employer's contribution -- I'd add it both to employees' income and to employees' taxes.
Then there are state, local, property, gas, sales, &c. taxes -- all of which are de minimis to such as Buffet but a considerable burden to those making the median wage.
It bothers me when I see conservatives talking about the federal income tax as if that were the only tax Americans pay. It really is a dishonest way to frame the debate -- and, worse, a weaker way.
It is far from clear that most Americans have a firm grasp of just how big government (at all levels) is and how much it costs them -- we need to show them, not that the rich don't need to be taxed, but that they themselves are already taxed too much.
Otherwise, the party of "Make someone else pay for it later" (which includes all Democrats and all too many Republicans) is sure to keep winning.
Reply to this commentLinkReport AbuseWell I'll start with one little point that hit me when I read it, the legerdemain he tries with "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." Read that again. Now once more closely. Notice what it doesn't say. It doesn't say "I have seen transactions that were a loss at one tax rate, but would have had a gain at a lower tax rate, but I invested anyway because I don't care about no stinking taxes". This guy is no dummy, and you can bet all the baubles at Borshiems that he very carefully calculates the potential tax implications of every transaction. If it makes money at the prevailing or expected tax rate, of course he invests. But taxes are a cost of doing business, and if the total costs outweigh the gain, he sticks his wallet back in his pocket until a different deal comes around.
Second point: I will give him credit for one thing, at least he specifically calls out the math on the actual millionaires. Everybody else, throws around the rhetoric of millionaires and billionaires, but then bases their calculations on the current tax brackets starting at $200,000 for individuals.
But the darn math gets in the way, eventually. For starters 21.5% of 90 Billion is way more than 29.2% of 16.9 billion. I'm not going to argue causation, Laffer curves or anything else at this point. Just the simple fact that you can buy more stuff, Social Justice if you can find the store that sells it, with 19 Billion than you can with 4.3 Billion.
And there just ain't enough rich folks to go around. According to a report in the New York times, the total net worth of the millionaires and billionaires in the US is estimated at about 10.7 Trillion. The US National debt is over 14 trillion. So after you tax the Millionaires at 100%, and confiscate all their wealth, sell every stock bond, house, boat, car, and silver tea service they own, you'll still be 3.3 trillion in debt, adding 1.5 trillion every year, and you'll be, as we used to say in the south, plumb out of millionaires. Who you gonna cannibalize next year?
Finally, I notice Warren doesn't send his money to Dept. G. He puts it in a trust to "give way" but note he wants to say how his money is spent, even if he's not spending it on himself. He doesn't want the government to tell him how to spend it, or to spend it for him. That one always makes me say, "HMMM Freedom to do what you want with what you earn. What a concept."
Reply to this commentLinkReport AbuseI would urge people to endure the Buffett interview on Charlie Rose, as I think he makes some points there that are not in his op-ed. What Buffett is saying is that people with incomes over $1 million per year pay lower tax rates than the small business owners making $250-500k, which doesn't make a lot of sense. The primary reason for this is the lower rates on capital gains and dividends. While I don't want to see these rates at 39.6% like the Dems, I think that a shift in the tax structure for cap gains and dividends should be part of a fundamental tax reforms that flattens the rates while eliminating a lot of the deductions that the same wealthy folks use to lower their tax burden (why should people on the right be supporting deductions for state and local taxes, which subsidizes high-tax jurisdictions like NY and CA, or deductions for muni bond interest, which helps those same states take on more debt at low interest rates?).
Reply to this commentLinkReport AbuseIt was pointed out this morning on Fox Business Network that there is quite clearly a potential ulterior motive to Mr. Buffett's prescription of higher taxes on rich people: Berkshire Hathaway owns LIFE INSURANCE companies. Rich people put their wealth into life insurance--big, high-premium policies at that--in order to help their heirs--whether individual offspring or foundations, no matter--AVOID INCOME AND INHERITANCE TAX because the proceeds of such policies are, of course, tax free.
So...to the degree that any higher income tax mandates inspire people to shield more of their wealth for their heirs by buying more life insurance policies from his companies, Buffett stands revealed as just another solicitor for favored nation status from the Obama/Democrat administration--no different than G.E. or fast food companies or labor unions seeking waivers from the Obamacare they endorsed and promoted and the candidates they give money and time/support to.
Now I'm not trying to say Buffett is utterly insincere in his addled view of taxation, but the fact that his NY Times op ed ran without either he OR the editors adding an informational disclaimer to it telling readers that Buffett and his companies would PROFIT from any rise in the tax rate on wealthy folks is, to say the least, negligent. How intentional that negligence is I leave to the Times, Mr. Buffett, and readers who know better to decide.
P.S.--No matter how much Mr. Buffet may sit on his pontifical tuffet suggesting a higher tax on the curds and whey of mega-rich folks, his president (no doubt using the same math with which he once counted how many states there are in the Union) still defines these evil "millionaires and billionaires" on whom he has been demanding a tax increase as people earning $250k a year or more.
Reply to this commentLinkReport AbuseBy the way, it just occurred to me that the way to see if Buffett is truly serious about this in the era of serious discussion of "closing tax loopholes for millionaires and billionaires" is if, while others talk about ending mortgage interest deductions and other tax rules, Buffett will come out for removing the tax-free status of insurance proceeds.
Waiting....
Warren? Warren? Buehler? Anybody?
Thought so.
Reply to this commentLinkReport AbuseGreat column! Besides, aren't the liberals always telling us that taxes are "voluntary"? They should just volunteer more!
Reply to this commentLinkReport Abuse(Please excuse the repost)
Let me channel my inner Derb and explain why we're doomed.
When my friends post this NYT piece on facebook, I've posted Samuel Gregg's previous post as a reply. Here's some of the comments I get.
"Well it's clear that website (NRO) has an agenda. Warren Buffett doesn't."
"Those aren't facts you're posting, those are figures. And only liars figure."
"I'll trust Warren Buffett to tell the truth, he's made millions after all."
And my personal favourite, "Why should he volunteer to pay more to the government?"
Reply to this commentLinkReport AbuseIf he were really that concerned about the "common" man, he could always start a few more businesses...employ some people instead of finding ways to expand the dole.
Of course, he may find it easier to write a check to the Feds rather than deal with all the government regulation involved in starting a business...
Reply to this commentLinkReport AbuseThe main thing I take away from Buffett's op-ed is that it's just a distraction from the real issue. Let's say you double his taxes to make him happy. Another $7 million in taxes would cover the deficit for a couple of minutes. And that's from doubling the taxes on Warren freaking Buffet - how many of him are there?
Reply to this commentLinkReport AbuseIt has to be spending cuts - there isn't enough revenue to solve the problem.
Currently about 14.4% of GDP is being collected as taxes -- the lowest percentage since 1950! Typical collection rates are much higher, and show that we could easily pay our bills if we wanted to. Your belief that "it has to be spending" doesn't hold water.
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