Stop Coddling the Super Rich

[anitram]

Great editorial from Warren Buffet in the NYT today.

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.

A few days earlier, Matt Damon had gone on a similar rant and had this to say:

I don’t know what we were paying in the roaring ’20s; it’s criminal that so little is asked of people who are getting so much. I don’t mind paying more. I really don’t mind paying more taxes. I’d rather pay for taxes than cut ‘Reading Is Fundamental’ or Head Start or some of these programs that are really helping kids. This is the greatest country in the world; is it really that much worse if you pay 6% more in taxes? Give me a break. Look at what you get for it: you get to be American.

"I didn’t go start a small business with my tax break, and I don’t know anyone else who did. No, everybody’s socking their money away,” he said. “I was against those tax cuts. I thought they were ridiculous. So little is asked of the upper class anyway. I mean what percent of them or their kids are fighting in any of these wars? What percent of their day is occupied by the fact that there are men and women in positions over the world, risking their lives? If you walk down 5th Avenue, there’s no sense of shared sacrifice."

 

[BVS]

Don't these people believe in American Exceptionalism?

 

[KhanadaRhodes]

good one.

 

[Irvine511]

Matt Damon is a job creator!

 

[mama cass]

excellent!

 

[BEAL]

The counter argument I hear all the time when someone like Buffet comes out and speaks like this is that he can "cut a check to the gov anytime if he wants to pay more"

 

[MrsSpringsteen]

I love Warren Buffett-still lives in a modest home where he came from, in Omaha. I think he is a brilliant, down to earth, and compassionate man.

This is his house. I guess that's all he can afford since Obama took all his money away.

 

[anitram]

The counter argument I hear all the time when someone like Buffet comes out and speaks like this is that he can "cut a check to the gov anytime if he wants to pay more"

That is a ridiculous argument, because the problems we are facing are structural, and as such, a drop in the bucket by Buffett does nothing to solve them.

 

[Popmartijn]

The counter argument I hear all the time when someone like Buffet comes out and speaks like this is that he can "cut a check to the gov anytime if he wants to pay more"

If Republicans want to cut more government spending they can start by sending their paychecks back to the gov.

 

[Vincent Vega]

I love the contradiction in the argument that a higher tax would stop people from investing, when at the same time every student is being taught that a person that can make even a dime from an investment, compared to leaving the money in his bank account, will make this investment immediately.

 

[Billy Rotten]

The U.S. needs more Warren Buffets, a LOT more.

 

[Vincent Vega]

Not just the US, the entire West is in great need of managers, investors etc. who haven't thrown their morals out the window in favour of a quick buck.

 

[LPU2]

The U.S. needs more Warren Buffets, a LOT more.

There ARE a lot more. That's what is so frustrating. I'd love to see a poll of millionaires and billionaires to see what percentage of them think the Bush tax cuts were a good idea.

The Agenda Project: Patriotic Millionaires' Message to Congress "Tax Me" - YouTube

 

[MrsSpringsteen]

politico.com

By JENNIFER EPSTEIN | 8/15/11 1:38 PM EDT

The people gathered at a Monday afternoon town hall in rural Minnesota don’t make as much money as Warren Buffett, but they likely pay a higher tax rate than him, President Barack Obama said during his appearance, citing the billionaire investor’s op-ed in The New York Times to make the case that Washington needs more revenues.

“Now, I may be wrong, but I think you’re a little less wealthy than Warren Buffett, but that’s just a guess,” Obama said to laughter along the waterfront in Cannon Falls.

Even so, those who turned out to hear Obama are likely taxed at a higher rate than the 17 percent Buffett said he pays, the president said.

“You don’t get those tax breaks, you’re paying more than that,” Obama said, using Buffett’s argument to make the case that the congressional supercommittee needs to find ways to bring in additional revenues to help reduce the deficit.

Obama has often cited Buffett’s call for higher tax rates on the rich, and he seized on the Monday op-ed in the Times and the coverage it’s gotten on the Web and on cable news to do so again.

“He said we’ve got to stop coddling billionaires like me,” Obama said. “That’s what Warren Buffett said.”

“He pointed out that he pays a lower tax rate than anybody in his office, including the secretary,” the president added. “He figured out that his tax bill, he paid about 17 percent. And the reason is because most of his wealth comes from capital gains.”

Campaigning in New Hampshire on Monday, Mitt Romney rejected Buffett’s argument, saying it would hurt businesses.

“He is taxed at the personal income tax rate, so if we raise taxes on wealthy people that means businesses see their taxes go up. I don’t want to raise taxes on employers. Certainly not now. With the economy the way it is,” Romney said.

 

[Achtung11]

The people who say that raising taxes will slow economic growth and so cutting spending is the right thing to do to decrease our deficit are fools or cons or both.

Lets say you raise taxes on a rich person by $1/year. He is going to replace that extra dollar from either his savings account, or from cutting his spending by $1. More likely then not, he has substantial savings from which to withdraw, and so his spending will not need to be cut down in order to meet the extra taxes. So, if he takes that dollar out of savings, or hell, if he takes $.50 of that out of savings and $.50 out of spending money, then overall, he would be spending $.50 less. Spending $.50 less means that U.S. economic growth is negatively impacted by $.50 less in spending.

Now lets say you cut spending on Social Security checks by $1 per person. More likely then not, the person on the receiving end of the Social Security check is spending most of that money for living needs, and more likely then not, he does not have substantial savings in order to replace the missing dollar. So, he has to cut $1 out of his spending. $1 less for him means U.S. economic growth is negatively impacted by $1 less in spending.

For the people who like to say that raising taxes is bad for the economy, they should know and admit that cutting spending can be worse.

Of course, the real solution is to have a compromise from both the revenue and spending side.

 

[corianderstem]

Semi-related, from a not-quite-as-rich-but-still-pretty-darned-rich CEO:

Business & Technology | Starbucks CEO Howard Schultz: Don't contribute to politicians | Seattle Times Newspaper

(Ignore comment section, which is full of people still butthurt over Schultz selling the Sonics.)

 

[Cin]

I admit I don't know a huge amount about Warren Buffett but after reading his editorial I'll find out. He seems to really have his head on straight despite the mega bucks.

The counter argument I hear all the time when someone like Buffet comes out and speaks like this is that he can "cut a check to the gov anytime if he wants to pay more"

again, excuse my ignorance but isn't Mr Buffett one of the big philanthopists?

 

[MrsSpringsteen]

again, excuse my ignorance but isn't Mr Buffett one of the big philanthopists?

Yes he is, he gives most of his money away and his heirs won't get anything..or very little. He started The Giving Pledge with Bill Gates-if you sign it you promise to give at least half your wealth to charity. Mark Zuckerberg was the last well known person to sign it. None of that goes to the govt, but of course you could argue that they're saving the govt money by doing things with that money that the govt doesn't have to do.

Maybe one day they can start something like that to give to the govt.

 

[MrsSpringsteen]

I can only hope and pray that the mass exodus would include him. Please, please, please.

GEORGE STEPHANOPOULOS: Let’s talk about taxes. Warren Buffett made another splash with his op-ed in the New York Times saying it’s just not right that he, a billionaire, pays 17 percent in taxes when his secretary and receptionist pay more. Isn’t he right about that?

DONALD TRUMP: Well, I’ll tell you something. I view it — there’s many different views on that. And I can also tell you that a lot of people will go elsewhere to do business if you start taxing them. Many, many people, and I know people and I deal with —

GEORGE STEPHANOPOULOS: But 17 percent isn’t much for a billionaire.

DONALD TRUMP: Well, I deal with Wall Street all the time. I know all of them. And you’re going to have people– you’re going to have a mass exodus. You already have an exodus out of this country. But you’re going to have a mass exodus of business out of this country when you start taxing too high. Now, I will tell you —

GEORGE STEPHANOPOULOS: That didn’t happen during the Clinton years. And the– if we just go back to that, those rates.

DONALD TRUMP: And times have also changed. But if you go back to certain companies, Exxon Mobil, the oil companies, for us to be subsidizing oil companies is absolutely insane. And frankly, the oil companies really facilitate OPEC. The worst abuser we have is OPEC. And the biggest problem this country has, China’s a big problem, but OPEC’s even worse.

 

[BVS]

The man is so detached...

He completely avoids the question.

Why aren't the receptionists who are getting taxed at a higher % not leaving in a mass exodus?

 

[KhanadaRhodes]

DONALD TRUMP: Well, I deal with Wall Street all the time. I know all of them.

you hear that? donald trump knows EVERYONE on wall street. all of them.

Spoiler

 

[elevated_u2_fan]

Matt Damon is a job creator!

What kind of jobs are we talking about here?

 

[yolland]

Fiscal Times, Aug. 21

On Monday, financier Warren Buffett ignited a tax debate by recommending a tax increase on the super-rich.

...It's axiomatic among Republicans that taxes on the rich are the single most important factor determining economic growth. If that were true, then the period from 1988 to 1990, when the top rate was just 28%, should have been the most prosperous in recent American history. During that time we had the lowest top rate since 1931. But although 1988 started out okay with a real GDP growth rate of 4.1%, it fell to 3.6% in 1989 and just 1.9% in 1990. Conversely, the period from 1993 to 2000, when the top rate rose from 31% to 39.6%, should have been a period of dismal growth. But in fact, that period was the most prosperous in recent American history. Real GDP growth averaged 3.9% per year--more than 50% above the average postwar growth rate. Then there should have been a burst of even faster growth when the top rate was reduced in the 2000s to 35%--a rate that is still in effect. But during that period, real GDP growth has averaged just 1.8%--30% below the average postwar rate.

So where is the data supporting the argument that taxes on the rich are the sine qua non of growth? I don’t see it. On the contrary, the data from the last several decades would in fact support the opposite conclusion--that higher tax rates on the wealthy stimulate growth. It is worth remembering that throughout most of Ronald Reagan’s presidency the top rate was 50%, and Republicans believe his economic policies are the gold standard that we should try to emulate in every way possible.

One reason why Republicans may grossly overestimate the economic significance of the top income tax rate is because over time the income level at which the top rate takes effect has fallen sharply. It now applies to a relatively modest amount of income. In the past, one needed to be very wealthy indeed before paying $1 of income taxes at the top statutory rate. When the income tax was established in 1913, the top rate didn’t begin until someone made at least $500,000--that’s more than the threshold for the top rate today, which is $374,000. But of course there has been a vast amount of inflation since 1913. In 2010 dollars, the threshold in 1913 was actually $11 million per year. Obviously, very, very few people were affected by the top rate at that time.

...During the 1930s, Franklin D. Roosevelt raised the top rate to 79%--a policy universally condemned by right wingers ever since. What they never mention is that he also sharply raised the income threshold at which the top rate applied. Under Herbert Hoover, the top rate began at an income of just $100,000, but under Roosevelt the threshold increased to $5 million per year--almost $80 million in today’s dollars. It is said that when the top rate was increased in 1936, only one person in the United States--John D. Rockefeller--was affected. During World War II, the threshold for the top rate fell to just $200,000 and has never gotten much above it since. When Reagan took office, the top rate began at an income of $215,000. And although he reduced the top rate, few people realize that he also lowered the income threshold for it to just $85,600, which wasn’t very much income to be considered rich even in 1992. In 2010 dollars, that was less than $200,000 per year. Furthermore, when Reagan reduced the top rate to 28% in the Tax Reform Act of 1986, the income threshold was further reduced to just $30,000--a little over $50,000 in today’s dollars. However, when Bill Clinton raised the top rate in 1993, he also dramatically raised the income threshold from $86,000 to $250,000--$377,000 today. While George W. Bush lowered the top rate, he did nothing to change the threshold income level at which it became effective. Since Clinton’s time, the only change in the top rate’s income threshold has been indexation for inflation, which has kept it around $370,000 in 2010 dollars.

It may be true, as those on the left like to point out, that any household with an income of $370,000 is very well to do. But it’s not rich by any reasonable definition of the term. Therefore, average people who may aspire to make that much some day are reasonably concerned when there is talk of raising the top rate. The obvious compromise is for those like Mr. Buffett who believe that the top rate should be increased, for both financial and distributional reasons, to make clear that they are talking only about people who really are rich. The top rate ought to stay at 35% for those in the $370,000 to $1 million income range. But those making $1 million can easily afford to pay 40%, which was the top rate in the 1990s, and those making $10 million annually could pay 50%, the top rate under the Reagan administration.