When the Oracle of Omaha speaks not enough people…correction… not enough of the right people in Washington listen.
By now, Mr. Buffett’s Op-Ed has circled the political and financial globe enough that most are aware of the basics.
“Our leaders have asked for ‘shared sacrifice,’ Mr. Buffett said in the New York Times last month. “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.”
Here we have one of the wealthiest individuals on the planet actively protesting for fairness on behalf of all.
On September 19th, President Obama referred to his recent tax reform as the Buffett Rule: “Any reform should follow another simple principle: Middle-class families shouldn’t pay higher taxes than millionaires and billionaires… Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett.”
“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,” Buffett said. “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.”
Politifact checked Buffett.
“Buffett said that his taxes amounted to ‘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.’ Individual tax filings are private, so there was no way we could compare Buffett’s actual tax return with that of his secretary and other co-workers. (We contacted his office when we did the fact-check and didn’t hear back.) So instead, we checked Buffett’s statement that the ‘mega-rich’ pay about 15 percent in taxes, while the middle class ‘fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.’ We rated the statement True.
“Here’s how it’s possible that Buffett paid a lower tax rate than his employees. Basically, most of Buffett’s income comes from capital gains and dividends, income from investments he makes with the money he already has. Income earned by buying and selling stocks or from stock dividends is generally taxed at 15 percent, the rate for long-term capital gains and qualified dividends.”
Further, Buffett responds to the common argument that higher taxes hurt “job creators” and scare away investors.
“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,” Buffett writes, “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.”
But the Oracle doesn’t stop there.
“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.”
From January 1947 to January 1949, President Harry Truman called the nation’s collective representatives the “Do Nothing Congress” due to their opposition of many of Truman’s “Fair Deal” bills. Yet, that same Congress passed many pro-business bills.
Given recent actions of Congress, it would be reasonable to conclude that self-interest currently trumps fairness.