Buffett Tax Would Cover Seven Days Spending

August 25th, 2011 at 4:03 pm | 59 Comments |

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Warren Buffett is known as the Sage of Omaha for a good reason: his outstanding ability to find profitable investments that took him from a small portfolio owner to one of the richest people in the world.

Recently, he used his formidable reputation to suggest in the New York Times, Financial Post and an interview with Charlie Rose on PBS that the U.S. government should raise taxes on the 400 super-rich, who in 2008 together earned $90.9 billion and paid only on average 21.5 percent of it in taxes. That is lower than the average percentage paid by most middle-income Americans.

Buffett justifies his proposal on the grounds that the present tax system is unfair, parroting the mantra of tax-addicted interventionists and socialists everywhere. He said “It will not be pretty” in response to Rose’s question about what he thinks would happen in the United States if the present unfairness continues and unemployment remains high. What does he mean? Will there be riots in the streets or the proletariat rising to shed its shackles?

Buffett correctly notes that the proposed tax increases will do little to alleviate the present fiscal problems of the United States. If taxes on the super-rich were raised so that they paid not the present 21.5 percent but 50 percent of their incomes, revenues from the top 400 earners would go up by $26 billion (one half of $90.9 billion minus the present $19.5 billion). Since this year alone, the U.S. federal deficit will be around $1.4 trillion, or $3.8 billion a day, the new revenue would cover less than seven days of deficits.

The numbers are even worse for total federal spending. In 2010, that amounted to $3.6 trillion or $9.7 billion a day. Buffett’s new taxes up against that would be gone in just 2.7 days.

But these numbers are excessively optimistic because the amount raised by higher taxes is likely to be much smaller than $26 billion discussed above. That is because, as he notes, a large proportion of the total income of the super-rich comes from capital gains and financial trading, which is at the discretion of taxpayers.

The problem for the economy comes from the fact that higher taxes not only reduce total revenue, they also lock in capital and reduce the flow of funds into better investments and thus create smaller gains in productivity, income and employment.

Buffett indicates that this effect would be small or non-existent since the investment decisions he and his super-rich friends make are not affected by taxation. While this assertion flies in the face of everything we know about incentives, he could be right about his friends, but he forgets that there are many, important, small investors to whom he surely has not spoken.

These many small investors invest in risky new ventures and are the drivers of economic growth and employment. They know that only a few of them make it big but they are driven by the hope that they are among the few. In an important sense they are like the buyers of lottery tickets, who need much less skill than investors, but who buy more tickets when jackpots are large. The managers of lotteries certainly know this and advertise when the pots are large. Lower returns on investment and gambling through taxation will bring less investment and fewer ticket sales.

As well informed as Buffett is, he may be presumed to know about the role of incentives in motivating small investors who want to become super-rich, or at least rich. If he is, he has made the explicit, sage decision that living in a country with greater fairness in the distribution of the tax burden and after-tax income is worth the negative effects on productivity and employment that accompanies it. He would not be the first egalitarian to have done so.

But before Buffett’s ideas of higher taxes on the rich are put into place, there ought to be a public discussion of the size and merit of the trade-off between fairness and income. Such a discussion took place when John F. Kennedy was president and resulted in a dramatic lowering of top marginal tax rates that had been between 79 percent and 94 percent during the 1930s-1950s. In spite of Kennedy’s well-known concerns about fairness, the incentive and efficiency argument won.

Recent Posts by Herbert Grubel



59 Comments so far ↓

  • SteveT

    Lottery ticket buying requires less skill than investing?

    Seems about the same to me.

    • Arms Merchant

      That’s why you’re not Buffett.

    • Rob_654

      For the vast majority of people – trying to be an “investor” is pretty much akin to playing the lottery – but as with anything there are folks who are good at it like Buffet – sort of like the vast majority of people cannot play baseball at an MLB level but there are a few that can and they are rewarded for it.

      • SteveT

        If a million people gather together in a room and flip coins and everyone who flips heads is eliminated eventually there will be one person who has had consecutive tails 20 plus times. And only one.

        In the investing world this person is called a genius.

        • Primrose

          Perhaps for many in the industry but Buffet actually knows what he is doing, specifically, he understands to buy low and sell high. Everyone has heard this and says it but few do it. Buffet does.

  • Oldskool

    The problem for the economy comes from the fact that higher taxes not only reduce total revenue, they also lock in capital and reduce the flow of funds into better investments and thus create smaller gains in productivity, income and employment.

    Why is that sentiment repeated so often. If it were true, we would be enjoying the best economy ever. Maybe it’s self-serving to repeat it over and over?

    • valkayec

      In addition, Grubel should have an economics discussion with conservative economist Greg Mankiw. Instead of spouting proven economic fallacies, he might learn something with which to make a valid argument.

      I don’t enjoy ganging up on guys like Grubel, but I am sick and tired of their self-serving, inane, wealth-protectionist assertions when actual facts (research and data) prove those assertions to be totally wrong. Guys like Grubel appear to me to be from the same mindset as Goldman-Sachs’ Blankfein or hedge fund owner John Paulson.

    • Banty

      “The problem for the economy comes from the fact that higher taxes not only reduce total revenue, they also lock in capital and reduce the flow of funds into better investments and thus create smaller gains in productivity, income and employment.”

      That’s laffable …

    • Graychin

      Oldskool nailed it.

      +1 ^

  • ottovbvs

    “is unfair, parroting the mantra of tax-addicted interventionists and socialists everywhere.

    OMG now Uncle Warren is a tax addicted socialist just because he points out the blatantly obvious inequity of multi millonaires paying 21.5% of their income in taxes when middle class people are paying around 30%. Faced with this very obvious truth the only resort of doctrinaires like Grubel is to drown us in a sea of blather (eg. “the role of incentives in motivating small investors who want to become super-rich, or at least rich.”) or platitudes (eg.”there ought to be a public discussion of the size and merit of the trade-off between fairness and income.”)

    I got news for you Mr Grubel, as Uncle Warren points out the super wealthy are paying 21.5% of their income in taxes NOT between 75 and 94%. Furthermore we have a serious deficit problem (remember the deficit problem?) and for three years on the trot total tax receipts have been under 15% of GDP…the lowest rate for 60 years.

  • Mitch Evans

    $26 billion in revenues? Not worth the effort.

    $22 million in spending on NPR? OMG outrageous spending that our nation in crisis cannot afford!

    $7 billion in spending for SCHIP? Holy shit, no. Poor kids are cheaper and more productive as compost.

  • LFC

    Warren is talking about fairly distributing tax burden. That sounds fine to me. I’m pretty much a flat taxer (with a few tweaks) so I find penalizing work over long-term capital gains to be a generally bad thing. But the current tax rates across the board are not sustainable.

    Federal tax revenue is going to have to go up as well as spending going down if we’re going to get a handle on the deficit. It’s a balanced approach, one favored by Obama, actual conservative economists like Bartlett, the majority (but not a big enough super majority) of the debt reduction commission that never should have included ideologue Paul Ryan, and many other informed and intelligent people from the reality-based world.

    Step #1: Let the Bush tax cuts expire. All of them.

    • John

      yup. was thinking the same thing. does anyone have a link to revenue projections if the bush tax cuts are allowed to expire (as they were legislated…well a little late) at the end of the year? and i mean for everybody. just go back to the Clinton era rates – would that alone close the deficit for fiscal 2012?

      • ottovbvs

        The effect of letting ALL the Bush cuts expire is conservatively estimated at $250 billion….just those for incomes over $250k it’s about $60 billion. They are ALL going to expire on December 31, 2012, whether Obama is re-elected or not.

        • armstp

          Raising the taxes on just those over $250,000 the estimate in new tax revenues is $700 billion over 10 years. That is $70 billion a year. Throw in a few closed loop holes and you get to $1 trillion or the revenue in the $4 trillion deficit reduction plan that Obama talked about, which include $3 trillion in spending cuts, which would be real money at $400 billion a year in deficit reduction.

          If you let all the tax cuts expire it is more like $2-3 trillion in just increased tax revenue over 10 years. Real money. Combine that with the tax revenues coming back as the economy returns and you are pretty much back to normalized deficit levels.

          There are many studies that say the Bush tax cuts resulted in lost revenue of about +$3 trillion over the first 10 years plus the extension.

          The Republican David Stockman (Office of Management and Budget under Ronald Reagan):

          “…the Bush tax cuts costs $300 billion a year: 100 billion to the top 2 percent, 200 billion to the middle-class.”

          http://www.npr.org/templates/story/story.php?storyId=129052425

          According to the Republican Bruce Bartlett (he was executive director of the Joint Economic Committee of Congress, senior policy analyst in the Reagan White House, and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration.):

          “…the Bush tax cuts were responsible for increasing the debt by $3.2 trillion — 27 percent of the fiscal deterioration since 2001.”

          http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the-root-of-our-fiscal-problem/

          “According to a recent C.B.O. report, they reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011.”

          http://www.cbo.gov/ftpdocs/121xx/doc12187/ChangesBaselineProjections.pdf

      • LFC

        John, letting the Bush tax cuts expire wouldn’t take care of everything, especially with Medicare costs expected to jump up, but it would be a massive first step. In fact, it’s probably the single largest step we can take.

        http://tpmdc.talkingpointsmemo.com/2010/08/why-the-fight-over-the-bush-tax-cuts-is-just-the-beginning.php

  • Jim in DE

    The problem for the economy comes from the fact that higher taxes not only reduce total revenue, they also lock in capital and reduce the flow of funds into better investments and thus create smaller gains in productivity, income and employment.

    CHART: Since 1950, Lower Top Tax Rates Have Coincided With Weaker Economic Growth

    • valkayec

      We did try it. Remember the last decade?

      Update: Oops, you beat me to it with a modification of your original comment.

    • armstp

      Funny enough weak economic growth, weaker stock market performance and a terrible fiscal record also coincide or correlates almost perfectly with Republican Presidents.

      Google it!

  • KinCanada

    It’s easy and frequent for the media to over-simplify Buffett’s comments and intentions. A bit more depth of understanding might be useful.

    “What widows don’t notice

    The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital…”

    “The social equation

    Unfortunately, the major problems from high inflation rates flow not to investors but to society as a whole. Investment income is a small portion of national income, and if per capita real income could grow at a healthy rate alongside zero real investment returns, social justice might well be advanced.

    But the potential for real improvement in the welfare of workers at the expense of affluent stockholders is not significant. Employee compensation already totals twenty-eight times the amount paid out in dividends, and a lot of those dividends now go to pension funds, nonprofit institutions such as universities, and individual stockholders who are not affluent. Under these circumstances, if we now shifted all dividends of wealthy stockholders into wages – something we could do only once, like killing a cow (or, if you prefer, a pig) – we would increase real wages by less than we used to obtain from one year’s growth of the economy.” – Warren Buffett, 1977

  • Primrose

    “What does he mean? Will there be riots in the streets or the proletariat rising to shed its shackles?”

    You don’t find a problem with 10% owning 70% of GDP and 40% owning less than 2.5%? You think that situation is sustainable? It never has been.

    I have problems taking economic advice from someone who thinks Warren Buffet is a socialist, (Do you know what that words means?) or who doesn’t understand that we not only save those 7 days but all the interest on those 7 days. Or if that doesn’t suit you, it would permit us not to cut WIC. Surely it is better to tax Warren Buffet than take food out of the mouths of children?

    If you want to speak of investments, speak of the next generation, if we don’t invest in children, the future is very bleak indeed.

  • Frumplestiltskin

    poor herb got his ass handed to him by the other posters here, no need to join in. I feel kind of sad for the poor guy in his inaugural post.
    Here is a hint Herb, if you don’t bring an A game to this Forum you will get smoked.

  • agustinvicente

    Who are the people of the middle class who still believe this crap?

  • MattP

    GREAT post. Nice to know I am still reading a Republican (?) blog site.

  • drdredel

    I really love the fact that the conversation *used to be “Everyone should be taxed at the same rate… it’s only fair!”… Now the conversation is “What difference does it make if the richest people are taxed at 2/3 of what the middle are paying? We won’t be able to find any use for the extra 20 billion dollars, so let them keep it!”

    I realize that there are retarded people to whom this is “logical”, but I’d love to hear from someone NOT retarded who can defend this new formulation as being rational in any way! Or am I putting up a straw man here? Cause this is what I’m reading above… people who are themselves wealthy and would like to be taxed at the same rate as their (non-wealthy) secretaries are out of touch socialists. Where do you even begin with such an analysis? Up is down, night is day!… you know? sheesh.

    WB may indeed be a Socialist (he may be a fundamentalist zionist space alien communist too), what does that have to do with his stated argument?

  • _will_

    Buffett justifies his proposal on the grounds that the present tax system is unfair, parroting the mantra of tax-addicted interventionists and socialists everywhere.

    …aaand moderate, fiscal conservatives who pay attention and are wondering what the benefit is to letting billionaires pay a lower income tax rate than the avg middles class earner.

    wait i keep forgetting, it’s because they’re “job creators”, right? and those jobs are where again??

    if you honestly think we’re going to tame our deficits and debt by just gutting entitlements at this point in the game, what with the largest generation in history reaching retirement and two decade-long wars trucking along, you’re are delusional as those ninnies who think that medicare & SS are going to adequately cover all the needs of every old and ill person forever and ever amen. seriously, do you guys beating your tired drum ever pay a shred of attention to anything outside of your economically illiterate, talking point-approved bubble??

    http://economiccrisis.us/2011/04/60yearlow-tax-revenues-contribute-deficit-growth/

    http://economix.blogs.nytimes.com/2011/05/31/are-taxes-in-the-u-s-high-or-low/

    “The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.” – Bruce Bartlett

    • _will_

      no no no no you’re right: it’s because WARREN friggin BUFFETT is a socialisssst!!

  • armstp

    Herbert,

    You are just repeating the standard current Republican talking point. You are suppose to be a Professor. Think a little harder and at least come up with your own talking point.

    It is now fashionable by those on the right to criticize Buffett by saying that his tax proposal would hardly raise any money. So what? We need to start somewhere.

    You miss Buffett’s larger point, which is we need to raise taxes on the wealthy. The Democratic proposal is to go back to the Clinton era tax rates for those earning more than $250,000. That would bring in $700 billion over 10 years. Get rid of a few tax loop holes and subsidies and you get that to $1 trillion of new tax revenue. Now Obama was suggesting a $4 trillion deficit reduction plan, which would include this new $1 trillion of tax revenue plus $3 trillion in tax cuts over 10 years. That is $400 billion in deficit reduction a year. That is significant, particularly as the deficit shrinks to well below $1 trillion from just the economic recovery and new tax revenues it creates. We only need to get the deficit down to about $500 billion a year to get it back to about 2.5% of GDP, which is the 50 year average and is very manageable.

    As for you statement:

    “The problem for the economy comes from the fact that higher taxes not only reduce total revenue, they also lock in capital and reduce the flow of funds into better investments and thus create smaller gains in productivity, income and employment.”

    There is absolutely no proof to this statement. You are a Professor. Why don’t you provide some proof?

    So going back to the Clinton tax rates for the wealthy will be so damaging. Bullshit. The economy worked very well under Clinton’s tax rates and has prospered many times with much higher tax rates. They pay higher taxes in just about every other industrial country on the planet and most countries like Canada and Germany seem to be doing fine.

    “Lower returns on investment and gambling through taxation will bring less investment and fewer ticket sales.”

    There is absolutely no proof of this statement. Nobody makes investment decisions based on taxes. Prove it. Again, there is absolutely no empirical proof that investment flows have either gone up or down when taxes or even capital gains taxes have gone up or down. You are a Professor. Provide us with some empirical proof that your statements are actually correct.

    “…parroting the mantra of tax-addicted interventionists and socialists everywhere…

    By the way once you throw in the term “socialist” you become a clown. You lose all credibility.

    It is interesting to watch guys like Grubel squirm when one of the biggest and most successful capitalists the planet has ever known does not line-up with them on taxes. I am sure Buffett knows a hundred times more about economics, investing, corporations, the free market system and a market economy than Grubel could ever hope to know in his dreams. Simon Fraser University and the Fraser Institute must be pretty lame if they let guys like you teach there. All talking points and no rigorous academic diligence based on provable facts and theories. Come on you can do better than this?

    • MattP

      Dude, did you get all the talking points out that you needed to?

      Just kidding. But in case you don’t often read blog posts or columns or op-eds, they usually do not include foot notes and almost always do not include statistical graphs or tables. Professor Grubel did not set out to write a dissertation here but rather a pretty run-of-the-mill column by someone whose credentials speak for themselves.

      • armstp

        MattP,

        You make such a lame comment. A cope out really.

        People that write good posts actually attempt to prove what they are saying. They may reference a piece of research or put a couple of numbers together. The author attempts to do this with some funny math, but he forgets the bigger point Buffett is trying to make here.

        Then the author makes wild claims that investment will suffer if we slightly raise taxes on the wealthy, but he provides zero evidence to back up his claims.

        A very weak post from you and the author.

  • D Furlano

    Ideology over logic.

  • valkayec

    One more point that needs to be highlighted: in the early ’60s when JFK wanted to reduce the tax rate, old line conservative Republicans denounced the reduction, stating that doing so would increase the deficit. In those days (long before the GOP belief in the Laffer Curve), Conservatives really believed in paying for government through taxes, not putting the bill on the national credit card. They said if we’ve agreed we want government to do these things (whatever those things may have been), we will pay for them with taxes. Moreover, they agreed that a highly progressive income tax rate was the best way to pay for those things the government did. The reason for Conservative support of the progressive tax rate was not because of class warfare or hatred of the rich or socialism or any of the other modern superfluous arguments, but because of a commonly held belief in a very old, moral, ethical, values related ideal: to whom so much is given so much is owed. Thus, tax rates were determined based on “affordability.” Those who could afford more, without hurting their ability to care for their families, paid more. Those with much lower incomes paid less so as not to hurt their ability to care for their families. The only “fairness” that entered into the tax policy picture was “do no harm.”

    Now, we have people like Grubel and Steve Forbes (who’s been pushing a flat tax and school vouchers for decades to save himself and his friends loads of cash) advocating against traditionally accepted Conservative tax policies in order to preserve their own wealth, regardless of the harm to the country or its people and future generations. This is the height of greed and selfishness.

    After reading Buffett’s editorial and watching his interview with Charlie Rose, it’s clear that Buffett is more concerned with the nation’s fiscal health long term than protecting the low rates Steve Forbes advocates. Buffett is a long way from a socialist, and I firmly believe he is a real patriot. Moreover, he’s never advocated for depleting the wealth of America’s highest earners, he’s stated that those who make the most should pay the same as average hard working Americans. That the wealthy should not have lower tax rates, ~ 17%, than postal carriers or plumbers or carpenters or receptionists or steel workers or programmers or designers. He stated incomes derived from investments (or pass through incomes) should be taxed at the same rate as labor, and that those with the highest incomes have an obligation to the country for their success through higher tax rates.

    Again, as old man JD Rockefeller instilled in his children a hundred years ago: “to those who have been so blessed (by this country), so much is owed.”

    UPDATE: It’s interesting to note the good professor is associated with the Fraser Institute in Canada, a libertarian think tank with a tobacco industry funding link in its policy promotion. http://en.wikipedia.org/wiki/Fraser_Institute

    • ExConSean

      Beautifully stated.

      “Those who could afford more, without hurting their ability to care for their families, paid more. Those with much lower incomes paid less so as not to hurt their ability to care for their families. The only “fairness” that entered into the tax policy picture was “do no harm.”

      I have instinctual reservations about the intellectual chops of economic analysts who argue as if the law of diminishing marginal utility doesn’t exist.

  • chephren

    Herbert Grubel taught an introductory macroeconomics course I took as an undergraduate at Simon Fraser University in the 1980s. Most of his lectures began with 10 minutes or so of energetic venting on the economic issues of the day: the BC Social Credit government’s fight with public-sector unions (which anticipated what is going on in Wisconsin and other states by 25 years), the fiscal wrong-headedness, wastefulness and irresponsibility of single-payer public health care, and the evils of overtaxation, overspending and overregulation at the federal and provincial levels of government.

    I remember in particular his anger at the growing debt of Canada’s federal government. This was certainly a serious problem at the time – and was not successfully addressed until the tenure of Liberal Finance Minister Paul Martin a decade later.

    At the time I attended Grubel’s lectures, Ronald Reagan had begun his second term and the neoconservative descent into debt was well-advanced. I wonder what Grubel would have had to say if it had been put to him by a student with access to a time machine that the United States, after a generation of neoconservative tax policy, would come to the brink of fiscal collapse and a severe debt-driven recession/depression – while Canada, with higher personal taxes, a national sales tax and a continued (though reduced) commitment to liberal spending programs, would become a fiscal paragon? I suspect he would have scoffed at any possibility of such an outcome.

    Once his daily rant was exhausted, Grubel would settle down and teach, which he did well. I liked him, though he was far to the right of the moderate conservative views I held then (and still do, for the most part).

    That said, articles like this annoy the sh*t out of me. Grubel makes too many arguments here that are wrong – or, at best, based on artfully and selectively cited facts. This is a real shame. He’s a learned man, and he knows better.

    Grubel ignores Buffett’s reasonable and timely call for shared sacrifice at a time of fiscal crisis, glaringly misstates Buffett’s case for higher taxes, and conveniently underestimates the revenue increases to be had from higher rates at the top end.

    Buffett didn’t advocate higher rates only for the 400 richest Americans, as Grubel suggests. Here is the 2nd last paragraph of Buffett’s NYT editorial:

    “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.”

    The additional revenue to be had from these tax increases would vastly exceed Grubel’s estimate of $26 Billion.

    Grubel approvingly mentions the increased incentives and efficiencies that resulted from JFK’s reduction in the top marginal tax rate to 79% from 94%. But as he must know, the last significant cut in the highest rates, those enacted by George W. Bush, did not produce anything near the same benefit. The highest marginal rate when Bush was elected was less than half of JFK’s post-cut rate. Bush cut this rate from 39.1% to 35% – and generated the poorest GDP and employment growth of any post-WW2 president.

    Grubel reasonably endorses “public discussion of the size and merit of the trade-off between fairness and income.” Whether such a discussion is really possible in today’s poisoned political environment is another issue, but it’s a good idea. Perhaps another discussion should begin, about the true economic benefit of reduced tax rates and the point at which diminishing – or even negative – marginal returns begin. The US is probably well past this point now.

    Tax cuts long ago stopped generating net increases in revenue, and the primary beneficiaries of neocon tax policy – the richest Americans – have a responsibility to help the nation resolve its deficit crisis.

    • ottovbvs

      Interesting background on this character Grubel. It does take a fairly elevated level of right wing mania to describe Uncle Warren as a “Tax addicted socialist.”

  • Banty

    This argument is fallacious on the face of it. Nobody, aside from a few man-on-the-street kinds of opinions, seriously asserts that “tax the rich” is the end all and be all to deal with the deficit. It’s just plain weird to try to convince people that to tap one source of revenue won’t solve the whole problem, so don’t touch it. And other commenters are right that this argument doesn’t seem to be applied to the various other small budget items that the right is so eager to slice out of the budget (like NPR). It’s not really an argument, it’s a distraction.

    Dealing with the deficit will take a whole list of actions, yes, including dealing with Medicare and Medicaid especially. But the actions have to start somewhere, and for social cohesion there needs to be a widespread sense that the burdens are shared.

    Consider it the equivalent of no longer buying latte’s at Starbucks on the way to work and bringing a thermos of homebrew instead. Even if it won’t fund the entire retirement.

    • UncleLew

      To paraphrase a noted Canadian politician of the 1950s: A billion here, a billion there. Pretty soon it starts to add up to real money.

  • TJ Parker

    Low quality sophistry.

    Hey dude, my taxes aren’t even a rounding error on a rounding error on the budget deficit. I guess that I don’t need to pay them.

    • Banty

      +1
      Exactly.

      At least he didn’t go in for the ‘if Warren wantsta give money to the US Treasury, what’s stopping ‘im” adolescent retort.

  • Curiosity

    “But before Buffett’s ideas of higher taxes on the rich are put into place, there ought to be a public discussion of the size and merit of the trade-off between fairness and income.”

    I agree. Such a discussion should take place. However when you look at the numbers, the Warren Buffets of the world do pay an unfair amount. An unfairly low amount.

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  • MSheridan

    When it comes to taxation on income in America, for years there have been three competing narratives. Yes, I’m disregarding proposals to institute a VAT, as that is a consumption tax and not usually intended to completely replace the income tax. I’m also disregarding the flat tax idea, as it has never been popular enough to be in real competition.

    There is the traditional (with roots at least as far back as Adam Smith) progressive taxation model in which taxpayers pay at higher rates as their income goes up. This model usually employed many marginal tax brackets, which made professional tax preparers very happy. We could call this the Spiderman model: “With increasingly great wealth comes increasingly great responsibility.” This would be the model used during our country’s longest period of economic growth. However, America gave this model up back in the 80’s, believing—quite possibly correctly—that the very highest marginal rates were on the downward side of the Laffer Curve and that the relatively high rates on the middle class were choking growth.

    Then there is the “Job creator incentivization” model, in which the poor are taxed little (you can’t call over 10% in payroll taxes nothing) on income, the middle class pays quite a bit (esp. with the increase in payroll taxes counted in), and the very wealthy are deliberately taxed less (as payroll taxes cap out and the primary income generator, capital gains, is taxed at half the middle class rate). This system has very few brackets. The justification is that large sums of wealth that might (if taxed) be used to fund government jobs, services, or benefits should instead be kept available to create private jobs, always assuming the wealthy choose to do so. We’ve used this model through the 80’s and since the 90′s, with decidedly mixed success. To the extent that it functions at all, it seems to function best when accompanied by massive deficit spending to make up for lost revenue.

    The model used in the Clinton 90’s could be probably be seen as a pragmatic “split the difference” model with no explicit ideological basis, but it nonetheless seemed to work well enough.

    Given that the first and third models actually seemed to do the job of funding government without the need for massive deficits or alarming debt (there was debt in the first model, but the economy grew faster, keeping it sustainable), I don’t understand why the Tea Party right wants to go either with the second model or, like Rick Perry, do away with federal income taxes altogether. Supposedly, conservatives favor proven tradition rather than radical change.

    Couldn’t prove it by me.

    • LauraNo

      There a many, many people out there calling themselves conservative who are anything but. This is the battle Frum is waging: to either rein them back into the conservative fold or convince them to start at least pretending to be. I think he tries to show them how to pretend to be, myself. Either way I wish him luck.

      • ExConSean

        As Russell Kirk put it many, many times: “Conservatism is the negation of ideology.” He’d barely recognize the sloganeering “conservative” movement of today.

  • LauraNo

    So much bunk, so little time.

    On another note, my taxes would make even less of a dent in the debt/ deficit so I shouldn’t pay them anymore, non?

    It’s about fairness. The tax cuts for rich and corps are largely responsible for the ballooned deficit so that is the first place to start to try to address the problem. THIS IS COMMON SENSE, if what you care about is problem solving.

  • KinCanada

    And LauraNo, if your objective is to increase fairness and, importantly, the perception of fairness in the tax code, you should write a check of a few hundred dollars to the IRS. Apparently, Buffett’s critics figure the dollar is mightier than the pen at effecting change.

    Buffett clearly stated that the higher taxes would be rather inconsequential in terms of the US’s overall debt/spending issue – so I don’t understand why readers are focusing on the – inconsequential.

  • Steve D

    Better than taxing them, make everyone responsible for the fiscal meltdown civilly liable for all direct and indirect costs, with no bankruptcy protection and no protection of assets. Yes, retroactive civil legislation is Constitutional – SCOTUS decided that in 1798 (Calder vs. Bull) – it is not “ex post facto” legislation. I(f ever there was a case for civil forfeiture of assets, this is it.

  • Rabiner

    This article reminds me of the Daily Show piece regarding the outrage on the right at Warren Buffett.

    They call him out for class warfare, being a socialist and other usual lines while ignoring the fact that the 50% of Americans who don’t pay income taxes own 2.5% of the wealth in the US. It isn’t like they’re doing that great to begin with unless your response is ’99% have a refrigerator’.

  • bubba11

    Let’s face it. We’re a pack of sniffling pussies; especially the rich. OMG, I will have to pay taxes to let some poor (worthless) person go to the doctor?? OMG. I worked hard (like, going to school, etc. because my parents threatened me that if I didn’t they would cut me off) so that I would have to “pay” for some “welfare” person to feed their children? Please, spare me.

  • bubba11

    Hey, read the tweets. This hurricane has totally ruined my vacay, so what can I do where I am right now to still have a good time? I am so depressed, because I cannot go and do what I want to do because there is a hurricane, and we just had an earthquake, and I’m so, “what did I ever do to you, mother earth?”

  • mannie

    Buffet is the Oracle of Omaha, not the sage. Some other guy is the sage.

  • mannie

    You are being a bit pessemistic by not entertaining the possibility that some recovery will further engorge the finances of the Top 400, thus increasing the tax man’s take.