Short and Sweet Blog

Warren Buffet is a nice man.  He wants to do what’s right.  His partial solution to the current situation is to substantially raise taxes on the wealthy.  In fact, Buffet says that the rich have never had it so good.  What is he saying exactly?  Who is he talking about? Why is he saying it?  Here he is having his say in a recent interview with Christiane Amanpour of ABC News:

In his interview with Ms. Amanpour Buffet says something which sounds to me like the Bush tax cuts for the $250,000 a year crowd should be allowed to expire.  Is this really what he means?  How could he be misinterpreted?  Were his comments edited or just sloppy?  Here is what Buffet has also recently said about the fairness of capital gains and dividend taxes for the rich in relation to his view of the taxes paid presidential candidate Romney:

How do these two comments fit together?  Is Buffet’s point that allowing the tax rate on capital gains to rise from it’s present 15% would be a good thing for the economy?  Would he allow it to rise to it’s Clinton era rate of 20% or increase it even more? Or does he really wish to see an increase in the rate of tax paid upon earned income for those earning more than $250,000?  Curiously, if the latter, I would have expected him to define what he means by his use of the term “high end?”  He doesn’t seem to even have in his mind a line of demarcation between the middle class and the “high end” based upon the amount of earned income they receive.  In fact, in his Amanpour interview he appears to refer to the “high end,” not as the people who earn very good salaries, but as people like himself, investors.  A doctor making $350,000 a year with a spouse, two kids, a mortgage, a huge student loan and the specter of Obamacare bearing down on her has much more in common with Buffet’s cleaning lady than she does with billionaire Buffet.  Buffet is too nice a man, I’m sure, to try to  speak for her saying that as a matter of fairness they are both wealthy and should have their taxes raised substantially.  On the other hand, why is he allowing the impression that he is in favor of taxing earned incomes above $250,000?  That is clearly how his words are spun.  If he means that taxes on the type of income which is currently taxed at only 15% should be raised substantially, why doesn’t he just outright say that capital gains taxes should be raised?  This confuses me.  It may just be the editing on the part of ABC News and Christiane Amanpour or it may be sneakiness on the part of Buffet who, as an investor, will be better off if the budget deficit shrinks due to the efforts of others not of his class?  I’m just not sure.   

If Buffet is saying that “investment” income should be re-evaluated in terms of justifying it’s tax advantaged status, then I agree with him wholeheartedly.  In fact I think that re-evaluating taxes in terms of what increases wealth for our citizens and tax revenue for our country is long overdue.  The tinkering which has occurred over the years is just a political process of benefiting your political friends and hurting your political enemies and should be stopped.  Policies which raise all boats in this country should be the policies which are adopted.   

To this end the vast disparity between the 15% tax rate on capital gains and the 35% (soon to be 39.6%) rate paid on earned income, without even considering the over 15.3% in payroll taxes paid by those who personally work for their money, needs to be justified in Congress in the full light of day.  All of the mathematical power of econometrics and all of the common sense of Austrian economics should be brought to bear to measure and justify the benefits of continuing the policy of reduced tax rates on particular types of income, particularly as it concerns capital gains. 

For instance, questions should be asked and answered such as should we limit capital gains tax rates to those who invest in start up businesses which end up employing Americans, being viable and profitable?  How should we view investments made in IPO’s (initial public offerings) for capital gains tax rates?  How about just speculation in the stock market in established companies, does it do anything for the economy as a whole, in terms of spurring economic growth?  How about speculation in commodities?  All sorts of questions come to mind and should be debated.  We should see the truth emerge through the careful questioning of witnesses under oath as to just what is good for the economy and what is just a giveaway to the rich?’  I think that such hearings might even be a C-Span extravaganza.  I would be particularly interested in what side of the issue legislators like “yacht tax dodger” Sen. Kerry would be on.

Also, is there or should there be an issue of fairness in income taxation or is it only about economic incentives and tax revenues.  It shouldn’t be all about who has the big bucks and can buy influence at the top, should it?  Well, you may recall that candidate Obama considered it an issue of fairness to raise the tax rates on  capital gains.  He considered it important to be fair even if increasing capital gains tax rates actually decreased the amount of taxes collected based on that tax.  Said candidate Obama:

I haven’t heard anything on this issue from now-President Obama during his first two years in office.  Perhaps I am naive but why is it that Mr. Obama, after becoming President, no longer considers taxing high wage earning individuals at rates more than double that of billionaire investors like Buffet to be an issue of fairness?  Is there an economic reason which escaped candidate Obama and is now clear to President Obama?  Has he studied up on economics since the 2008 election?  Or is it just an example of politics as usual?

At some point in the ancient past reduced tax rates on capital gains were apparently justified on the basis of some social and economic benefits to society.  Between 1913 and 1921 the rate paid by those earning income from work and those earning by investing their fortunes, was identical.  From ’21 to ’34, the capital gains tax rate was capped at 12.5%.  Then, in 1934 FDR changed the rules allowing a percentage of any capital gains to be excluded from taxes altogether, adjusting the percentage excluded based upon the holding period of the asset.  The rules changed again in 1942 capping capital gains taxes at 25% for those whose tax rates were very high and reducing the necessary holding period to claim this benefit to a single term of six months.  There have been oh so many variations of the capital gains tax rate since 1942 ending with the current rule setting a maximum rate of 15%.  This is not the end, though, since this rate is set to rise to 20% with the expiration of the Bush tax cuts on December 31.  Interestingly in the 80’s Reagan ended the special tax treatment for capital gains altogether.  [How could this have been a Republican idea given how the current crop of Republicans is being reviled for “protecting the rich” while threatening the middle class?]

According to Charlie Gibson’s figures, the econometrics of capital gain taxes show that lowering the rates increases the total revenue from capital gains taxes.  How important is it that we get the maximum revenue from capital gains taxes?  Buffet, in his Amampour interview, seems to say that the theory of capital gains taxes being good for the economy as a whole “hasn’t worked out that way” for about the last ten years and that the American people ought to catch on to the rich man’s ruse.  Perhaps the President, who relies so heavily on the Oracle of Omaha, ought to catch on too.  I fully support having an open debate about whether Buffet is right and let the chips fall where they may.

It appears that a political bargain has already been struck maintaining special tax treatment for capital gains and dividends.  And all without a whimper from Congress which apparently prefers to posture about the “threshold for wealthiness” and identifying who deserves to pay the highest rate while the already ultra-wealthy maintain their advantage versus those who work for a living.  Where should the real class warfare be?  Is it that the rich are setting groups of wage earners against one another in order to avoid debating about retaining their capital gains and dividend tax benefits?  Why has Charlie Gibson stopped casting light on this issue?  Go figure?

This entry was posted on November 24, 2010 at 1:22 am and is filed under Taxes. You can subscribe via RSS 2.0 feed to this post's comments. Both comments and pings are currently closed.