The Ignorance of Warren Buffett
The NYT printed an Op-Ed from Warren Buffett today that proclaimed the “super-rich” don’t pay their fair share of taxes. Buffett bases his opinion on his own tax bill, which was only 17.4% of his taxable income. This class warfare hit piece is being lauded by the media and is being described by some as courageous, sacrificial and fair. I have some other words that I believe are fitting; dishonest, void of reason, and baseless nonsense. While class warfare might sound good, it hurts all Americans at the end of the day. The reality is that Buffett is a billionaire investor, so he can make money no matter what the state of the economy, but the millions of Americans who are unemployed and struggling to pay their bills do not have that luxury. Buffett has done some courageous and sacrificial things, including very generous donations to charity, but offering up the hard-earned money of others takes neither courage nor sacrifice. If Buffett truly believes he did not pay enough in taxes last year, he can freely write a check to the Federal Treasury. Instead, Buffett is suggesting others should pay more in a way that most economists understand would be detrimental to the already fragile economy.
There are so many things wrong with Buffett’s point of view that it is hard to know where to start, but let’s begin with the purpose of taxes. Taxes are there so the Federal government can pay for the benefits it conveys on its citizens. Just because someone has more money, does not mean the government is entitled to it. While Buffett harps on the rich for not sharing in the sacrifice, the reality is that right now a small percentage of the population is paying most of our tax bill. In fact, the top 10% pay 70% of the federal income taxes in this country. On the other hand, 47% of Americans paid no income taxes last year, where is their shared sacrifice? Do they not benefit from our system at all?
The super-rich, like Buffett, have accountants that will always find loopholes or ways to move their money to lower their tax bill, so raising tax rates doesn’t really affect them in the way Buffett suggests. Instead it is the job creators and indirectly the middle class that will be stuck with the higher bill. Buffet specifically complains about the low rates that investors pay, but fails to acknowledge that there is a reason for that. The reason is that most investors take risks in investing, which is why they pay a lower tax rate on that money. Unlike direct income, there is a chance that investments can lose money either now or in the future. If we increase taxes on those investments, which have the potential for losses, then it discourages necessary investment and prevents companies from getting the capital they need for growth. Also he suggests raising taxes on those making over a million dollars, once again avoiding facts. The reality is that many small businesses file individual tax returns and would be the ones affected by higher rates. These businesses don’t have the accountants that Mr. Buffett does so their tax bill will go up, which will inevitably lead them to choose to raise prices on their customers or fire workers at a time of extremely high unemployment. That is the realistic result of Mr. Buffett’s selfless proposals. Higher taxes hurt the middle class the most, which is why even Obama’s own debt commission suggested lowering and flattening the tax rates (with a top rate of only 23%). An even greater reality that Buffett avoids is that raising tax rates won’t generate the extra government revenue that Buffet suggests we need (I believe we have a problem of spending, not revenue, but that is a separate discussion). Even when income tax rates were ate 70% or above, the government never collected above 21% of GDP. In fact, record tax revenues were collected following the 2003 Bush Tax Cut that those like Buffett love to complain about. When rates go up, investment goes down and the economy shrinks. If the government needs more money, the best way to get it is to create jobs and fix the economy, not stifle growth with regulations and further tax burdens.
If Mr. Buffett really wants to help the economy, he should start spending and creating jobs (perhaps buy a new house since he has lived in the same one since 1957?) or he can visit Pay.Gov, either way he should start focusing on his own choices and stop propagandizing our nations tax policy.