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A Conversation About Taxes

My liberal friend showed up today with a Cheshire cat smile. She could not wait to have me explain why in this cruel world a super billionaire like Warren Buffet should pay a mere 17% in income taxes. Even Buffet himself said that his taxes were too low!

 So I asked her a question.

 “Is the income tax for people that pay over 6 million in taxes annually set at 17%?”

 “No.” she said.

 “Is there a special waiver for millionaires and billionaires?” Again she said “No.”

 So how is it that Warren Buffet pays less than half the taxes that his secretary pays?

 “He makes most of his money on Capital Gains.”

 “I see. So very little of his money is income as defined by the IRS?”

 “Correct.”

 “Well let’s try to correct this travesty. What rate should we set for the income tax of millionaires and billionaires? Perhaps we should double the tax rate? That should teach them. Right?”

 “Ok.”

 “Well, if we did that Warren Buffet would be paying all of 19%, you see, he still would be making almost all of his money in Capital Gains. He would hardly break a sweat asking his overtaxed secretary to fetch his check book. On the other hand, all of us less than billionaire and very salaried people would choke on a doubling of our federal tax rate to near 70% and would be unable to afford our state income taxes, and property taxes, and water fees, and sales taxes. Small businesses would collapse. the rest of the real estate market would disappear, and most of us would be jobless. You don’t want that do you?”

 “Of course not. I just want it to be fair.”

 “I see. Maybe we need to leave the tax rate alone, and raise the capital gains tax rate to the same as income tax rates. After all, most small businesses file as individuals and the capital gains are counted as ordinary income. That would make it fair and it would be certain to bring Warren Buffet’s tax rate up to and maybe even beyond the rate of his overtaxed secretary.”

 “Well now that certainly sounds fair.”

“Is it? Do you think that if you invest your capital in something, and take all the risk, the government should automatically grab 35% of all the goodies? What would that do to the ability to raise capital? How would that make American businesses, already burdened by regulation, litigation and local taxation,  more competitive.”

 “Well, you’re not being reasonable. Warren Buffet is a smart man. He knows all this. He still thinks its a good idea.”

 “Yes, Buffet know all of this. With the misdirection of a practiced magician, he makes us all believe that he and his friends want to pay more taxes, but in fact, he just wants the rest of us to pay more taxes and think that he is leading the way.”

 As she left the room, I reminded her that there were more overtaxed secretaries than under-taxed billionaires, and I suggested that she concern herself with them instead.

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