Billionaire investor Warren Buffett is out again with another proposed tax hike. In the New York Times a few days ago Buffett noted with disgust that there are certain higher-income people among us who can find enough loopholes in the tax code so that they pay low tax rates or in some cases, no taxes at all. His solution: a super alternative minimum tax that will sock these legal tax scofflaws, so that no matter what loopholes are used, these millionaires will never pay less than 30% of their income in federal taxes.
This is the third time in recent memory Mr. Buffett has conspicuously proposed a tax hike on various high earning tax payers. Such proposals have made him the toast of liberal salons from Cambridge to Santa Monica, ensuring that his name is constantly invoked by liberals in tax discussions and loaning his prestige to liberals in just about any tax hike discussion.
But there is one particular tax hike on the rich that Mr. Buffett will never propose. No one will remember this, but for about five minutes during the first Bush presidency a tax increase was straight-facedly proposed to impute a capital gains tax on appreciated but still-unsold stock. In other words, it didn’t matter that the tax-payer still held onto his stocks without selling them, under this proposal the net increase in value of the unsold stock would still be subject to a capital gains tax. Kind of an unrealized capital gains tax.
This was truly a bone-headed tax idea for several reasons, and thankfully it headed to the ash-heap of bad tax ideas only a few minutes after it was seriously considered.
But this is the tax hike that Buffett will never propose. And for good reason. Buying and holding onto appreciating stocks is how Buffett increases his net worth. To this day he makes relatively little in salary, which is taxable, and just about all of his wealth is in the form of appreciated, unsold stock. If he ever sells the stock then he will have to declare a capital gain, and be subject to a capital gains tax.
You know, if this is the case, one could conclude that Warren Buffett proclaiming far and wide the virtues of raising taxes on rich people would be a little hypocritical. Maybe even deceptive. Buffett is in fact not one of the type of rich people -- salaried rich people -- on whom he seeks to raise taxes. He makes his money on appreciated stocks, which are not part of his tax hike proposals.
There is kind of a “three-card monte” element to this. With all the attention heaped on raising the taxes on salaried rich people, less attention will be paid on those wealthy people who, like Buffett, are sitting on millions of dollars worth of appreciated but unsold stocks.
On the other hand, out-spoken liberals are probably very enamored with Warren Buffett. He is, after all, a billionaire and one of the richest people on Earth, and he proposes many tax hikes. Maybe there is a deeper method to Buffett’s madness.
This could be some kind of rhetorical protection racket. Buffett could be figuring that if he proposes all sort of other tax hikes, then he and his unrealized capital gains will be left alone by the barbarians at the gate of today’s tax debates. Kind of cynical for my taste, but hey, if this is what he is up to, more power to him. Stock investors will be protected, while the taxes of other Americans will go up as always.
If that is what is going on, let’s just hope this never backfires.