The “More Money than Sense Crowd” is at it again, egged on by perhaps its highest profile member: Warren Buffett. Apparently, money doesn’t buy happiness, particularly where the “Wizard of Omaha” is concerned. During an interview with Tom Bawden of The Times On-Line, (http://business.timesonline.co.uk/tol/business/money/tax/article1996735.ece), Buffett, one of the world’s wealthiest individuals, laments the fact that his income tax rate, 17.7%, is less than that of his secretary or his cleaning lady (30%).
Notwithstanding the manifest banality of his argument, (including by extension the residue of the “More Money than Sense Crowd” and most of the Democrat Party), Warren Buffett stands as one of the greatest investors of all time, advocating personal frugality, corporate accountability, and a long-term, value-based investing style. For those qualities, he should be commended.
His comments on the tax code and social policy are full of holes. Implicit, first and foremost, is the belief that governments can and should endeavor to create social equality through manipulation of the tax code. Unfortunately, this belief ignores the fact that the United States unsuccessfully waged a multi-generational “War on Poverty”, during which time social inequality and dysfunction increased. There is no credible evidence to suggest that governments have ever been able to successfully legislate “social equality” via redistributionist tax and fiscal policy. Unfortunately, this does not stop politicians from trying, aided and abetted by the guilty super-rich (i.e. The More Money than Sense Crowd). The tax code should be neutral, neither punishing nor rewarding individual companies, industries, or their supplicants.
When one does the math using Buffett’s figures, here is what emerges: 30% of $60,000 is $18,000 of taxes paid; 17.7% of $46 million is $8.14 million of taxes paid. Looked at another way, Buffet paid 452 times more in taxes than his secretary did, a fact that he and/or his advisors surely recognize. But this is not enough for the redistributionists; what they really seek is a return to punitive rates of taxation, in which no allowance is made for long-term capital gains treatment (the 17.7% rate cited), and long-term capital gains are instead taxed as ordinary income (35% maximum under the current tax code). The underlying reason for this differential is straightforward yet vital: long-term capital gains are the reward for long-term planning and action, and a willingness to take risk. Without these behaviors and attitudes, there will be no job creation, and no salaries or wages on which to pay taxes. Whether he likes it or not, Buffet’s success is a reflection of his enormous value to society over time, and he is worth every penny.A better policy response: “Don’t raise the bridge, lower the river”: raising capital gains rates yet again is disruptive to job and wealth creation. Instead, treat all income and wealth transfers the same (long-term capital gains, ordinary income, corporate income, gifts and estate), by taxing them at 17.7%, or 15% or whatever. In other words, it’s time for a Flat Tax Rate!!!! On a personal matter, there is nothing stopping Buffett and those of his financial ilk from paying their “help” more. $60,000 against $46 million dollars of income is one-tenth of 1.3% – in other words PEANUTS! Remember, charity begins at home. Another suggestion for those burdened with income they feel they don’t need, deserve, or want: lobby the Congress to add a check-off box to the 1040 form for voluntary contributions over and above those legally due.Rich people are good at making money and creating wealth, but they are not necessarily good at making intelligent public policy.
