Tuesday, August 16, 2011

Buffett on Taxes ... Again

For the umpteenth time, Warren Buffett has petitioned Congress to raise tax rates on "millionaires and billionaires."

In a New York Times editorial published August 14, Buffett makes the following recommendation to Congress:
I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.
I'm weary of Buffett's lectures on tax policy. One week, he lectures Congress to raise taxes on "millionaires and billionaires." The next week, he lectures President Obama for scapegoating the private jet industry. (Note that Buffett's company, Berkshire Hathaway, owns NetJets, a business-jet operator.) He occasionally makes a valid point, but advocates of Big Government ignore the nuances and use Buffett as the poster boy for Big Taxes on everyone.

A few observations on Buffett's tired refrain:

[1] Buffett's main concern is the preferential tax treatment of capital gains. I'm sympathetic to the argument, but that's a topic for another day. My problem with Buffett is that his focus on capital gains obscures a more pressing issue: our tax system is fundamentally broken.

Imagine a patient in critical condition in a hospital emergency room. Buffett is like an orthopedic surgeon, anxiously fluttering around the ER doctors while fretting over a manageable knee injury. Sure, the knee injury will require treatment. But we need to stabilize the patient before we treat the knee. We need comprehensive tax reform, and the taxation of capital gains should be part of that reform process. Buffett's focus on capital gains recognized by "millionaires and billionaires" puts the cart before the horse.

[2] Buffett thinks that dividend and capital gains tax rates should be higher for "millionaires and billionaires." How about a compromise position? In connection with fundamental tax reform, why not "phase out" the tax preference for dividends and capital gains in excess of $1 million? That seems to me a kind of rough justice. Although Buffett might be open to such a compromise, President Obama is focused on class warfare for political purposes.

[3] Buffett would "leave rates for 99.7 percent of taxpayers unchanged." This is a repudiation, not an endorsement, of President Obama and other left-wing policymakers who sweep households with $250,000 in adjusted gross income into the same category as "millionaires and billionaires."

[4] Although Buffett repudiates the central strategy in President Obama's class warfare playbook, expect the media and left-wing policymakers to focus on a more general narrative: billionaire Warren Buffett as the poster-boy for Big Taxes on everyone.

[5] I keep waiting for Buffett to put his money where his mouth is. Nothing prevents Buffett, Bill Gates, or any other "millionaire or billionaire" from making a large "donation" to the federal government, or state government(s), or local municipalities. However, Buffett has pledged most of his personal fortune to charitable foundations. Kudos to Buffett for the philanthropic gestures, but the call for Bigger Taxes is starkly hypocritical. If Buffett believes that politicians are good economic stewards, why did he allocate most of his personal fortune to charitable foundations rather than writing a big check to the IRS?

Message to Buffett: more action ... less talk.

No comments:

Post a Comment