Buffett: My Friends And I Have Been Coddled Long Enough

In an op-ed piece in the New York Times Monday, Warren Buffet called on Congress to ask him and other "super-rich" Americans to contribute more to the federal government. Buffett called for the immediate increase in the tax rate for those making more than $1 million a year, and for a new, higher tax bracket for those making more than $10 million — including dividends and capital gains.

Buffett began with, “Our leaders have asked for ‘shared sacrifice.’ But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

In an attempt to clarify his point, Buffet went on to explain the special treatment the uber-wealthy can get. “While… most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.”

Buffett’s primary point was that the super rich actually pay a lower percentage of their incomes to taxes than everyday Americans.

To drill down and bring his point to life, Buffett shared the math on his own tax bill for 2010. “Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”

Not surprisingly, President Obama endorsed Warren Buffett's piece. At a town hall event in Cannon Falls, MN, a stop on his three-day bus tour the President said, “He [Buffett] pointed out that he pays a lower tax rate than anybody in his office, including the secretary.”

Buffett also contends that raising taxes on the very richest Americans isn’t going to hurt job growth. “Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.

Buffett then met the conservative argument head on. "And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000... You know what’s happened since then: lower tax rates and far lower job creation."

Buffett also called on the so-called "Super Committee" of 12 members of congress tasked with $1.5 trillion in deficit cuts not to stop there but to exceed that level, "in order to restore the nation's confidence in Washington."

Buffett said Congress seems bent on protecting him and other wealth Americans from taxes as if "we were spotted owls or some other endangered species," but added they can do their part.

The Oracle of Omaha offered a suggestion for the Super Committee tasked with cutting trillions from the budget deficit. “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.”

In conclusion Buffett wrote, "My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice."

Here at StateoftheMarkets.com, we agree with Buffett’s thinking (which is surprising given that most of us are Republicans!). However, we also recognize that the Democrats tend to take Buffett’s argument and attempt to apply it to those Americans who are clearly not mega-rich. It seems to us that there could be a middle ground here.

As always, feel free to add your comments on this topic.

 

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