On Sunday Warren Buffett, arguably the world’s greatest investor and certainly one of the world’s richest men, posted an opinion piece in the New York Times stating that we need to raise taxes on the Super-Rich.
While I’m not a fan of higher taxes, how can you argue with Warren Buffett?
The fact is, Buffett paid a lower percentage of his income in taxes last year than anyone else in his 20 person office. I don’t care how conservative you are; it just takes a bit of common sense to realize this isn’t right.
Well then, I might as well just jump on the Obama bandwagon, right?
Not so fast.
I said I agree with Buffett, not Obama. Here is Warren Buffet’s solution, as quoted from the New York Times:
Job one for the 12 [people commissioned to tackle the deficit] is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here.
This is job number one. I repeat: reducing spending is job number one. We don’t just need to save money here; we need to save BIG money here. I want to make sure that isn’t lost in all the hoopla about increasing taxes.
The 12 should then turn to the issue of revenues. 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.
I agree with this as well. The payroll tax break is a very welcome tax break for anyone who earns taxable wages. I’m all for reducing taxes because I believe the American people themselves are better at stimulating the economy than Washington. Yay for lower taxes! We’ll address the 99.7 percent of taxpayers next.
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.
Here is where Mr. Buffett and Mr. Obama disagree. Our president believes people with an annual income of $250k are so rich that they need to pay higher taxes. Mr. Buffett thinks that cutoff is $1 million a year.
If I have to trust economic advice from one of those two people; sorry Barack, I’m going with the Oracle.
I personally know families who are making around $250k a year that can’t afford higher tax bills. You might think those families are just horrible with their money (and some might be). But in this particular case, I’ll leave you with this question: how far does $250k a year really go when you are already paying 33% in taxes on that money, trying to save for retirement, and putting three kids through college while raising another three at home?
If you raise the taxes on these families, they will have to make a decision. Either accept the fact that the new taxes cut into their income and stop paying for their kids’ education, or reduce costs in their small business (most likely by firing workers). Who do you think is going to win that battle: the child or the employee?
You guessed it. People are going to lose their jobs if taxes get increased on people making $250k a year.
What About that “Compromise” Thing?
If we want a compromise between Democrats (raise taxes on people making $250k and up) and Republicans (raise taxes on no one), then it makes sense to raise taxes on people making somewhere around $1 million a year, just like Warren Buffett says.
So let’s pretend we agree to this Warren Buffett plan and increase taxes on those people making $1 million a year or more. Great. We’ve solved the problem right? Budget balanced! Crisis averted!
Well, actually, we’ve only fixed about 3% of the deficit. Looks like we’re going to need another 97%.
So when the media tries to tell you that taxing the rich would fix the debt crisis, they are either woefully uninformed or lying to you. Warren Buffett isn’t proposing we raise taxes on the rich because it would solve our problems; he thinks we should do it because it is fair.
If it were up to me, I would fix this whole thing by implementing a flat tax. No tax loop holes. No social engineering. No special tax rates for capital gains (which is obviously and blatantly a way to reduce the tax burden on the wealthy). Basically, I would implement the Fair Tax. We all pay exactly the same, and we all get a prebate of a certain amount every year to make it a progressive tax system that is fair to low income folks.
It’s a pretty incredible solution and is where I plan to take the country when I’m president in 2032.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
Agree with you on almost all points. Frankly I think Warren Buffet needs to shut his mouth and stick to investing. He is complicit in this idea of misleading the public about how to solve the budget/debt crisis right along with the media. I do not like what people are taking from what he’s saying at all, especially because his words stem from a deep sense of white wealthy American guilt that is evident in his writing. The fact that he is in favor of the death tax appalls me. The fact that he somehow thinks we should allow the government to solve the problems of the country and redistribute wealth enrages me. Why does he not distribute some of his wealth to help the poor and middle classes now, himself? I’m all in favor of a Flat Tax system. I’m sick of hearing the whole “the rich should pay their fair share” thing, because people don’t seem to realize that the rich pay MOST of the individual tax revenue this country brings in right now. 40% of people pay zero taxes at all.
Until the bottom 50% of the country starts taking some ownership over our spending problem by paying some taxes, I really can’t support any tax increases. On principle I don’t believe in tax increases, but to just do it to the rich when they are already paying for basically everything is just stupid.
Uh, Mr. Buffet gave away a huge portion (if not most) of his wealth several years ago to the Gates Foundation. It was widely publicized so don’t take my word for it. His point is that as a percentage of income, his share was disproportionately lower than everyone else in his office, all of whom make more than $100,000/year.
As a matter of fact, most of the tax revenue coming from individuals comes from payroll taxes, where after $100,000 more or less, you don’t pay into it, so how the wealthy are contributing more than their share is just a myth. So, if you and your spouse both make say, for the sake of argument, $99,000/a year EACH, as a couple, you’re paying more taxes than Warren Buffet is, who’s payroll tax on his $8,000,000 income was just taxed up to $100,000. The tax code is ridiculously complicated and geared to generating cuts for the weathier among us, with ridiculously low capital gains taxes, payroll taxes benefitting the rich, homeownership cuts for again, the wealthier who can afford to buy houses (or think they can), the list goes on and on.
None of these things alone will cut the deficit, again, it should be a balance between spending cuts and raising revenues that are the most fair they can be which will benefit society as a whole, not just specific groups. Like education. Like infrastructure. Like an energy policy.
The most important thing is to fix the deficit so that we don’t keep adding to the debt. That can be achieved by cutting spending, raising revenue directly, or raising revenue indirectly by putting more people to work who would pay some taxes.
Maybe stop paying people to be unemployed? Arghhhh!!!! I’m getting mad and have to stop.
What would you suggest the unemployed do, Kevin? Don’t just say “get a job!”. I know unemployed people that have been looking for work for 2 years. Any work! It’s not as easy as it sounds. I don’t know about you, but I feel damn lucky to have steady work in this economy, but to say that the unemployed don’t want to work? That’s just buying into the rhetoric, and it’s not true. At least not for everyone.
In 2 years someone could: start their own business, train themselves with one or more new skills that would make them more appealing in the job market, volunteer their time to gain hands on experience in some field.
Those are three things off the top of my head that could have been done. I think the biggest problem for a lot of unemployed are that they aren’t highly motivated to find work because they are receiving unemployment benefits, and that they think sending in online applications is a great way to apply for jobs. I don’t know what your friends are doing, but if they aren’t going door to door at local businesses, in person, and asking to speak to someone about potential job opportunities, then I think they have an opportunity to be more effective at their job search.
You assume a lot living in your ivory tower. I’m sure they wish they were your age again when they, too, had all the answers.
Training generally costs money. As does starting a business. Not everyone is equipped skills-wise to start their own business.
I never said it would be easy, or that those things would work.
I’m only suggesting that if what they’ve been doing for the last two years hasn’t worked, maybe they should try something a little different. Doing the same thing and expecting different results is the definition of insanity
I’m with you, Mr. Buffet! We all know I looooooves me some taxes and social programs, but the problem with the tax system in both Canada and the US is that the super rich aren’t taxed high enough! There should be more levels of taxation, right up to 50% if necessary. We could argue back in forth about whether 33% is too much or too little tax for someone making $250k, but that’s kind of irrelevant. The reality is that someone making $250 million a year and being taxed at 33% is kind of insane.
In one of the rare times when we’ll agree on something, I agree we should “raise taxes on the rich” in the sense that we should get rid of cheap capital gains taxes. Making money is making money, and should be taxed as such.
Hahaha. Today’s a good day.
I’m all for a fair tax and think it would help even things out, even though no one would pass it through. Whatever.
I don’t think it’s necessarily fair to tax people who make more money even more. You come to making more money by working hard and putting education behind you, very rarely from luck. And if you count celebrities, really? How many of them are there in the world compared to the rest of us? Thank you. So what are we teaching them? If you achieve the American dream, you are going to have to pay more fo it? I don’t think so. I do not want to ake more money only to have to part with more of it. It’s like I’m being penalized because I work hard and thats not fair. I pay 20% of my income to taxes. If I can do it making what I make now, other people can do it too.
We need to cut spending in the government budget by whatever means necessary. I am not in support of cutting certain things, but some of the things we’re putting money into, funding, is a bit ridiculous, especially since we are cutting back in so many other areas that don’t need to be cut, such as education.
It’s a hot mess. End rant.
I think most of America is with you on this. We need to look at cutting spending on everything. That includes the military (which conservatives never want to cut). People call him radical, but I actually think Ron Paul’s beliefs are most in line with the majority of Americans. It’s too bad we will never get him elected.
If Warren Buffet wants to pay more taxes what’s stopping him? Feel free Mr. Buffet. I’m sure the government would cash your check. Pay away!
I think a flat tax is the only fair way to handle the tax code. EVERYONE pays 10% (or whatever) and be done with it. Period. No loopholes, no shelters, no special types of income, no deductions.
That’s the way to go. All this social engineering crap is getting in the way of a reasonable tax system. Just have everyone pay the same, and throw in a prebate to help the low income folks. Done and done.
I am definitely in favor of reducing the debt, but just don’t cut . I want Congress to actually think about how to change it to make it better (less costly) for less. I want our elected officials to problem solve not just cut.
Which means reasonable cuts to social security and medicare and defense and education. How do these politicians expect to make any progress against the deficit if they won’t touch the four biggest pieces?
Let’s not leave out defense! One of the cures for Social Security is to raise the retirement age which is not even a cut. It makes sense since we are living longer. That is what I mean by problem solving not just cutting.
Defense was #3 in my list. 🙂
Interesting article, Kevin.
Would be interesting to know how long Warren Buffett has held this opinion for.
He’s been promoting this idea for a long time. The problem is, he has an investor’s mindset; not a business owner’s mindset. I’m with him on the capital gains changes, but not on raising general income taxes.
I agree with Warren and I agree w/ you Kevin. My post is coming out manana on the subject. Cheers, Sam
I’m looking forward to it. I can’t wait to see you run away with the Plutus award for the most controversial blog!
Though I dread those rich people, I still think it is unfair to raise taxes just because they are earning more. These guys had worked hard to earn that much, it is not right to discouraged them. I am with the fair tax idea; you have my vote for presidency Kevin.
Agree with you on pretty much everything.
If a family have 6 kids, they don’t have any rights to complain about how much the kids cost. Should have thought of that before hand. They shouldn’t be paying 33% either, get a better tax accountant.
“I personally know families who are making around $250k a year that can’t afford higher tax bills.”
The taxes proposed are on 250K AGI. That is, after deducting 401k/IRA contributions, health insurance premiums, home interest payments, etc. etc. you still have 250k left over.
That is, said family is probably pulling in around 325k. Still think they “can’t afford” it?
Any time you take away an incentive for people to work harder and make more money (higher taxes on higher brackets) you are discouraging growth. Those people making that money are likely sacrificing a social or home life to make the “big bucks” and will likely use it to stimulate the economy by having more cash in pocket. It’s time to take out the middle man, a.k.a. government, and the economy will get flowing again. As for the fair tax, I would vote for that in a heartbeat. That gives EVERYONE, rich and poor, an incentive to make more money and work harder.
How can you actually even believe what you are writing here? Do you think a lawyer does a mental calculation in his head to think:
“Well, I bill 400 an hour, but taxes take out 35 percent… nah, it’s not worth staying late tonight”
On a more personal level, I highly doubt changes in taxation rates throughout your lifetime have affected your working behavior. Are you working harder now than you were before the Bush cuts? No.
Indeed. Matt is right. And as Warren Buffet said, he’s never heard an investor say “no, Warren, keep your investment advice to yourself because capital gains are too high,” even when capital gains taxes were much higher many years ago.
History has shown that economic growth has nothing whatever to do with high or low taxes; in fact, I believe the most productive economic times have occurred during times of relatively high taxation.
People don’t work hard because taxes are low. If you paid no taxes at all, you’d have to spend money on things you don’t spend money on now, so it’s just a question of how you acquire medical care, community services, infrastructure in general. Politicians have just turned the word “taxes” into an inflammatory word to polarize us. It’s working.