Stop Coddling the Super-Rich
By WARREN E. BUFFETT
Omaha

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.

While the poor and middle class fight for us in Afghanistan, and 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.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

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.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

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. People invest to make money, and potential taxes have never scared them off. 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.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. 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.

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.

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.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?smid=fb-share&src=tp&pagewanted=print

OasisBU wrote:

Markji wrote:Buffett is an amazing person. He thinks very fairly and clearly and calls out the ultra-greedy and the ultra bought-out politicians. Let's see if others jump on board.

While there is no doubt he has made an impressive amount of money and offered to give it away - thus doing good for a lot of people - he has also made most of his money with information the average investor would never be able to get their hands on.

Its also a little hippocritical of him to point fingers about the tax code when he is taking advantage of it.

Buffet chose to set up his income so he was only taxed at the capital gains rate. If he felt so bad about it, he could have chosen to end up in the 33%+ bracket by changing how he structures his income - but like most hedge fund managers he has chosen to pay less taxes.

Did you know that a hedge fund manager who has not invested a single dollar in the fund only pays capital gains on earned income? So if they make 4 billion they pay around 15-17%. How is it fair that they get the capital gains treatment when they did not invest and are actually earning ordinary income?

When Buffet cuts a check to the US Treasury for the additional taxes he feels he should be paying then I will believe he is not a hippocrit - why wait until the tax code has changed when he can easily cut the check today?

Buffet is a known philanthropist. Big time. So in essence he is trying to do as you suggest (cutting a check to the US Treasury).

I do find it abhorrent that the tax code would treat hedge fund managers differently than the rest, but I am not sure I would go as far as saying Buffet is a hypocrite.

I don't know ANYONE who would choose to pay the 33% rate when there is a lower one. No one. What you would do with the difference perhaps makes the man.

http://www.charlierose.com/view/interview/11845

OasisBU wrote:

martin wrote:I don't know ANYONE who would choose to pay the 33% rate when there is a lower one. No one. What you would do with the difference perhaps makes the man.

The issue is he is speaking out about the lower tax bracket that he is currently taking advantage of. He wants to get rid of it so he is no longer tempted to design his income distribution to be calculates as a capital gain.

My problem with this is, if they get rid of that bracket then people who could actually use a tax break on capital gains (You and I for example), will in essence also be getting a tax increase....

OasisBU wrote:

Markji wrote:Buffett is an amazing person. He thinks very fairly and clearly and calls out the ultra-greedy and the ultra bought-out politicians. Let's see if others jump on board.

While there is no doubt he has made an impressive amount of money and offered to give it away - thus doing good for a lot of people - he has also made most of his money with information the average investor would never be able to get their hands on.

Its also a little hippocritical of him to point fingers about the tax code when he is taking advantage of it.

Buffet chose to set up his income so he was only taxed at the capital gains rate. If he felt so bad about it, he could have chosen to end up in the 33%+ bracket by changing how he structures his income - but like most hedge fund managers he has chosen to pay less taxes.

Did you know that a hedge fund manager who has not invested a single dollar in the fund only pays capital gains on earned income? So if they make 4 billion they pay around 15-17%. How is it fair that they get the capital gains treatment when they did not invest and are actually earning ordinary income?

When Buffet cuts a check to the US Treasury for the additional taxes he feels he should be paying then I will believe he is not a hippocrit - why wait until the tax code has changed when he can easily cut the check today?

Repeal the Bush tax cuts, stop the crazy wars, and we'd be back in surplus territory.

martin wrote:

OasisBU wrote:

martin wrote:I don't know ANYONE who would choose to pay the 33% rate when there is a lower one. No one. What you would do with the difference perhaps makes the man.

The issue is he is speaking out about the lower tax bracket that he is currently taking advantage of. He wants to get rid of it so he is no longer tempted to design his income distribution to be calculates as a capital gain.

My problem with this is, if they get rid of that bracket then people who could actually use a tax break on capital gains (You and I for example), will in essence also be getting a tax increase.

They should not allow fund managers to get taxed under capital gains, it should be considered ordinary income - but the cap gains rate should stay low IMHO. They need to come up with a different system to prevent the rich from passing their income through as cap gains.

Flat tax, get rid of most if not all of the loop holes - makes tax time a lot easier on many, probably gets additional revenues because it is a more fair system so there will be less cheating and more opting in, and add a use tax (similar to VAT).

They should also stop budgeting based on projected tax revenues. The idea that a state government is projecting tax revenues based on unstable assets (a large portion of which are Real Estate taxes) is insane. That is part of the reason there are such massive budget shortfalls now - all of the foreclosures = less tax revenue than projected. Plus you have such huge decreases in home value that the property reassessments destroy tax revenue as well.

However, our leadership (Both Republicans and Democrats) have done nothing but spend us into oblivion. It is our generation that is getting screwed in all of this.

i'm not sure you can have it both ways, ie keeping the capital gains for people like me and you but then turn around and say that people who do it on a much larger scale would be exempt from that same 15% that you and I are entitled (perhaps I am missing a more nuanced version of what is actually happening).

Also, it doesn't really mesh with what you are saying when asking for a flat tax... you can't have a flat tax but then want a loop hole for capital gains, would you?

IMHO, Buffet IS asking for something more along the lines of a flat tax.

For me, saying that our leadership - both parties - is spending us into oblivion is much too much of a broad painted picture. Bush got us into a big ass problem and the House part of our current Congress is locked into doing nothing.

You probably can't have it both ways if you go for a flat tax, but if they kept tiered taxes you could have an income cutoff where capital gains no longer applies (Ex. those making more than $1 MM in compensation no longer qualify for the 15% tax rate regardless of how long the asset has been held - those dollars are then taxed as ordinary income or some higher level of cap gains). I don't see how that would be unfair in the current system, granted I am sure some type of loophole would be exploited. That is why the flat tax is a better idea, less exploitation.

As far as Bush is concerned lets not forget the environment that he inherited from Clinton. Sure there was a surplus, however there was also the recent recession due to the dot com bubble bursting and then Sept 11th hit and derailed us even further.

The economic theory that this country has bought into is that government spending and monetary stimulus can smooth out the business cycle and prevent deeper recessions. So Bush and his team started spending like crazy in order to try to fix the problem. Obama did the same thing with the stimulus, at the time everyone thought it was crazy to spend $700 BB of money we don't have - which in hindsight was far too small to deal with the problems this country has, some economists now think it should have been 3X as large. Like Obama, there were no jobs under Bush and we saw a jobless recovery.

In addition, we got out of the great depression because of WWII - the wars Bush started served many purposes: publicly it was the war on terror, behind closed doors it was job creation and wealth creation for Halliburton and the war machine. Again, spending money we don't have on wars we don't need. Obama has continued to fight these wars even though he campaigned that he would pull troops out (he has started the process but much later than promised).

At the end of the Bush presidency we had the housing bubble burst and the banks failed. The seeds for this go back to Clinton when this country decided to increase home ownership by offering low down payment loans to people with bad credit. Bush obviously continued this policy and we all know the results.

The political climate in this country is absolutely toxic. The people in Washington no longer represent the people, and voters are dumb enough to continue buying into the empty rhetoric and stump speeches of those seeking re-election and political power. Its definitely a problem on both the Republican and Democrat sides. Neither party is fighting for whats right or the future of this country - they are all fighting for re-election.

I don't place the blame on any single President or a single party - it is shared blame. Both parties control this country and neither one is helping us. There needs to be real change in the tax code, probably reform in public service laws - congress should probably have term limits, elections should be publicly funded, and lobbying should probably be banned.

OasisBU wrote:You probably can't have it both ways if you go for a flat tax, but if they kept tiered taxes you could have an income cutoff where capital gains no longer applies (Ex. those making more than $1 MM in compensation no longer qualify for the 15% tax rate regardless of how long the asset has been held - those dollars are then taxed as ordinary income or some higher level of cap gains). I don't see how that would be unfair in the current system, granted I am sure some type of loophole would be exploited. That is why the flat tax is a better idea, less exploitation.

Hey i like the tiered thing. Unfor our politicians are bought by the rich and I doubt that type of legislation would ever get through. Is there something like that out right now that would equate to your capital gains example?

OasisBU wrote:As far as Bush is concerned lets not forget the environment that he inherited from Clinton. Sure there was a surplus, however there was also the recent recession due to the dot com bubble bursting and then Sept 11th hit and derailed us even further.

The economic theory that this country has bought into is that government spending and monetary stimulus can smooth out the business cycle and prevent deeper recessions. So Bush and his team started spending like crazy in order to try to fix the problem. Obama did the same thing with the stimulus, at the time everyone thought it was crazy to spend $700 BB of money we don't have - which in hindsight was far too small to deal with the problems this country has, some economists now think it should have been 3X as large. Like Obama, there were no jobs under Bush and we saw a jobless recovery.

In addition, we got out of the great depression because of WWII - the wars Bush started served many purposes: publicly it was the war on terror, behind closed doors it was job creation and wealth creation for Halliburton and the war machine. Again, spending money we don't have on wars we don't need. Obama has continued to fight these wars even though he campaigned that he would pull troops out (he has started the process but much later than promised).

At the end of the Bush presidency we had the housing bubble burst and the banks failed. The seeds for this go back to Clinton when this country decided to increase home ownership by offering low down payment loans to people with bad credit. Bush obviously continued this policy and we all know the results.

The political climate in this country is absolutely toxic. The people in Washington no longer represent the people, and voters are dumb enough to continue buying into the empty rhetoric and stump speeches of those seeking re-election and political power. Its definitely a problem on both the Republican and Democrat sides. Neither party is fighting for whats right or the future of this country - they are all fighting for re-election.

I don't place the blame on any single President or a single party - it is shared blame. Both parties control this country and neither one is helping us. There needs to be real change in the tax code, probably reform in public service laws - congress should probably have term limits, elections should be publicly funded, and lobbying should probably be banned.

I agree with a lot of what you are saying and will inform some more of your background when I get time.

1 thing I will absolutely disagree with: "Both parties control this country and neither one is helping us." Most every party will have their wins and loses for the country, and hopefully there are more wins that benefit all of us down the road. There is no doubt in my mind that politicians, as with most of us, also will do *some* things that benefit their careers or party more than benefit the country (or the company they work for). All I know is that since Obama has gotten into office (and in part when Bubba was in office) the Republicans have acted more like obstructionists to everything that is even tried. Every party will try to go against the other in a way that their opinions diverge, but the gray area seems to have been passed and blown by in a way that is directly hurtful to our country. Not good.

Complete agreement with the proposed need for "tax code, probably reform in public service laws - congress should probably have term limits, elections should be publicly funded, and lobbying should probably be banned." Citizens United decision is gonna drag this country down a hole that we may not be able to get out of. Also, I want to say that the prevailing opinion that "socialism is bad" whenever a mandate or any type of legislation comes up with is also not good.

http://www.momentoftruthproject.org/publications/bloomberg-businessweek-debt-hawk-alan-simpson-work-ahead

Alan K. Simpson seems to be missing that little voice that stops most people from saying everything they think. That means he’s forever making his friends as angry with him as his enemies. A Republican who represented Wyoming in the U.S. Senate from 1979-97, he served as co-chair of President Obama’s federal debt commission, urging fellow conservatives to set aside their opposition to all taxes and liberals to abandon the idea that entitlements can’t be touched. As Congress launches a new bipartisan “super committee” charged with finding more than a trillion dollars in savings—a provision in the just-passed debt deal—BBW asked Simpson to size up their unenviable task.

Alan Simpson is co-chair of the Moment of Truth project, and formerly co-chaired the President's bipartisan National Commission on Fiscal Responsibility and Reform.

There’s something every American can do to help the six Democrats and six Republicans who’ll be picked to sit on the new debt-cutting committee in Congress: Pray for them. What an onerous time they have ahead. Oh, they’ll go in there like it’s the first day of school—clean notebooks and brand new pencils—thinking they’re going to squeeze out marvelously clever and inventive new ways to keep the economy from going to hell. But there are no clever and inventive ways to pay down deficits and the debt. We know what we have to do. We just aren’t desperate enough yet to do it.
We will be soon. I’m speaking from experience. I was the co-chairman, along with my friend Democrat Erskine Bowles, of the National Commission on Fiscal Responsibility and Reform. For 10 months we did just what the soon-to-be-named members of the super committee are about to do. We sat in a room with people of good faith, haggling over a compromise that would bring some order to the absurd way our government spends our money. Both sides went into those first meetings all riled up and armed with their clichés, notions they just knew had to be true because they felt them in their bones. It’s all the rickety stuff we’ve heard again and again over the last few weeks: Some of the Republicans were certain the way to do it was only to cut spending and prevent “job killing” revenue increases. Some of the Democrats knew the answer was defense cuts and higher taxes for the wealthy and corporations. How the super committee is going to argue in its first meetings! We’ll see everyone marking his turf.

It took us about three months to trust each other. Then people started to see how puny their “solutions” looked when stacked up against the facts and the math. Our country owes more than $14 trillion. We borrow $3.01 billion every day. We borrow 39¢ for every buck we spend. Anyone who says with a straight face that we are going to get rid of debt like that and not touch revenue, defense spending, Medicaid, Medicare and address the solvency of Social Security is either goofy or a radio talk show host. When Erskine and I agreed to lead the commission, we told ourselves, “We’re doing this for our grandchildren.” Then we saw how quickly the country’s finances were unraveling and it became, “We’re doing this for our children.” Finally, we had to admit, “Who are we kidding? We’re doing this for ourselves.”

The formula we eventually worked out calls for about $4 trillion in savings through a mixture of tax expenditure reform, entitlement reforms, and cuts to government programs. I’ll toss my elongated frame out on a limb and predict the recommendations the super committee ultimately makes will look very similar. It’s not because we’re some great wizards, but because there are only so many ways to do this. It’s why the Senate’s Gang of Six came up with a plan that mirrored ours in many respects. Same for Speaker John Boehner’s and Barack Obama’s ill-fated “Grand Bargain.”

The thing is, these often laughed-at and ignored special commissions or committees—and I’ve sat on a few over the years—usually come up with as good a fix as you’re going to get. A lot of the time, though, people aren’t ready to hear the truth. President Obama shelved our report when it came out, even though he was the one who asked us to write it. He knew he would be torn to shreds politically if he was the first to endorse it. More than 100 people testified before our debt commission—citizens, special interest groups, politicians. It was quite a show. Everyone so earnest, going on and on about how we must tackle this terrible problem. Then came the kicker: “Just whatever you do, don’t even think about touching my stuff.”

Some of the easiest recommendations we made caused the most howling. There are 2.2 million veterans who receive great medical benefits, as they should, from a program called TRICARE. They pay just $470 a year and no co-pay for that insurance, and it covers their spouses and dependents, at a cost of $53 billion a year. Many of these vets are still young and have new careers. Is it too much to ask those who can to pitch in a bit more? Defense Secretary Bob Gates told us, go ahead and try, you’ll get your rear ends chewed off by the vets groups. I’m a veteran myself, and they called me un-American and a rotten S.O.B. Same with Social Security. We proposed to slow the growth of payments over time and to raise the retirement age to 68—starting in 2050. Simply put, we felt those who have more should pay more, and those who have less should pay less. And we proposed changing the cost of living allowance to a more modern formula. Retiree groups shrieked that we were gutting the program and leaving people to starve.

This is the zoo that the super committee is stepping into. They’re supposed to come up with a plan by Thanksgiving, no easy thing. If they’re smart, they’ll go much bigger than the relatively small $1.5 trillion in savings the debt deal tasks them with finding. They have a couple advantages that we didn’t. One is, between our recommendations and those of the Gang of Six and the Boehner-Obama plan, they’ve got a lot of material to work with. Also, if they can’t agree, then cuts kick in automatically. Though this second advantage isn’t really one at all: Those savings won’t be nearly enough to prevent things from getting worse. That’s a big drawback to this whole gimmicky agreement. It solves a political problem, not a fiscal one.

To reach $4 trillion, our solution had more revenue than Republicans wanted. More changes to entitlements than Democrats did. None of us thought our answer was perfect. We held our noses and almost barfed at some of it. But perfection wasn’t the goal. Some Tea Party types (and remember, they are not a party) seem so sure only they know what’s best for all of us. Doesn’t sound like my kind of leadership. I’m a real live, real conservative Republican—check my Senate record—and sometimes I don’t recognize my party. Many conservatives quote Ronald Reagan, saying how he’s their hero. I knew Reagan well. Loved the man and spent a lot of time with him. And you know what? He raised taxes 11 times in his eight years. He did it to make the country run. These bomb throwers take great pride in saying they will never, ever compromise. Reagan was a master of compromise. Read your history, guys and gals. You’re on the wrong side of it.

We are heading into a depression here, spending cuts will absolutely compound the problem,. The US is net debtor and it needs to average 4% annual GDP growth to remain viable in making debt payments etc. Right now the we are at 2% GDP growth and cutting spending will mean even more govt sector layoffs while the pvt sector siphons our wealth away to offshore accounts and chinese jobs. I am not suggesting that increasing taxes by themselves will solve our problems either. I am just sickened by watching he wealthy prey on the vulnerable and the disenfranchised who can't buy congressmanen and senators to write laws for their benefit. We also witnessed a faliure of our constitution where a vocal minority is allowed to hold the country hostage and force policy changes for their own benefit.

Finance sector hubris, legislative paralysis and the tea party dictating terms...maybe the Mayans weren't that far off about 2012!