How Dare He! Buffett’s Taxing Idea Digested
Tax is one subject that is guaranteed to get people hot under the collar. That’s why – when Warren Buffett’s name appeared in the by-line above in piece in the New York Times in August all hell broke loose.
“Our leaders have asked for “shared sacrifice.” But when they did the asking, they spared me,” Buffett sagely opined. “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.”
Continuing, he points out that investment managers who earn billions off the backs of ordinary workers’ daily labours are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. But Buffett shocked the audience when he pulled back the curtain on his own tax affairs:
“Last year my federal tax bill 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.”
Buffett summed up by stating that his tax rate was too low compared with middle-income wage earners – especially, he said, since President Barack Obama and Congress struggle to control the mushrooming federal debt.
It was as if everyone’s favourite billionaire had been possessed by the spirit of Michael Moore – not-quite everybody’s favourite left-wing activist, author, and documentary-film maker.
The 30-year slavish observation of the ‘Laffer curve’ was being repudiated – publicly and from the top. Obama picked up the ball and ran with it, declaring plans to introduce a tax aimed at Americans earning more than $1million a year to help bring long-term deficit savings.
Obama used Buffett as an emblem in the president’s fight to clamp higher taxes on the wealthy; and with simultaneous jerking of their knees, the Republican politicians and commentariat reacted vehemently.
House of Representatives Budget Committee chairman Paul Ryan and Senate Republican leader Mitch McConnell were both vocal in their opposition – if not shrill. Ryan came out on Fox News (where else!) with guns blazing: “It adds further instability to our system, more uncertainty and it punishes job creation and those people who create jobs,” he shrieked. “Class warfare may make for good politics but it makes for rotten economics.”
Meanwhile, McConnell opined to NBC that it was a “bad thing to do in the middle of an economic downturn” and there is ‘bipartisan opposition’ to the proposals.
More considered in his analysis was Tim Worstall writing in Forbes Magazine, a fellow of London’s Adam Smith Institute and former press officer for UK Independence Party. Right-wing, populist, libertarian, and fond of flat tax and free trade, he was never really going to be in agreement with Buffett’s plea for governments to stop coddling super-wealthy people like himself.
Looking at figures in a manner that is too tedious even to paraphrase, Worstall accuses Buffett of cooking the books for the purpose of his article: “Where he’s made the queen disappear in this game of ‘three card monte’, is in his ignoring the effect of the corporate income tax on his dividends.” Worstall says. “They’re taxed at the corporate level before they’re distributed, giving an average tax rate of more like 50% than the 17.4% he’s quoting.”
“It’s not the first time Buffett’s made this argument,” Worstall says almost audibly blowing his whistle. In fact, accuses Buffett of pulling the same stunt several times over the years: “Each and every time he’s called on it, people have pointed out the logical trick that’s being played. Yet he keeps making the same argument, no matter how many times the error is pointed out. Is this politics or something?”
Er, yes Mr Worstall. I think it might be… We’re all in this together, remember?