An amazing editorial was published the New York Times yesterday. Not just because Warren Buffett lays waste to nearly every single “taxation kills investment” argument…but because he has lost his patience with those who don’t understand history.
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.
But wait…there’s more…
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.
I bold that second paragraph specifically because it flies in the face of what many consider conventional wisdom about taxing investment income.
When engaged in debate over issues like this, people sometimes ask me what would be the incentive to invest if taxes are higher. I answer the same every time because the answer will always be the same: to make money. Is there another ballgame in town when it comes to making money off of money? Sure, you could invest in a small business or a startup, but many investors don’t have the time or patience for that. They want to able to read the tea leaves, pivot off of the market’s emotions and make a quick buck. It’s as simple as that.
All investors know this to be true, but only the intellectually honest ones will admit it. Count Buffett among that group.
And to that point…
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.)
That’s right. Over 20% of the richest people in the US didn’t make any income that would qualify for payroll taxes. And even if they did, it’s unlikely that made up any significant portion of their actual income. It’s all investments folks. Wake up.
Here are Buffett’s suggestions…
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.
All sage advice.
…and it will never happen.
Thank you Tea Party!
This entry was posted on Monday, August 15th, 2011 and is filed under Democrats, Republicans, Taxes, tea party. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.