Avuncular billionaire investor Warren Buffett on Monday wrote a screed in the New York Times in which he calls for higher taxes on the wealthy because they pay so little in comparison with the little people he professes to want to help.
Don’t “coddle” me, Uncle Warren tells Uncle Sam: “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.”
He laments his personal tax rate of 17.4 percent, which he notes is lower than the actual tax rates of his non-billionaire underlings.
There are several problems with the billionaire investor’s logic and factual claims.
One, the federal government could take every single penny of wealth from Uncle Warren and his 400 billionaire friends - confiscate all of the stocks, bonds, real estate and other investments they own - and leave them paupers. The haul would total $1.3 trillion.
The government could take every penny of income from every household that earns $250,000 or more and end up with $1.4 trillion.
That combined $2.7 trillion would not even come close to covering this year’s $3.7 trillion of federal spending.
Two, Uncle Warren could return the approximately $100 billion of government bailout money that rescued eight financial companies he was invested in at the time, and he could forgo the $130 billion of debt backstopping provided to Buffett-owned companies by the government. He has not done so.
Three, Uncle Warren could give back the billions of dollars of profit he made trading on the preferred stock and warrants of Goldman Sachs, General Electric and other companies during the financial panic when he concluded lower- and middle-income taxpayers would be forced to rescue those companies by a government that was about to declare them “too big to fail.”
Four, Uncle Warren could ask Uncle Sam to lower the tax rates on his underlings, leaving them with more of the money they earn, instead of calling for higher taxes on rich people to justify confiscatory taxes on the middle class.
Five, Uncle Warren could pay more taxes. He lives primarily on long-term capital gains and “carried interest,” which are taxed at a 15 percent rate. He could refrain from taking tax exemptions and deductions, stop living off of capital gains and carried interest, or write billion-dollar checks to the U.S. Treasury out of his conviction that he should be paying more. He does not do any of this, instead insisting that others be forced to give to the government what he refuses to give voluntarily.
Six, several weeks ago Euro Pacific Capital Chief Executive Officer Peter Schiff compared a couple earning $250,000 with a couple in 1950 earning an inflation-adjusted equivalent amount and then looked at what they would pay in federal taxes taking the standard deduction. He included income taxes and payroll taxes for Social Security and Medicare and concluded that today’s $250,000 couple would pay 40 percent of their income. The 1950s couple would have paid 22 percent of their income.
“In other words, despite claims that taxes are at their lowest levels in 50 years, today’s high-earning couple pays over 80 percent more in federal taxes than their 1950 counterpart!” Mr. Schiff wrote.
How can this be when federal income tax rates ranged from 17.4 percent in the bottom bracket and 91 percent in the top bracket versus 10 percent and 35 percent today? A few of the big reasons: larger inflation-adjusted standard exemption in the 1950s; no alternative minimum tax; payroll tax of just 3 percent compared with 15.3 percent today (temporarily 13.3 percent); and a top income tax rate that kicks in at $371,150 versus $400,000 in 1950 (approximately $4 million adjusted for inflation).
Uncle Sam helped keep Uncle Warren a wealthy man during the financial crisis - and helped build his wealth long before the crisis.