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article imageWarren Buffett's debt plan: Apply tax increases to the mega-rich

By Michael Krebs     Aug 15, 2011 in Politics
In an opinion piece published in The New York Times, billionaire Warren Buffett offered his perspectives on tackling America's fiscal woes, focusing on individuals who earn more than $1 million annually.
As the Republican and Democratic leadership grapple with the national debt in the reverberation of the S&P downgrade and form a special "super" committee to handle the divisive macro-challenge, billionaire Warren Buffett offered a solution in an opinion piece published in The New York Times on Sunday.
According to Buffett, the mega-rich, defined as those earning more than $1 million per year, should no longer receive shelter from the federal government.
"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," Buffett wrote. "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."
Buffett's position differs from that of President Obama, who seeks tax increases on all Americans earning household income of $250,000 or more. The Obama tax increases would have a significantly negative impact on the nation's GDP.
"From 2011 to 2020, the Obama tax plan would reduce GDP by an annual average of $111 billion," The Heritage Foundation concluded in its 2010 research study.
And while Buffett is likely right to focus on today's mega-rich, the Republican political establishment is working to ensure that healthy spending cuts top the bipartisan dialogue on the debt matter.
In a 10-point memo on how to fix the budget that was published in the Washington Post on Sunday, Robert Samuelson overwhelmingly supports cuts in spending over tax increases.
"Favor spending cuts over tax increases," Samuelson wrote. "Tax increases over the next 15 to 20 years could easily reach 25 to 50 percent to cover the costs of (a) the doubling of the 65-and-over population from 2000 to 2030, (b) spiraling health costs, and (c) the continuation of other programs at recent levels of national income. These staggering tax increases are too burdensome. They might hobble the economy and would be unfair to younger workers."
But Buffett sees the issue as one that should be applied to those who "make money with money," and he his opinion is pieced together from an investor's perspective.
"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," Buffett wrote. "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."
This is in contrast to a family of four earning $250,000 annually and working toward buying a home on the outskirts of Manhattan or San Francisco, where President Obama's tax increases are not bound to regional economic disparities. In these scenarios, the issue is not making money with money but is likely better characterized as treading water.
But the CEO of Berkshire Hathaway may be commended for his public stance on the matter.
"My friends and I have been coddled long enough by a billionaire-friendly Congress," Buffett wrote. "It’s time for our government to get serious about shared sacrifice."
Although, if Mr. Buffett is that concerned, he could always opt out of his personal loopholes and donate more to the troubled federal government.
More about Warren buffett, Taxes, National debt, S&P credit downgrade, Spending
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