The Oracle of Omaha shook things up a little on Monday with an op-ed piece in the New York Times saying the rich should pay more in taxes. Some may argue that Buffett did not show a lot of backbone with his timing. If he wrote this as the GOP was holding the line on any new revenues during the debt ceiling debate or last year when Congress was battling to extend the Bush tax cuts to 2012, this would have had more impact. To be fair, however, this is not the first time he made this point. He has often noted that it is wrong that he is taxed at a lower rate than his secretary.
But no one is going to want to pay more in taxes just because Warren Buffett says so. The important point he made is that he is in the business of making money, the business of investing — perhaps the best of the best at this — and he says, tax policy doesn’t affect the way he and most of his competitors pursue their craft.
He notes, “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.”
To add emphasis, he states, “I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9% 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.”
Many people will dismiss Buffett because of politics or his age — in fact they already are — but this is not some liberal Hollywood star making this point, this is arguably the greatest capitalist of our time. And he is saying the tax rate does not dictate his investment plans, which is an argument made so often many presume it to be true.
He next attacked the job creation argument. How raising rates on the rich would stop job creation. “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," Buffett states.
A little over a year ago I attended a forum on the debt crisis at the University of Chicago sponsored by the MacArthur foundation entitled, “America’s Fiscal Futures: Making Difficult Choices.”
It was based on the report, “Choosing the Nation’s Fiscal Future,” which was produced by a committee put together by the MacArthur Foundation and chaired Dr. John Palmer and Rudolph Penner.
The point was to bring experts together to come up with a plan to cap the debt to GDP ratio to 60% by 2022, an area which was viewed as a danger level.
They developed a couple of models to do this but the conclusion by the chairs of the committee was simple, there was no way to do this simply by raising taxes or simply by cutting spending. Tax increases would be too high and budget cuts too deep. It had to be some combination of the two.
Since then a portion of the Republican party backed by Tea Party activists have managed to take one side of the equation completely off of the table despite their claim that their focus was on deficit reduction.
If this is indeed your top priority, then you really can’t start by taking potential solutions off of the table. That fails the smell test.
As we pointed out last December when a compromise was reached to extend the Bush tax cuts as well as unemployment benefits, neither side appeared to be serious about the deficit. Both sides compromised to keep what was important to them: for the GOP it was to retain the Bush tax cuts for people earning more than $250,000 (they threatened to not extend the cuts to all if the Democrats attempted to simply end them for the top earners) and for the President it was extending unemployment benefits out 99 weeks. What both sides were willing to give up was deficit reduction.
We all now know that those sorts of compromises are destructive to the long-term health of the United States.
Buffett’s piece reiterates that fact noting the need to pare down "future promises," but also notes that the dire consequences often attached to any sort of revenue increase simply are not true.
At a recent Republican debate, all of the GOP contenders for the 2012 nomination affirmed that they would not raise revenue (taxes) even if it was accompanied by budget cuts 10x the size of the revenue increase. Perhaps they should consult with America's most successful investor.