Buffett makes case for tax increase

November 27, 2012 01:13 PM

Warren Buffett is at it again. In a new op-ed piece in the New York Times, Buffett once again encourages raising taxes on the wealthiest Americans. If he keeps this up they may kick him out of the club.

Why is it important? Well Buffett is one of the wealthiest individuals in the country and he didn’t get it from an inheritance or from one million dollar idea he patented; he earned his money by being one of the savviest investors over a very long period of time.

If there is one common flaw in modern politics, business, investing, you name it; it is the scourge of short-term thinking. No long-term problems will ever be solved when all we are thinking about is the next quarter’s earnings or the next election.

Buffett is famous for his long-term outlook and just as perhaps President Dwight D. Eisenhower as the Supreme Allied Commander in Europe during World War II was the only man able to make the case against the ‘military industrial complex’ without being dismissed as soft on defense, it takes a man of Buffett’s wealth and experience to make the case for higher taxes.

He points out, again, that investors put money at risk in much higher tax environments and the idea that the threat of marginally higher taxes is keeping small businesses from hiring is folly.

Buffett wrote, “So let’s forget about the rich and ultra rich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultra rich, including me, will forever pursue investment opportunities.”

He also laid bare the idea that the wealthy already have a heavy burden placed upon them. “In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4% of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9%. It’s nice to have friends in high places,” he notes.

Buffett even seemed to be suggesting a compromise on the fiscal cliff talks by suggesting the upper tax bracket could be lifted from $250,000 to say $500,000. But also suggested a minimum tax on wealth so income from investment businesses couldn’t be hidden through contrivances like carried interest. “We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains.”

 While it is understandable that people would rather pay less in taxes, we are talking about a top rate that was in place during one of the strongest growth periods for the economy ever. And it is not as if the Bush tax cuts proved to create strong economic growth.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.