This post’s title comes from an NY Times op-ed of the same name by Warren Buffet, a self-made billionaire. Buffet does the unthinkable and points out the obvious. He opens:
OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
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.
You too could have such friends in Washington if only you could afford them. The ideas in this op-ed are nothing new for Buffet. He has an open offer of $1 million to any CEO who can show that he (or even she) pays a higher tax rate than his or her secretary. This has been on the table for years, and as yet no one has claimed the prize. So what tax rate does he pay?
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.
Buffet also puts the lie to many republican/conservative talking points used to justify their ideologically-driven hate of the Federal government, and especially taxes paid thereto:
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.
Boehner calls the wealthy “job creators” when whining about proposals for a fairer tax system. I cannot seem to say it enough, supply-side economics (aka, trickle-down or voodoo economics) is a complete failure as far as what politicians and others pushing it claim. That is, it does not create more jobs, improve the economy, or empower the individual – unless, that is, you are already fabulously wealthy.
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.
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.)
Payroll taxes – known as Federal Insurance Contributions Act, or FICA, taxes – pay for things like Social Security and Medicare, and are assessed at a rate just over 6%. Note though that the rate has been temporarily reduced to just over 4% to put more money in the pockets of the average worker. This is a fraud however, notwithstanding that it damages the stability of Social Security and Medicare thus endangering those programs. Then politicians like Obama and other republicans can point to the subsequent under funding as a reason to eliminate the programs (i.e., kill it to save it).
The idea of helping workers is shown to be a fraud also just by looking at the math. Say you make $9/hour for 40 hours/week, 50 weeks/year. This would total $18,000 a year, and the 2% savings totals $360 a year. With gas near or over $4 per gallon, you could easily drive from Chicago to Disneyland and back, but you couldn’t afford to stay there.
Double the pay to $18/hour and you get $720. That’s a mortgage payment (for some), so maybe you put off foreclosure for a month. Except you do not get it all up front, and you lose your house anyway.
Another aspect to this tax is that it only applies to the first $100,000 or so in income – if only I had that concern! That is why Buffet says, “any payroll tax for the 400 [Americans reporting the largest income] was inconsequential compared to income.”
The reduction in payroll taxes is only “temporary,” but will likely be renewed as Obama and the Dems don’t want to hand the epithet of “tax raisers” to their opponents in 2012. As if the republicans are not going to say it anyway. So who pushed for this reduction in the first place if not the workers who benefit little from it? The large corporations of course. You see, employers pay a matching percentage of FICA taxes. For a small business with 5 or 10 employees, this is peanuts, but for large corporations, the savings add up (to profits and bonuses).
Back to Buffet:
I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
I am sure he is correct. He himself is intending to donate 99% of his fortune to philanthropic causes upon his death. I remember hearing a radio interview of one of his sons several years ago. He pointed out that his Dad had raised him, and helped him with college costs, but after that he was on his own. The interviewer tried to elicit some bitterness, but there was none. Just like the middle and working classes, he had to make his own way in the world. Warren Buffet does not believe in an aristocracy in America where generation after generation accrue wealth and power – as in the Bush clan, the Koch brothers, the Waltons, etc.
Buffet continues by referring to the committee set up in Congress to come up with a deficit reduction deal (but what about jobs? The whole of the 2010 republican mid-term campaigns was based on addressing unemployment). His first point is meaningless as I detailed above, but the revenue increase part has merit regardless of the specific percentages or income breakpoints:
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.
Buffet ends his piece with a bit of mis-direction. I do not blame him, per se, as it is a common formulation which has not been well thought out:
My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
My issue is with the whole “sacrifice” meme. Based on Buffet’s own words, creating a fairer tax system in this county would not amount to a sacrifice for the wealthy. Their day to day lives would not change a bit, and their long-term prospects would be undiminished. My question for Buffet is why does he not pay more to the treasury to match deeds to words. He could voluntarily write a check to the US Treasury in an amount to bring his percentage in line with the others in his office. Why doesn’t he? The short answer is that he does not have to. This then highlights in some small way how we have gotten into this situation (again).
Those with wealth (and therefor power), are free to pursue their interests, particularly in the political arena. Those with an interest in destroying democracy and the enlightened liberalism upon which our country was founded are few, but their millions and billions of dollars create great havoc. The rest content themselves with fly fishing, jet setting, or whatever. In other words, the destroyers, acting in their perceived ideological self-interest, co-opt the government to create their dystopia. The rest just game the system as they receive it to maintain their wealth, and let the chips fall where they may.