Warren Buffet, the second richest person in America, has spent years complaining about how tax policy favors billionaires like himself. Now, with another big fight over revenues looming in Washington, Buffett is once again calling for tax hikes on the wealthy -- penning an op-ed in today's Times entitled "Stop Coddling the Super-Rich."
Buffett is a money guy and knows his numbers. He also knows lots of rich people and how they think. The result is a powerful piece that rebuts several persistent myths about taxes and the rich.
One myth, which you hear all the time, is that the rich already pay too many taxes -- higher than in the past -- because they foot such a large share of the overall tax bill. But this is nonsense, according to Buffett, and he has his own tax returns to prove it:
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.
The reason for this is that Buffett makes most of his money from capital gains and dividends, now taxed at 15 percent, while the working stiffs in his office make their money mostly in wages. And work, it turns out, is taxed a lot more heavily than wealth creation. Of course, though, only those with wealth can make money with money.
It didn't used to be the case, Buffett notes, that the richest guy in his office -- namely himself -- paid the lowest tax rate. "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."
The second myth Buffett shoots down is that higher tax rates on wealth creation would sap people's incentives to invest:
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.
Finally, and this won't be news to anyone who read my book Fortunes of Change -- and especially the chapter entitled "Please Raise My Taxes" -- Buffett notes that plenty of wealthy people are open to paying higher taxes. While it's true, as I note in the book, that upper income Americans are the most fiscally conservative group, it's also true that a sizeable chunk of these swells are open to a heftier tax tab. This helps explain why Barack Obama won voters making over $200,000 even as he repeatedly pledged to roll back the Bush tax cuts for this group. (Buffett himself was an early supporter of Obama.)
As Buffett writes:
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.
During the debt ceiling fight, even some of Eric Cantor's wealthy donors were calling the House Majority Leader to tell him to relent on revenues to get a bipartisan deal. (Although he was also pressured the opposite way by other wealthy donors.)
Buffett's points are not new. He's been making them for years, as I said. But let's hope that this time around Republicans will actually listen to the "oracle of Omaha."