Warren Buffett wants to be taxed on this, so you won’t tax him on that.

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Warren Buffett wants us to stop coddling the super-rich. He argues for superlatively higher taxes on those with incomes greater than $1 million a year.

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.

Let’s say we take Buffett’s advice, and we raise taxes so that those highest 400 income earners pay an additional 20% more in income taxes (i.e. 41.5 instead of 21.5). That would mean an additional $18 billion in revenue. Nice, right?

That other list of 400 people–the Forbes 400–represents a total net worth in excess of $1.4 trillion. The US doesn’t tax wealth, but other countries do. If we did, at a modest 10%, it would mean an additional $140 billion in revenue every year.

But we never talk about taxing wealth, only income. The class warfare lines are clearly drawn, the playbook is well-worn, and the media knows their lines by heart. Even the magnanimous super-rich, represented here by Buffett, know their part. Sure, tax us rich guys another dozen percent on our income. Don’t worry, we can take it.

Thanks, Warren. So I guess you won’t mind if we tax you on your net worth. Hello? Is thing on?

The moment someone with $45 billion dollars volunteers to be taxed over here on his paltry income, you can bet it’s because they don’t want you looking over there at their accumulated wealth.

There are of course lots of arguments against taxing wealth–many from the European experience–such as issues of fairness and double taxation, the incentivization of tax-avoidance and sheltering schemes, incentivization of leverage, etc. But none of that really matters.

The situation as it stands is objectively pretty serious. $14 trillion in debt, slow to no economic growth, 9% unemployment, a surprising number of insufferable baby boomers surviving unkilled into retirement, etc. And yet, we continue to have the same debates over taxation we’ve always had.

I don’t think those debates will lead anywhere productive, because any point on the income tax solution space is one that has already been tried in the past and is a point on the path that has led inexorably to where we are now. And where we are now, in human terms, is rioting in London, anti-immigrant radicalization and violence in Europe, civil wars in the oil-producing Middle East, and 44 million Americans on food stamps (a full 10% more than last year).

The problem is not more revenue, the problem is a lot more revenue very quickly. And the only way you are going to get this is by getting at the cash and wealth hoards held by individuals and corporations. You can’t tweak personal income taxes to get enough money fast enough, because there isn’t enough income. You can’t raise corporate income taxes because our faceless overlords will just pass the negative savings onto us.

And while you could cut entitlements, how long do you think it will be before those 44 million Americans Jean Valjean their way through Walmart windows all across America?

We need to change the rules about what we tax and how, and we need to get much more comfortable with the idea of constructing radically different rules for radically different levels of wealth. The assumption underlying the Reagan-era tax cuts that dramatically altered all post-war taxation in the US was that if you let more people at the top keep their money, it would work it’s way through the system. This is certainly true of the $200,000 income earners who spend their money on more expensive cars, countertops, Apple products and anti-depressants for their kids. But it is not true of the super-wealthy. Most of Buffett’s wealth is tied up in Berkshire Hathaway stock, which does not even pay a dividend. If he were to sell some of it and undertake an historic cocaine-and-stripper fueled orgy, that at least be a good example of wealth tricking down to the “differently-advantaged” segments of the economy. But Buffett insists on being frugal, thrifty, and from what I can tell entirely devoid of any chemical dependency. The same is true of Bill Gates, Steve Jobs, and the rest. So trickle down economics doesn’t work, at least not for the super duper rich.

So if the problem is we need a lot of money fast and the conventional ways of getting it don’t work, then the obvious thing to do is to try some unconventional ones. With that I propose the following crazy ideas that become slightly less crazy with each new car fire:

New rule: Tax corporations 35% on cash or short-term holdings in excess of 1 year’s operating costs/expenses.

New rule: If a household holds more than $10 million in cash, stock, bond or other securities, tax those holdings at 10%.

New rule: Income below the median US income of the previous year is exempt from federal income and social security taxes in the current year.

New rule: Set the short-term capital gains tax on derivatives to 75%.

New rule: Ban all commodity ETFs.

What’s the worst that can happen, that wasn’t going to happen anyway?
 

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42 Responses to Warren Buffett wants to be taxed on this, so you won’t tax him on that.

  1. qubitman says:

    Why are you writing this? Even if you’re right about what should be done who in a position to do it will take that risk? I suppose the entertainment value is enough, but I don’t really see how this blog post, or the more important net effect of other people experiencing these ideas, will make a difference. This looks like something we’re using to make ourselves feel better. Anyway thanks for the writing and the insight, your posts are always a pleasure to read.

    • Guy Fox says:

      Sharing one’s ideas might not change anything, but not sharing them is sure to change nothing. There’s no harm in trying, right?

      The 10% on wealth>10 million sounded steep at first, because it would eventually erode the wealth down, but then I remembered an old Jewish proverb:
      “To have 1 dollar and make 10 dollars is work. To have 1 million dollars and make 10 million is inevitable.”

    • rapscallione says:

      This might be my favorite response on this site so far. “Why did you bother writing this? It does nothing. I really liked it.”

  2. rDigital says:

    Very compelling. I like the derivative tax.

    How about a tariff on goods produced by unfair labor practices (like China) to make them competitive with goods produced by U.S. labor.

  3. automaton says:

    If a rich person is not spending much money, other people are able to use this money to consume things either due to deflationary pressures, or because the bank that holds his money is spending it on things etc. If he was spending his money on things, this would make it more expensive for other people to buy things, so it is better for everyone (besides the rich perople) if rich people spend less money. Taxing wealth that is not being used places a tax burden on others (assuming the government spends it), but no tax burden on the rich person. See here and here for better explanations about tax burdens and saving vs. spending wealth.

  4. caraellison says:

    I am one who believes in keeping taxes low on all earners. However, most people in the US do not even pay taxes. And your proposal to exempt even more people from taxes, thus putting the burden on the super-duper earners seems patently unfair to me.

    Keeping in mind that I HATE TAXES, it might be useful to look at Africa to see what happens when nobody pays taxes. Most African nations do not impose taxes and thus, nobody is franchised into the system. And you can see the utter poverty of those nations, despite the vast natural resources.

    Since we’ve decided that we’re a taxy country, ALL of us must pay into it. Even the poor and poverty stricken. They MUST pay something. Otherwise, it’s going to continue being a nation of taps and buckets, with more people thinking of themselves as the bucket.

    • max says:

      So people with no income should pay income tax? Or do we just “tax” their welfare payments?

      Hard to drain a bucket, when the bucket is empty.

      • caraellison says:

        Either. They absolutely MUST be vested into the system. Even a nominal amount would be fine. The top 40% of earners can’t continue to pay for 70% of the goodies. Can’t do it.

        • rDigital says:

          The apple may be “free”, but you must still help pay for the tree. No taxation without representation is a 2-way street.

          We must get the leeches away from the .gov nipple before they suck us all down the hole of totalitarianism. The government that can give you everything can take it all away.

        • Fifi says:

          caraellison – You keep saying that the top 40% “can’t” but the reality is that in many countries, most of which are in much better financial shape than the US, the top 40% can and do pay substantially more taxes. Just be honest, you don’t want to pay taxes – don’t pretend you (or a wealthy person) “can’t pay” while you’re suggesting that people on welfare “should pay”, it’s a bit ludicrous.

          But, hey, keep pretending like the wealthy top percent are really the victims of the system even though they’re obviously greatly benefiting from the system and it’s made them wealthy.

    • Ed S. says:

      Could we please drop this meme about “most people don’t pay taxes”? Or could you at least be specific and say that most people don’t pay INCOME tax? Because I think that is what you are trying to say (and it’s wrong, but I’ll get to that in a moment).

      Most Americans pay: Social Security Tax, Medicare Tax, State Income Tax (45 of 50 states), Real Estate Tax (directly or indirectly), Sales Tax, Fuel Taxes, Car Taxes, Telecommunications Taxes, etc, etc, etc. Of course, if you get your income from capital gains, dividends, or tax free bonds, you, of course, don’t pay the first two (or three) on the list, but I digress.

      In 2009, there were approximately 104 million federal tax returns filed; about 10 million of those fell into a “zero” bracket – in other words, no tax due. So yes, you are correct that there are some people who pay zero INCOME tax. And the average income on those returns was about $4,000.

      Now what you’re trying to say is that the MAJORITY of FEDERAL Income Tax was paid by a minority of filers (roughly the top 20% of the income distribution) – well that is correct. And why is that, you may ask? Because those filers earned the MAJORITY of the income. Here, you can look it up: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html

      So we agree – the people who earn the majority of income pay the majority of income tax. And people who earn very little income pay very little or no income tax. But not that most people don’t pay taxes.

    • Sfon says:

      “Even the poor and poverty stricken. They MUST pay something. Otherwise, it’s going to continue being a nation of taps and buckets, with more people thinking of themselves as the bucket.”

      This runs with the assumption that how much money one has is equal to how much someone puts into society, instead of the result of power games. The wealthy are buckets, too. There are more ways to drain society than getting money from the government, otherwise it would be impossible to become wealthy by any other means.

      If someone is well off, it is very flattering to believe it could only be because they are so awesome. That it cannot be that people are often paid far less or more than what they contribute, that many are not even given a decent starting place.

      Every time someone else helped you out, imagine they didn’t. This includes when you were a child. Were would you be? That is the kind of thing that poverty is made out of, not a bunch of people being too lazy and/or subhuman to do anything useful. And no, you would not be where you are because you are just that awesome and surely God loves you so much he’d never let you down like he does so many others.

      A bunch of people not paying taxes because they of how little they have? That is how much the system is tilted against them, not in their favor. How hard life is on them, not how easy. Do you think world hunger is because starving people are simply not good enough for food? Because that is how silly it is.

      The problem is not that there are people not as cool as the rich. That has never been the problem. No-one ever gets anywhere without the sacrifice and good will of others, ever.

      • Fifi says:

        This… “If someone is well off, it is very flattering to believe it could only be because they are so awesome.”

        …and this… “No-one ever gets anywhere without the sacrifice and good will of others, ever.”

        Well said, granted this isn’t a TLP post but both of these point to narcissism and a narcissistic way of thinking of oneself (it’s all about how awesome I am) and then the denial that others contributed (whether it’s willingly, with good will, or an unwillingly sacrifice). It’s the person who sees themselves outside of the social context, as superior and therefore entitled to more than anyone else and by all means available (ethical or not). Not surprisingly, narcissism is rampant amongst the rich (though it’s not necessary to be a narcissist to be rich and not all rich people reveal themselves to have NPDs, our system/society is certainly geared towards rewarding narcissists and glamorizes narcissistic behavior). This, of course, doesn’t mean there aren’t poor people with NPDs who are equally antisocial, but they generally end up in jail while the rich generally end up getting more tax breaks (or, at worst, a bit of time in a prison that has tennis courts). I know quite a few rich people who, in their own way, mean well and are lovely people generally but sometimes it’s just mind-boggling how impermeable their bubble is (and it’s not always a narcissistic ego defense, sometimes it’s just really being ignorant of how life is for others).

  5. max says:

    New rule: Force all stocks and derivatives to be traded on public exchanges (no dark pools.)
    New rule: Nationalize the exchanges.
    New rule: Publish all position ownership data.
    New rule: Require all trading positions to be held for at least 1000 milliseconds, or institute random execution times for trades held for less than 1000 ms.
    New rule: Eliminate the NRSRO model.

    • caraellison says:

      Any time I hear “nationalize”, I immediately stop listening.

      • max says:

        Yeah, ’cause privatization has gone so well. I hope you stop voting as well.

        • caraellison says:

          Wow, way to demonstrate a lack of debating skills. You made this personal instead of actually addressing what I said.

          No, I vote in every election in which I am eligible. I vote for the most conservative party.

          I hope you vote as well. I have nothing to fear from your votes, so please, by all means, participate in democracy.

          • max says:

            Any time I hear “nationalize”, I immediately stop listening.

            Hard to debate that.

          • DataShade says:

            Wow, way to demonstrate a lack of debating skills. You made this personal instead of actually addressing what I said.

            Maybe she was looking at a mirror when she said that, Max.

  6. abf0400 says:

    Isn’t the Estate Tax a wealth tax? Ordinarily Warren Buffett would pay a huge estate tax when he dies. But he won’t because he is giving all his money away to charity. This allows him to choose how his money will be spent by choosing the charity. By giving his money away prior to death he is re-directing a huge sum of money away from the government.

    I suppose that the worst that could happen is that the super-rich would rather give up American citizenship than 10% of their wealth each year. It would mean that their money would be cut in half every 8 years. All the taxes targeted at financial markets would just drive traders and investors to London.

  7. lelnet says:

    What could go wrong? Well…two things.

    1. Any business with any sense moves its operations outside the United States permanently. If some operations must remain, then all possible effort is expended to ensure that they’re only the ones that lose money on paper and have no significant liquid assets. (You’d be amazed how easy this is to do. And if the government changes the tax code again to make it more difficult to shelter assets offshore…well, there’s always the “close down US operations completely” option hanging in the background.)

    2. Congress gets billions more of our dollars per year to spend on whatever freedom-destroying projects take their fancy. Until Warren Buffett, Steve Jobs, and Bill Gates decide to raise an army to march into town and dictate what I can eat for breakfast or what kind of car I’m allowed to drive, I’d rather those billions of dollars be in the hands of Buffett, Jobs, and Gates than in the hands of Obama, Boehner, and Reid (or, for that matter, the hands of whatever Republicans replace Obama and Reid in January of 2013). I might or might not approve of how BJ&G decide to spend them, but at least they don’t force it to be any of my business.

    • DataShade says:

      And if the government changes the tax code again to make it more difficult to shelter assets offshore…well, there’s always the “close down US operations completely” option hanging in the background

      Good. Fuck ‘em. When they leave, they get a tarriff equal to the government estimated total of past grants/loans/tax breaks, and total economic impact in terms of jobs that they just destroyed by shutting down. Seize the factories, seize the machines, seize the frozen assets, and then auction them off and accept promisary notes with the threat of forfeiture. Do you think no laid-off auto-industry foreman in America is willing to risk running a factory that makes air conditioners on American soil when the competitors have to charge 3x as much? Fuck ‘em.

      I might or might not approve of how BJ&G decide to spend them, but at least they don’t force it to be any of my business.

      No, they’re much happier to run it all in secret, behind closed doors, with zero accountability. Private companies used to have armies, they were called “Pinkertons,” except when the companies were suffixed “East India Company” and their armies were just the army, and if those companies hadn’t overextended themselves so recklessly, and so regularly, we wouldn’t have all these “socialist” regulations that we have today. Try again.

  8. max says:

    For those of you spouting talking points, I highly recommend this discussion with Stratfor founder George Friedman:

    Agenda: With George Friedman on a Crisis of Political Economy

    Right or wrong, for better or worse, the economic and political elite have lost their legitimacy, and no amount Hayek or Rand will fix this. Buffett’s op-ed is an attempt to help his fellow oligarchs realize this before it’s too late.

    45 million people on food stamps. 240,000 with > $1 million in annual income. Think about this.

  9. caraellison says:

    Max, if you see no way to debate my sentence, that is a failure of imagination on your part. Simply explain why you think Nationalization is the way to go. Instead, you attacked me – which only proved my instinct was correct that you are a socialist who just wants the rich to pay more, and you’ll then list a lot of socialist talking points, ultimately resolving that until the entire world is communist, shit can’t get real.

    In your original post, you didn’t even bother giving a rationale for this radical communist idea.

    • max says:

      Any time I hear “nationalize”, I immediately stop listening.

      And the difference between debating with you and a brick wall would be what, exactly?

      • caraellison says:

        I had hoped that by volunteering such a radical anti-american idea, you might have some (at least amusing) rationale for it.

        In any case, instead of treating a debate with me like “a brick wall” you chose to insult me. Which means you do have something to say – you just have no rationale to espouse, only insults.

        • thelastcpa says:

          How would you know if he offered a rationale or not? You stopped listening at “nationalize!”

          • caraellison says:

            Because his statement was that he would nationalize the entire market. You would think that such a radical idea would be followed by an explanation. The fact that he didn’t offer one tells me he is just a reactionary socialist. Had he offered something interesting, there might be more to discuss. Instead, his positions are cast out without any rationale at all, and then he insults people who challenge him, however mildly.

          • DataShade says:

            The fact that he didn’t offer one tells me he is just a reactionary socialist.

            Objection. Assumes facts not in evidence.

            If I said “when I see someone named ‘cara’ I automatically assume they’re an inbred racist hillbilly,” would you go out and pay to have your parents DNA tested to make sure they’re not closely related, or would you just use my own words as evidence that I’m a closed-minded, condescending jerk?

    • sunshinefiasco says:

      LOL. Because what’s more anti-american than interstate highways, the mail service, and the farm industry, right?

      Just like how most of Europe=communist.

      Also, any time you try and start a debate about XYZ with “when I hear XYZ, I stop listening”, don’t expect anyone but crazy people to jump in and debate you anyway.

      • sunshinefiasco says:

        Also, please list more than one (I can’t think of one, but to make it fair) country that is currently out-performing us in the global economy with less central direction/regulation than the U.S.

      • caraellison says:

        I don’t agree with how those things are run, but I accept them. His suggestion was to do something utterly radical. The onus is on him to explain why.

        • sunshinefiasco says:

          Uhh, okay. His suggestion seems to be nationalizing the stock exchanges, not everything. (Meaning that the government would monitor, regulate (more) and earn (more) money from the exchange.) That may be a radical suggestion, but it’s not nationalizing everything.

          Secondly, just because you don’t think he answered your question doesn’t mean you don’t have to answer mine.

          It’s fairly obvious that you don’t approve of how those things are run– you called how they’re run un-American. But you “accept them” (what does that even mean? what other nationalized things would you “accept”?).

          If part of America’s economic issue is that we’re too regulated and centrally controlled, please show me a country that’s doing better that’s less regulated and centrally controlled. Also, please address how less-regulated capitalism (without a safety net) isn’t linked to the kinds of vicious boom-bust cycles that we’ve seen in American history and South America in the 90′s-2000.

  10. HP says:

    Agreeing with lelnet:

    Sure, let’s have some different ideas for how to get money quickly.

    But once you get that money, what are you going to do with it?
    If we could tax the $10+ million rich at 75% for a year or two (even on their wealth), tell them “we’re taking your money for the good of the nation”, we’d still hardly make a dent in the debt.

    If all the money we taxed went to paying off our highest-interest loans and working down from there (the way a halfway-intelligent individual would), then we could make some progress. But the government will never do that.

    How do we know?
    ’cause they’re not now. It’s not like the US has no money coming in; we’ve still got industry and tax revenue. The problem is the ludicrous amounts of it that we’re pissing away on foreign aid, UN dues, entitlements for the poor (who are paying nothing INTO the system), and random ridiculous shit like the National Endowment for the Arts…and et cetera. It’s like complaining about your credit card debt and taking out loans while refusing to cancel your $300/month cable subscription.

    TL:DR – Until we can get spending under control, revenue doesn’t matter; we’re just wasting all the money we take in anyway.

  11. lilsheep23 says:

    I think Pastabagel is being disingenuous here by omitting Buffet’s Giving Pledge. If the man has already pledged to give away 99% of his wealth during his lifetime or at death than why the attempt at misdirection?

    I think this is cynicism gone awry: man pledges to give away all of his wealth by his death and is secretly hoarding said wealth until the last of his day, hatching plans to stave off a wealth tax by becoming an outspoken critic of a lopsided income tax system.

    I’ll take that bet.

    • sunshinefiasco says:

      Forget about Buffet as an individual, his point isn’t: I’ll pay more income, but I don’t want a wealth tax.

      His point is: I, and I’m pretty sure my friends, don’t give a shit about paying more income tax. In fact, the tiny amount we pay is kinda bullshit.

      Of course he isn’t gonna come out for a wealth tax… a bunch of the people he’s speaking for don’t agree on that. But apparently some of them agree on income tax, which is something that people don’t know, and something to shut down the bat-shit tea party types who claim income tax impacts those people.

      • lilsheep23 says:

        I don’t necessarily disagree with you, except to say not all of the rich are in agreement with Buffet; however, Pastabagel’s post was partly about the man’s motives and not his friends.

        I agree with you that the wealth tax is not something he would touch if for no other reason than he doesn’t want to be laughed out of the room.

  12. max says:

    Uhh, okay. His suggestion seems to be nationalizing the stock exchanges, not everything.

    At the risk of troll feeding, let me expand somewhat.

    Even the most staunchly Libertarian (with a capital “L”) agree with the concept of public goods. The fact that some resources are both scarce and essential to life make the concept undeniable. What is debatable is the degree to which any given resource is really scarce or essential to life, and this debate is one reason we have a government in the first place.

    Sometimes a once novel resource (telephone, broadcast spectrum, airspace etc) becomes essential to life through technological evolution or social dependance, and changes into a public good. There are government standards that regulate almost every aspect of our modern world, from the width of train tracks to the voltage of household electricity to the temperature your milk is subject to when undergoing pasteurization. Some of these standards have a scientific basis, but most were arbitrary or merely codified existing industry practice as a way to create order in the marketplace and assure a consistent quality of goods.

    I would argue that one roll of government is to identify when a resource is becoming a public good, and assert itself in order to protect the general welfare and create order in the marketplace. We are at that stage with the financial sector in general and the stock market in particular. At the same time we are talking about cutting social security and encouraging the use of 401ks to invest in stocks to pay for retirement, 70% of stock market volume is driven by high-frequency trading algorithms that game the system and siphon off value. The private stock markets sell proximity to their trading systems to the highest bidder to provide them with microsecond advantages over other players.

    You can’t have it both ways. Either stocks should be encouraged by government as a retirement vehicle for every American and traded on a level playing field in a transparent marketplace with strict regulation, or they should receive no special treatment and continue to be run like a casino.

    I also agree with Nassim Taleb in that the utilitarian functions of banking should be treated the same as utilities, and separated from the risk taking aspects of banking. We need to divorce the systemically important functions of finance from the risk-taking portions. Only then can we have a marketplace that operates for the benefit of all.

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