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?