Op Ed
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.
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.
To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.
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.
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.)
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.
Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.
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.
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.
Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway
[Emphasis mine]
When the rich say they should be paying more, its time to listen.
Further reading: Politico
Mr. Buffet is correct. We all have to make sacrifices for the good and well-being of our nation. Our troops understand the meaning of sacrifice. Time for other Americans to step up to the place.
Maybe Uncle Warren should set an example and cut a 5 billion dollar check to the government. Money talks, and a BS op-ed walks.
Why should he do that single-handedly? That makes no sense.
What do you think of CARB?
Also, I see where google has bought Motorola MObile. Is that their entire cell phone branch?
Sure it does. Action speaks louder than op-eds.
CARB: technically it looks OK. There might be a few additional bucks it can squeeze out, but I don’t like the model. It’s the same sort of play as Netflix – few barriers to entry, no unique value proposition and the minute a deep pockets competitor gets into the game in a serious manner there will be all kinds of pressure on the business. Revenue growth is slowing in CARB, customer acquisition is in a downtrend and free cash flow is weak. Tread carefully in this name.
MMI includes both the handheld and set-top box parts of the old Motorola business.
I wish I had bought nflx in the early days.
Will MMI remain MMI? Also, when did Motorola change? I think I used to own a little motorola before it became MMI. Did I imagine that? I just can’t remember.
I’m with Cato on this. If Mr. Buffet wants to show some leadership have him drop a check to Uncle Sam with “Infrastructure” on the memo line. Or Food Banks. Or whatever his pet project is.
Otherwise this is the same argument he’s been making for awhile and hasn’t gone anywhere.
My understanding that Mr. Buffet is rather clear that he is referring to those making over $1 million/yr. This is to hit those who make their money through capital gains, and wind up paying only 17% as opposed to 28+ or so. So he’s not referring to over $250k, which is where the small-business owners are. Buffet seems to be clearly focusing on the “banker fat-cats”. The idea, I suppose if to eliminate loopholes. I’m on board, so far. You want revenue, there’s some revenue. Sounds like a good compromise, and while it won’t solve the problem, along with spending cuts, it will help. There is the whole “write a check to the treasury yourself” argument, which I normally would support. Here’s what I can’t reconcile: the ultra-rich don’t write a check to the Government because they know it will get spent on silly stuff (building a Senator-named International Airport in Lower Slobobia, South Dakota) as soon as it arrives at the treasury. So I don’t know all the answers, but I can see no reason why Mr. Buffet shouldn’t get what he’s describing here. To me, sounds like a good potential compromise. And yes, it all comes down to “if it doesn’t take money out of MY pocket, then go right ahead!”
@slowpoke,
If you don’t hold those stocks for a year, you will be paying tax on them as earnings or like dividends, not capital gains. I rather like that loophole. Someone like me sure isn’t getting rich off the system.
I would say the rich don’t write a check because the same reason we don’t. Its all relative.
Pokie, is there a NIMBY expression for “if it doesn’t take money out of MY pocket, then go right ahead?” We need one.
I still say that it would be easy to write tax code to exempt small business owners. I would even give them tax credit for hiring.
The main problem is…..somehow it’s always the middle class that gets the screws when it comes to revenues. Class warfare? You’re damn skippy it’s class warfare, and my wife, two kids and I in the middle class are really sick of those who pay nothing, on both extremes of the spectrum.
Slowpoke, I agree with you re the middle class. I understand why very poor people pay nothing but how many people are really that poor. I wouldn’t care if some people just had to pay $5. Its something.
@Moon-howler
Stocks for a year…..right, but the ones we are talking about aren’t day-traders….they’re professional investors who take that one-year rule into account, I’m sure.
Agree about why you and I don’t write a check, but I’m not out there saying “tax me more” either. I’m not aware of an expression or acronym for “stay outta MY pocket”. I’m a Pink Floyd fan, so I like “keep your hands off of my stack” 🙂
Luckily, my stack is small enough that I can keep my eye on it 🙂
Hedge fund managers’ incomes are taxes at low capital gains despite that what they do is, for all practical, purposes, ordinary income. I agree with Slow
OK, so now my point is simply this: if Starry and I can compromise and agree on something…why in God’s holy name can’t the fools in DC?
That is an excellent point, Pokie. I guess it isn’t in their political self interest to agree. That is the part that makes me sick. You and Starry have nothing to lose. Well…maybe a little pride here and there but even so….
Oh, and we agree on getting the heck out of Iraq and Afghanistan, I think…so let’s get on that, too. 🙂
Pokie, I think we had better take what we can get. I agree on getting out of all the wars. Our people get killed and there are no clear cut goals. Cynic that I am, I don’t think that Democracy is for everyone. If you don’t have the gumption to go after it yourself, then perhaps it is not deserved. Ohhhh that was cold.
Probably, because I don’t think this deal is going to go through 🙂
Antitrust guys should be all over this.
Well, viewing it from the perspective of a “professional history student”…..one cannot plop a form of government on top of a people who have lived a certain way for thousands of years and expect everything to be splendid. Does anyone here disagree that within a generation of us leaving either Iraq or Afghanistan, that it won’t go right back to the way it was before? Unless we’re stupid enough to set up shop forever, that is.
In most cases (not all, but most), change has to come from within.
@pokie, not a professional history student here but…I don’t think it will take a generation.
The thing that makes me the saddest about the Vietnam War Wall is this nagging feeling I get about why 60,000 young men died in combat. I really don’t feel they were defending their country. The WHY will always bother me.
I understand WWII. I don’t understand Vietnam, from a viseral point of view.
@Moon-howler
I’m with you on Vietnam. That seemed to be more about politics than defending our way of life or our homeland. That doesn’t in any way belittle what those young men did….they were soldiers, who do what they are told to do. If there is any fault or blame to why we sacrificed those young lives, it lies squarely with politicians. I don’t see anything wrong with that way of thinking. All that being said, I was never terribly interested in recent history, and I don’t pretend to know much of anything about that war. My dad was in the Army after Korea and before Vietnam. He had some involvement during the Cuban missile crisis, but he never thought much of the war in Vietnam.
@Pokie, Agree 100%. My statement was never to detract from the mission they did. I don’t think my own parents thought much of it either. They didn’t want me involved in any of the protest business but that was because ‘nice people didn’t do that,’ not because they liked Vietnam. They were WWII vintage.
I feel like my generation was used for cannon fodder or something. Politics. I actually didn’t know any on the wall. Why? I was in college and college boys got deferments. My brother in law who is my age is a Nam vet but he flunked out of school. My husband at the time wasn’t called up because he was married (to someone else.)