Warren Buffett Should Make a Better Argument

“A public-opinion poll is no substitute for thought” – Warren Buffett

Warren Buffett, the Oracle of Omaha, penned an op-ed in the New York Times today declaring that the government should “Stop Coddling the Super Rich.” There’s nothing new really in the piece, Buffett has favored higher taxes on the super rich for a long time. I recognize that Warren Buffett is not a columnist – he has better things to do with his time. That said, he really should make a better argument.

It’s a short article and worth a read. The gist of the argument is that Buffett and the super-rich, who make their income from something other than wages, pay lower tax rates than high wage earners, and that this is a bad thing. I generally agree, it’s silly that Buffett would pay lower taxes than his secretary (a claim he has repeated several times). Beyond that though, the argumentation leaves a bit to be desired.

First, a backstory note on the nature of the tax burden. The true measure of the level of taxation is spending, not revenue. What the government spends is what you and I are responsible for. Whether they take it from us directly (via taxation), borrow it to be paid later (by taxation), or print it and devalue the rest of our money (inflation) – it is spending that measures the overall burden. Discussions of tax policy are merely discussions of how that burden is parsed out (and they are worthy discussions, to be sure). Spending will come up again shortly …

Why does Buffett pay less?

As he notes, the federal government takes in some 80% of its revenue from income tax (about 45%) and payroll taxes (about 35%). Payroll taxes consist of a 12.4% Social Security tax on income up to $106,800 (in 2010) and another and 2.9% Medicare tax with no cap. The cap on the Social Security portion is huge. You see, when someone makes $50,000 a year they pay the full 15.3% in payroll taxes. However, someone making $50,000,000 a year pays $13,243 in Social Security and $1,450,000 in Medicare, for a total of 2.926%. That’s not to say that the guy making $50,000 pays a higher tax rate – he probably doesn’t (unless he’s single and has no deductions). He does, however, pay a higher payroll tax rate.

Now, you could easily say “why not end the cap on Social Security?” That has some political fallout though. The proponents of Social Security have worked hard over the generations to defend the program on the basis that it is not simply another entitlement program to transfer wealth from the rich to the poor. Thus, they cap the contribution and cap the payout. To keep this facade, they’d have to remove the cap on payouts at the same time as removing the cap on inputs. That’s always been a non-starter.

Maybe politicians don’t really care about the political fallout anymore. Social Security is about to be defended by a massive swell of baby-boomers, and could possibly survive the anti-redistribution backlash.

Another reason Buffett pays less is the nature of wage taxation. We have a progressive tax on wages – but Buffett and the super rich make most of their income through investments, which incur capital gains and “carried interest” taxes that are generally lower than the top tax rate. (As we noted back in “Tax Cuts for the Wealthy” – the system is designed to allow the rich to be rich and make it hard for others to break in by earning more.)

There are lots of remedies here

Buffett points to a simple remedy in the title of his article: stop coddling the rich. Buffett’s solution then is to raise taxes on the wealthy. I say we should cut taxes on everybody else. (Of course, I also say we should cut spending too.) If Buffett’s only beef is that regressive taxation is wrong, then cutting taxes at the bottom solves the problem.

(As for “coddling” it is worth noting that Congress rarely coddles for no reason. They give the payouts to whoever they will because of prior or promised political benefit. These tax benefits exist because the rich have paid for them.)

So why does Buffett feel he should pay more taxes? It seems to be only “regressive taxes are bad” or “I’m Warren Buffett so you should listen to me.” Perhaps these are good enough, but the discussion is full of holes that Buffett makes no attempt to close.

For instance, one solution, hinted at by many conservatives though clearly not embraced by Buffett, is that he could simply write a check to the federal government for whatever rate he thought was appropriate. He hasn’t, and likely won’t. I don’t begrudge him this fact – I wouldn’t write the check either. I propose though that Buffett’s refusal to simply gift the extra money to the federal government offers insight on to his true policy preferences, though we’ll have to infer a few things.

Taking what they give you …

A good friend and I had a back and forth on this issue earlier today. He noted that I have defended Tea Party and other conservative legislators who have taken pork spending for their districts and constituents; or the decision of those in need to accept help from government programs they might otherwise oppose.

I defend the practice of taking pork on the grounds that federal taxation and spending for wasteful projects will not be stopped by my refusal to participate (supposing I’m a legislator in this example). My constituents have already been taxed (to high heaven!) and pork is one of the only means I have to get a little bit of it back for them. Hopefully it will trickle back into the local economy.

Should we get rid of all pork spending? YES! But until we do it is unfair to ask some members of society to bear the burden of pork to benefit others.

Similarly, when the government wrecks the economy with tax and spend policies (much of it to entitlements), it is not an endorsement of those policies to accept the meager help they offer. Their system caused the economic hardship in the first place. (See I am Firmly Opposed to Face Punching.)

None of these seems to fit Buffett’s case though. He has free will to give money as he sees fit (as opposed to already having been taxed and taking some back in the form of programs he would otherwise oppose). And yet he does not write that check! Why? Is he just taking what they give him? I don’t think so.

Still, he is doing something (paying low taxes) that he would otherwise oppose. We can either label him a hypocrite and move on, or try to dig for understanding.

The simple explanation …

The simplest explanation I can conjure up is that Buffett doesn’t mind paying higher taxes as long as he gets to tell everybody else to too. That is, he could simply be one in a long line of Conscientious Cowards, who “don’t mind” getting caught up in higher taxes as long as everybody else has to pony up too.

Such cases show a rather flagrant disregard for equality and assume that “people like me are superior, and should make determinations for everybody else.” I prefer to give Buffett the benefit of the doubt though, so we’ll have to come up with a better explanation.

Buffett ain’t greedy

Perhaps he is just taking the tax rates as they are stated and paying no more, but people like that don’t really ask to be taxed higher.  Besides, Warren Buffett gives a ton of money to charitable organizations.

He notes that many of his wealthy friends “wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” (Yeah, I don’t mind either …) Again, they can write a check to the government any time they want, but they don’t, they choose to give the money instead to private charities. Why?

They know the answer, but don’t appear willing to give it. The underlying “ick” feeling they have about writing that extra $25,000,000 check to the government comes from a firm knowledge that the government wastes money – money they worked hard to accrue. The government wastes it. The government pays it out to cronies; the government pays it out to those who don’t really need any help, but somehow qualify under the legal conditions of the entitlement program; the government blows it on unnecessary and frivolous expenses or a bloated bureaucracy – and the uber-rich know it. (And so does everybody else.)

When they want to actually help somebody, they understand that the best and most efficient way to do so is to do it on their own, outside the confines of the federal bureaucracy.

He’s right, for being so wrong …

I submit that Buffett and his hyper-wealthy friends actually have it right. Simply handing the money to the government won’t help nearly as many people as private charities. It doesn’t come out in the commentary, that’s just mostly self-congratulatory tripe about how he (a noble citizen) doesn’t mind doing more for the little guy. But down deep, you have to come away with the impression that Buffett and the rest don’t trust the government enough with their own money to funnel their charitable endeavors through the bureaucracy.

This is wisdom. The government is not nearly as effective at helping people as private charities, so those who wish to help push their money toward charities. It would be good enough if they left it at that, but alas they want to make sure the rest of us “do our part” too.

Hint to Mr. Buffett – we also give a lot of money to charities to help those in need. If we had more money back from the benevolent government, we’d have more money to do more good with. Since it is apparent to all of your super-rich friends that this is a more efficient way to help, perhaps you should support lower taxes and lower spending and let us get to work.

So …

So, Mr. Buffett, I have surmised three explanations for your position that you do not clarify. Are you a hypocrite, proclaiming what is right and refusing to do it? Are you an elitist, feeling that you should have rule over everyone else (doing your part too, of course)? Or, are you really a benevolent, anti-entitlement sort who wants to help as many people as possible and recognize that the government does a very poor job of this? Please, pen another op-ed to clarify.

The real giveaway …

While it is likely a better subject for another post, one wonders if Warren Buffett will also come out in opposition to the fiat currency model. Inflationary policies have been quite a boon to the wealthy. For one thing, it inflates asset values, benefiting the wealthy. (The top 10% of the wealthy own 80% of the stock market – and that’s who benefits when another market bubble is blown.) Further, it forces the poor and working class to face higher prices on lower wages (this is a transfer of wealth from poor to rich). We talked about this last month in “Just Weights and Measures … and Money.”

So, will Buffett come out and address a true economic injustice issue? Considering that he holds a great deal of stock in various banking and financial enterprises, I doubt it. (Remember, it was Warren Buffett who claimed that the U.S. should have a “AAAA” credit rating … not that his investments are in any way tied to such a rating …)

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3 Responses to Warren Buffett Should Make a Better Argument

  1. “If we had more money back from the benevolent government, we’d have more money to do more good with.”

    This seems to be the key point of division. With lower taxes (and presumably *flat* taxes, which I assume you support) and the requisite elimination of entitlements, would more good be done? Would the country be “better” in any objectively measurable sense? It is possible, and indeed I suspect, that the Tea Party simply *does not care*. It does not matter what is better, it matters what is Right, with all intended force of capitalization. This is theocracy (last time I checked, Right was something that *we agree on* democratically), which I have no idea how to argue with.

    Having said that, I don’t have any kids or elderly dependents. I am in the comfortable position of being able to be coldly, clinically curious as to what would happen. That is, let’s be scientific to the extent possible: put the American people in a Petri dish, vote for Paul (who makes slightly more sense) or Bachmann (who is completely nuts), and let’s watch the show.

  2. Pingback: Babies and Bathwater, Statists versus Libertarians, and Golden Rule Christians | Freedom at Bethsaida

  3. Pingback: Bad Politics, Bold Lies, and Buying Votes while Propping Up the Wealthy | Freedom at Bethsaida

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