Before we get into the details…Buffett points out the single biggest logic flaw of all the arguments from those who oppose higher taxes for the wealthiest. And it’s stupid simple.
Suppose that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”
Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.
In other words…people want to make money. And whether their profits get taxed at 15% or 25%…they’ll still want to keep making money. Duh.
This also goes back to my firm belief that a lot of Americans DO NOT understand how our progressive taxation system works. Granted, this is based on non-scientific evidence, but I bet you that if you asked 20 people how we were taxed, at least 5 would say that when you earn over a certain amount of money…it’s ALL taxed at that rate, not just the amount that goes above that threshold. I was shocked at how many of my friends and colleagues didn’t understand something this basic, but they didn’t. And that’s what the Norquists of the world have been preying upon.
Anyway, back to Buffet’s proposal…
The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.
A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.
This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.
Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.
It is simple enough in theory, but does anybody think it’ll fly with Congress? Seriously doubt it. Especially when the House is still under GOP control.
Still, there have been signs that Republicans are willing to work on this and ignore the Norquist pledge. But they’ve said that income tax rates can’t be touched. Revenue must come from other sources. Is that a sign that they’ll agree to up the payroll tax and hike the capital gains tax?
At this point, I’m not really sure what we’re going to be seeing with regards to a grand bargain, but I like Buffet’s plan.
What do you think?