Advancing a Free Society

Does Warren Buffett Need the IRS to Make Him a Good Samaritan?

Monday, August 15, 2011

Billionaire investor Warren Buffett wants the federal government to stop “coddling the super-rich,” as he writes in the New York Times. The 236,883 households that make at least $1,000,000, Buffett advises, need to pay more taxes and “share in the sacrifice.” As an exercise in moral preening, Buffett’s op-ed works well. But it doesn’t offer anything useful for solving our debt crisis.

What Buffett doesn’t mention points to the problems in his analysis. (See Tim Worstall at Forbes for another flaw.) For example, Buffett finds it objectionable that 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.” Yes, but those lurid numbers leave out the fact that the lower rate generated $19.5 billion in revenues, compared to $7.47 (in 2008 dollars) billion generated by the higher rate. That helps explain why during this same period, revenues increased by $820 billion (in 2005 dollars), and the percentage of income taxes paid by the top 1% went from 26% to 38%. Increasing revenues, not satisfying simplistic notions of “fairness” based on tax rates, should be the objective of our tax code.

Then there’s Buffett’s argument that the super-rich get a break because they mostly escape the payroll taxes paid by the middle and working classes. But that’s comparing apples and oranges: in the long run payroll tax monies are returned to workers or their survivors in the form of disability, unemployment, Social Security, and Medicare benefits. In most cases, workers will receive much more in benefits than they paid in taxes, which is why economist Robert. J. Samuelson has called Social Security “middle-class welfare,” a pay-as-you-go program the benefits of which can be increased to gratify voters. Income tax monies, however, are at best only indirectly returned to those who pay them, often for programs taxpayers feel are unnecessary, wasteful, or immoral. More important, entitlement spending and mounting debt are on track to bankrupt the country, a fate that raising marginal tax rates will not avoid.

Finally, there is the whiff of bad faith in Buffett’s argument when he says he and his mega-rich friends “wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” Of course, many others would mind very much having the federal government determine how their money should be spent. But more important, if Buffett et al. think they should give the government more money in order to alleviate the suffering of their fellow citizens, then they should write a check to the Gifts to the United States, U.S. Department of the Treasury, Credit Accounting Branch. After all, the Good Samaritan didn’t wait around for the Romans to legally compel him to do a good deed.

(photo credit: Jesús DQ)