Open letter to Warren Buffett:
You wrote an op-ed in the New York Times today titled “Stop Coddling the Super-Rich”, that is riddled with hypocrisy and inaccuracies. I have great respect for you as a person and an investor, but this piece was a bit over the edge. I feel obliged to write a rebuttal to your op-ed. I am not against higher tax rates for the rich (I am all for it, if it will be part of a package to reduce the budget deficit to 3-5% of GDP in the coming years). I am only responding to arguments that you made in your op-ed today. Your comments I put in italics, and my responses are in regular font.
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.
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You consider anyone making over $250,000 to be mega rich (or at least Obama does, and you have supported his policies for higher taxes on these people). I know plenty of people who were making above that and lost their jobs and are suffering terribly; family friend who was working at IBM for 35, another one who was working at Weyth and got laid off after Pfizer acquisition. Someone who worked in financial services for 20 years who is now a handyman. These are three of dozens of stories I know of. You might not be suffering but these “mega-rich” are.
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.
Who said the ultra rich support the war in Afghanistan? I might not be in your elite club but I think the war is lost and we should bring our boys home. Any evidence that the rich support the war more than the middle class? Besides all the recent polling I have seen shows most Americans want our troops home.
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.
Warren Buffett you stated that you believe in a 100% tax on short-term capital gains, paid not only by taxable investors, but also by tax-exempt pension funds. You are contradicting yourself which one is it, why are you using traders paying higher taxes to further your argument, when in fact you favor much higher taxes on these people?
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.
It is true that Washington is beholden to rich supporters. But they also are beholden to big corporations, and we still have the highest corporate tax rate in the world after Japan. They also are beholden to unions like the teachersunion, which can grant them 3 million plus votes with the stroke of a pen.
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.
This is the biggest fallacy that you keep repeating over and over. Even if the highest rate was raised considerably it would barely effect you since most of your income comes from capital gains. This topic is discussed at length in a previous post here- https://www.valuewalk.com/warren-buffett-berkshire-hathaway/how-is-warren-buffett-in-such-a-low-tax-bracket/.
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. suggested a 100% tax on short-term capital gains, paid not only by taxable investors, but also by tax-exempt pension funds.
Not sure what you means about payroll taxes, and not sure what you means the mega rich pay 15% capital gains, which you have not called to increase? Are you referring to hedge fund and private equity managers? If so I agree they should pay normal rate since is their principle income but why shouldn’t you also be taxed at normal rate instead of 15%?
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.
You still had a low rate due to the issue discussed above, are you calling for higher capital gain taxes?
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.
Are you calling for capital gain taxes? If so please just say it straight out like you have done with regular income taxes on the rich. Until then your arguments do not make sense.
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.
Because of the same issue you keep skirting; capital gain taxes.
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.)
This has to do with tax loopholes and not the the highest tax rate being too low. Raising taxes would not solve this problem, closing tax loopholes would, which you do not address.
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.
There is a difference between giving money to Government and giving money to philanthropy. When I see how federal subsidies are doled out to my local district, calling that charity would be a total fallacy. If you and your friends do want to give more money to the Government then please write a check to the IRS and send it to:
Department of the Treasury
Internal Revenue Service
Fresno, CA 93888-0002
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.
Agreed but no specifics here.
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.
This will not solve the issue you just raised above, since entitlements are much higher than reported in official Government statistics, and the cost of Medicare, Medicaid and social security keep rising and will continue in the future. How does raising taxes on the rich solve the other side of the problem, which is the liabilities side? I agree with raising taxes, in fact if we got rid of ALL the Bush era tax cuts we would be on our way to balancing the budget. However, in fairness maybe the taxes should only be raised on the most well to do, but we will need to come up with trillions of dollars in cuts. You make it appear as if just raising taxes would solve our problems. I think you know this is a fallacy.
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.
This is the first time you are calling for a capital gains tax increase, is that correct? If so you have finally done so for the first time in years. This will have a significant effect on your taxes. I wonder why you waited for the end of the article, which most readers do not get to; to make this very startling statement.
I would go further and have a taxon ASSETs for anyone with over $500 million, other countries like Switzerland have this. Why have you never called for an asset tax, would it be unfair to the mega,mega rich like yourself?
You also are now classifying the rich as making over $1 million, President Obama classifies it as making over $200k (for an individual). That is a big difference of 5x (you know a bit about basic math) which one is it?
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.
Billionaires or millionaires as you stated above? You are inconsistent on this point. Someone making a million dollars a year is not a billionaire it would take them 1,000 years to reach that level assuming zero spending.
Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.