Warren Buffett has a solution to our deficit problem, and perhaps even our economic downturn: make the tax code fair for every one, even the super rich. In an OpEd today in the NYT he points out how crazy the code currently is:
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.
He makes clear that the discrepancy has to do with the characterization of income as capital gains, which gets taxed at 15%, and the unfair burden of payroll taxes on the less affluent. He explains that many in the financial world get paid via a “carried interest” in their investment vehicles which allows them to characterize the bulk of their income as capital gains even though it is debatable whether they really are.
The bottom line is that normal people pay upwards of 40% of their income in taxes and folks like Warren Buffet pay half that amount. His solution?
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.
I have an even crazier solution: blow up the IRS and the IRS code and impose a simple flat tax of 25% of all income–poor, rich, even corporations. Do away with punitive payroll taxes. Do away with all deductions. Forget about the social security trust fund since we steal from it anyhow. Use the government to provide services to people who need it, the under-privileged. But don’t differentiate in terms of taxes. Make it simple. And for goodness sakes don’t construct a code where the rich pay less as a percentage of their income.