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.
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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.
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Romney, who is worth $250 million, rejects Buffets call to make tax code progressive rather than regressive: http://bit.ly/n28lwi
Municipal bond income is not taxable. The superrich can afford to get a slightly lower rate than in, say, CDs or other vehicles, because they have so much principle. And it’s not taxed. So they can call for increased income taxes and look pretty generous. BZZZT. The last flat tax I saw seriously proposed had an exemption for families of $36,000 and was, iirc 15% on the rest with no other deductions. The proposer insisted that would be revenue neutral. I’m guessing it would be for me, more or less. The person who wants to defund Defense is invited to… Read more »
Nice try, Aubrey, but nowhere did I write that any country, even one as scabrous as the United States of America, should eliminate its capacity for defense. As for cops, do you seriously equate the DEA with some sort of useful function in society? If so, you need help of the sort that I am unqualified to give. There are alternatives to standing armies of the sort entailed by the Department of Defense. Indeed, considering the sorry record of team USA in the post-WWII era and the bald fact that the US uses its military mainly as a means of… Read more »
Sigh. The flat tax system applies to what you buy, not your paycheck, at least if we’re talking about the flat tax I’m thinking of. So, you get ALL the money you earned in your paycheck, but whenever you buy something, you pay more (25% tax rate on a television, for example). Food is often tax free, at least in my state, so a 25% rate wouldn’t apply. So you would no longer have individual sales tax. Just a 25% flat tax on things you buy.
But again, I could be confusing this article with the tax system in France.
That’s called a Value Added Tax (VAT) or also known as a National Sales Tax. A Flat Tax is a tax on income with a single tax bracket for all income levels. A person making $10,000/yr would pay $2500 in taxes and take home $7500. A person making $100,000/yr would pay $25,000 in taxes and take home $75,000. A flat tax is inherently NOT a progressive tax. The current income tax in the US is progressive for most income brackets, until you no longer have “income” and instead make most of your money through “carried interest” which is both taxed… Read more »
Warren Buffett fails to mention is that investment income has been taxed twice (once at 35% marginal income tax rate and secondly as capital gains at 15%). It’s deceptive to lump these two forms of income, average them at 17% just to make it seem to people that Uncle Sam isn’t taxing you enough. If instead of investing that money Buffett spent it all on candy bars, he would have paid perhaps 6% in sales taxes to his state but nothing more to Uncle Sam. And Buffett’s average overall tax burden would have been 33% or so, instead of 17%.… Read more »
The majority of Americans have too much debt. However, those, like Buffett, who live off of investments, generally don’t. At least, it is not a problem for them as it is for the rest of us.
We don’t “steal” from the Social Security Trust Fund. Those who would place it in a Lock Box™ conveniently (or ignorantly, I’m not certain) fail to mention that the trust fund is invested in Treasury Securities by law. By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are “special issues” of the United States Treasury. Such securities are available only to the trust funds. In the past, the trust funds have held marketable Treasury securities,… Read more »
Only cash is cash. If we’ve learned anything from this latest cock-comparison festival, it’s that the government is willing to discharge obligations to creditors before retirees. There was no question bondholders would get a cheque before my step-mother. That’s abysmal.
The cap on Social Security wages must be lifted. In return, Medicare reform should be pursued so that those over their actuarial age ceiling don’t get “hero-care” that is publicly funded. This is the path that combines fiscal sanity and the least moral trangression.
How about this while we’re throwing out tax structure ideas: Instead of taxing income at the first dollar earned, let’s start impose a flat tax at just above the poverty line (or some other arbitrary level of income). That’d make the system a bit more progressive.
For sure Matt. Hell, how about we say the first $50k of family income is tax free?
We do not start taxing at the first dollar. That is the “personal exemption.” However, it is absurdly low.
You go Kirsten!
The FED doesn’t need 25% of every earned income in order to operate at its current level. 11 to 13% is all that is required. Proposing to take 25% of the earned income from someone who works at McDonald’s earning $7.50 an hour is completely absurd! Why work your way up when you could do better with handouts.
You guys kill me.
Buffett’s call to stop coddling billionaires is at best ironic, although I’d suggest it’s more along the lines of disingenuous, given that just last year he published an OpEd in the NYT thanking Uncle Sam for the bailouts:
http://www.businessinsider.com/buffett-the-us-bailouts-have-been-a-smashing-success-2010-11#ixzz1V6ox0Gr1
And he wholeheartedly supported them before the fact as well:
http://www.guardian.co.uk/business/2008/sep/24/warrenbuffett.wallstreet
Perhaps before we resort to looting the poorest of the poor for 25% of their income, we might consider ending billionaire bailouts delivered on the backs of the poor and middle class?
Tom, you cite Warren Buffet as telling the federal government to stop coddling billionaires and quote him as advocating more taxes for the rich. I documented out above that Buffet was wholeheartedly in favor of taxpayer bailouts of the rich. I have now learned that the federal government has been trying to squeeze bailout beneficiary Berkshire Hathaway for more taxes the government says it owes. Berkshire Hathaway, of which Warren Buffet is chairman and CEO, has been resisting paying the taxes the government says it rightfully owes for nearly a decade: http://taxprof.typepad.com/taxprof_blog/2011/08/warren-buffetts.html What do you make of this, Tom? Does… Read more »
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. Sigh. How would you get rid… Read more »
The flat tax is a simple solution to a complex problem that appeals to the simple-minded. Once again, Tom Matlock fails to apply critical reasoning to his hastily conceived ideas. Yes, that is an ad hominem argument.
Consider this: We tax income, but the services we consume (fire, military, police) are employed to protect wealth, not income. Given this, does a regressive or progressive tax fit better with the consumers of the services governments provide?
Thanks for the reminder that Social Security is not just any old program for destitute people. It’s a buttress for those who just aren’t going to hold on in the workforce anymore, unless we want to tell young workers to hold on until they’re forty or so. That said, I advocate no borrowing whatsoever from the SSTF, regardless of the bonds that are in it. This last monkeyshine by the Feds convinces me that any government, GOP or Dem, will pay rich Chinese before poor Americans. Come to think of it, how about abrogation of debt to the Chinese as… Read more »
The thing Kevin is that everyone says the flat tax would be regressive. What Buffett points out so beautifully is that the CURRENT system is massively regressive. Cap gains and carried interest insure that guys like me pay less on a percentage basis than folks working their asses off to make ends meet (not that I don’t too but you get my point). I just hate that no one, even really smart people with advanced degrees, even understands the tax code. I need like five guys to explain it to me. That is dumb. But then I see forbes and… Read more »
It’s only the middle class getting squeezed. The poor have the EIC and other tax credits that offset the effects of payroll and Federal income tax. But if you don’t understand the tax code, perhaps you should refrain from offering fixes to it. A flat tax would be more regressive to the poor than our current tax system (unless you carve out special exemptions, which starts you down the same path we’re currently on). There are two distinct problems with our current tax structure: 1) The wealthy don’t have “income.” There’s nothing wrong with the current high marginal income rates… Read more »
Tom, The flat tax is an excellent idea but unfortunately any politician that brings it up seems to get plumbed. I guess its not popular to get rid of all the spending on the IRS and increase revenues to the the gov’t while reducing the overall tax burden of most Americans. Crazy.
I wholeheartedly agree with fair flat tax across the board. As a self employed individual, taxes and insurance are stifling any growth I may be able to generate in my business. On top of the egregious tax rates we pay, the TIME away from our business, just complying with IRS rules and regulations is a drain on our productivity. I would love a flat tax, it would save me a ton of headache and eliminate my need to hire a tax accountant. (he might not like this idea, but he’s a smart guy, he’d do ok). Never do I hear… Read more »
Amen Tracy!
I’m ready to rid this country of the wastes known as the Department of Defense and the Drug Enforcement Administration whenever anyone else is.
I can’t see how Warren Buffet can justify charging 25% tax to some one making !0,000.00 a year. $2500? A 25% flat tax would slaughter the low income of our country.