Warren Buffett, the mega-billionaire American investor who teamed up with Microsoft's Bill Gates to create an epic philanthropic endowment, may have performed his greatest public service this week with an op-ed piece in The New York Times. He bluntly told Congress in that essay to quit coddling the mega-rich, whose fortunes have soared in the past 20 years at rates far above the imperceptible gains of ordinary wage-earners, and to levy an income tax on this ultra-rich elite like they paid in "back in the 1980s and 1990s, (when) tax rates for the rich were far higher."
"While the poor and the 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," he wrote. With the nation struggling to reduce deficit spending, he argued, those breaks should be eliminated so the rich can participate in the "shared sacrifice" that budget hawks say they seek.
"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."
"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," he said. "It's nice to have friends in high places."
Buffett, the chairman and CEO of an investment firm whose personal fortune is estimated at $47 billion, explained that all his federal income and payroll taxes last year amounted to $6,938,744. "That sounds like a lot of money," he wrote, "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 said, citing rates which apply to typical high-earning wage-earners. By contrast, he said, his federal income tax rate represents the "carried interest" rate of 15 percent on investments that mainly benefits the nation's ultra-wealthy investing class.
"If you make money with money, as some of my super-rich friends do," he wrote, "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."
That percentage gap is the key to his argument that the mega-rich simply aren't being taxed nearly enough. He classified that group as the top three-tenths of the top one percent -- the "236,883 households in 2009" whose annual earnings were above $1 million -- as those whose taxable income rates should be raised. He recommended even higher investment taxes, especially on dividends and capital gains, for the richest subgroup of that number, the 8,274 households counted by the IRS in 2009 whose annual income rises from more than $10 million a year into the billionaire super-strata.
His argument makes sense. He noted IRS figures which showed that in 1992, the nation's 400 richest households had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. By 2008, he wrote, "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."
That discrepancy, to be sure, has been pointed out by other economists and political leaders. But Republicans have ardently protected the rich from fair tax rates relative to what ordinary, struggling Americans pay.
Buffett's argument is less a scold than a patriotic offer. He sees his wealthy friends, by and large, as "very decent people" who would willingly pay a fairer share if asked, "particularly when so many of their fellow citizens are truly suffering." He also emphasizes that paying higher taxes would not inhibit investments. "People invest to make money, and potential taxes have never scared them off."
"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."
Buffett's argument is compelling, sensible and just. If Republicans would embrace it, the harmful effects of the wealth gap and the tax breaks that perpetuate it could be reasonably resolved.