Higher taxes for ultra-rich

Higher taxes for ultra-rich

November 29th, 2012 in Opinion Times

Warren Buffett, chairman and CEO, Berkshire Hathaway, Inc. (AP Photo/Cliff Owen, File)

Photo by Associated Press/Times Free Press.

Warren Buffett's $46 billion fortune doesn't quite make him the richest man in the world, but who's counting? His earnings over the decades in the investment business -- often under far-higher tax rates on high incomes and capital gains -- do substantiate his view that the nation's ultra-rich and their investment policies would not be much effected by hikes in both now.

His view is this: The nation needs to raise income tax and capital gains rates on the richest Americans, who generally fall into the top tenth of the top 1 percent.

He's been saying as much to Washington for more than a year. In his opinion piece in The New York Times on Monday, he emphasized some stunning statistics to support his conclusion that the super wealthy will continue their investments in the nation's economy, even if taxes are raised to help avoid the "fiscal cliff" on Jan 1.

"The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That's more than five times the $300 billion total in 1992," he wrote. "In recent years my gang has been leaving the middle class in the dust."

No argument there. As market watcher Eduardo Porter reported Wednesday in The New York Times business section, "... raising more money from the wealthy might go a long way in righting our lopsided economy, which delivered 93 percent of our income growth in the first two years of the economic recovery to the richest 1 percent of families, and only 7 percent to the rest of us."

Their findings convincingly contradict the Republican mantra that the wealthy -- their "job creators" -- should not be required to pay a fair share toward deficit reduction, and that deficit reduction should be reached only through cuts in earned entitlements and social programs that help struggling middle-class and lower-income families.

But if the Republican position could be proven, why did Senate Republicans quietly force the nonpartisan Congressional Research Service in September to withdraw a new report that found no correlation between tax rates and economic growth? There's no answer to that embarrassing question.

Buffett makes a compelling case that the Bush tax cuts in 2001 and 2003 gave the lion's share of benefits to the super-wealthy, especially through the reductions on capital gains and dividends. In 1992, he noted, taxes paid by the 400 highest earners in the United States averaged 26.4 percent of adjusted gross income. In 2009, the latest year reported, their rate had dipped to 19.9 percent.

The group's average (annual) income in 2009, Buffett wrote, was $202 million, or around $97,000 an hour. "Yet more than a quarter of these ultra-wealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And -- brace yourself -- a few actually paid nothing."

Buffett's reference to the 15 percent rate supports wider calls to raise or cap application of the 15 percent rate on capital gains and dividends. Open-ended tax breaks on the latter allow billionaire hedge-fund and equity managers, for example, to define their compensation as capital gains -- or "carried interest" -- and thus to dodge the significantly higher 35 percent rate on earned income.

Though Buffett reasonably argues for higher tax rates for the top 1 percent, he would reserve those hikes for families earning $500,000 or more, not the $250,000 level that gets earners in the top 2 percent.

Buffett further makes a good case that the federal government's revenue base should be the traditional 18.5 percent of gross domestic product, which is significantly higher than the current low of 15.5 percent that has driven deficits since the 2007-2009 recession stunted growth. His learned view, like that of other mainstream economists, merits attention in the current debate over how restrain federal deficits in a balanced manner.