10.02.2008
Warren Buffet on Taxation
Apparently Buffet has been making this argument for a while now, but I just caught it for the first time today when he was speaking at a conference sponsored by Fortune magazine. The gist of it is this (and this will be brief because I'm by no means a tax specialist): Considering multiple forms of taxation (payroll and income [I'm not really sure where captial gains taxes fit in here, but the fact that Buffet isn't too concerned about it makes me think it is not that substantial]), Buffet pays a smaller percentage in taxes each year than his secretary or cleaning staff. He cites specific numbers in the video: his rate, around 17%, his secretary, around 32%.
Now, Buffett is the third richest man in the world, with an estimated net worth of somewhere around $50 billion. I don't see him as some saint who stands out among his peers--he admittedly likes to make money, to play the market, etc. But, he sees the inequality in the tax system and addresses it. It's not that I see him saying that the rich should have an unfair burden, but simply that as it stands now, the non-rich (meaning 95% of the US population) are on the unfair end of the system. Something is certainly wrong here.
I just started thinking about this a lot because many of my students have been into talking about this. I gave them a list of ethical dilemmas to work with in class one day (as a way to formulate arguments) and one of them dealt with the issue of welfare. It is amazing to me how many of them say (putting themselves in the position of a career man or woman), "Hey, it's my money, I earned it, so why should I have to give it to someone else?" I often pose the questions to them: How much is enough? Or, how much is too much? The answer is often not one at all. The concern, in my mind, is that these students (and I'm sure a lot of adults too) see their potential as endless--that is, to say, that if they earn it (through hard work of course), then it will never border on an immoral hording of money. They hesitate to see that at some point it just cannot be useful to keep so much money.
Long story short, I think Buffet notices this and recognizes that sparing a little more in taxes out of his billion-dollar nestegg will NOT affect him--not even a little bit, not at all. The bloggers from Freakonomics did a similar experiment (as they are self-admittedly not on the Buffet plane) and came up with similar results. They, too, pay a much smaller percentage in taxes, and don't seem to see a leveling of the taxing-field as an undue burden.
As I watched some clips of the Presidential and Vice-Presidential debates tonight, I began to wonder why people still buy the Conservative "trickle down" theory. Every election people go to the polls and vote against their very own interests--they choose the candidates that spin the issue with rhetoric that says raising taxes on the top 1% will result in higher payroll taxes, which in turn, will lead to job loss and lower wages. It's just not true. Buffet is not concerned about keeping his employees (he's even drawing their attention to how much he saves compared to them!) or paying higher payroll taxes, and he heads one of the most successful company in the country.
Why do people resist seeing this? Why is a policy of tax breaks for the middle class such a hard one to sell when most of the country falls into that category? In short, WTF? Damn, I'm pissed about this!
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Sometimes I do think Buffet is a saint. Admittedly, I don't know that much about him. But from what I understand, he likes to make money because that is what he has been good at, not for self-aggrandizement. Unlike many of his peers he doesn't go out and spend it on "one-upping" somebody or buying ridiculously extravagant things simply because he can. He still lives in the same house he's lived in for I don't know how long. He didn't give his children huge chunks of money ("huge" relative to what he is worth). He's decided to give almost all of his money over to the Gates Foundation. This one is actually really big. Instead of going out and starting ANOTHER foundation in his own name, he decided to simply give his money to somebody who already had a vision and the "infrastructure" setup to accomplish that vision. I think this is so huge because it makes so much sense. I wish I knew how many foundations actually existed in the US. I know it's a lot because there are foundation trade magazines. Anyways, with all of these foundations there is a lot of redundancy and waste. When you start a foundation, you're basically starting a company and have to build up staff and offices and everything else. Buffet, instead of wasting money on all of that, is simply giving it to Gates. And, from what I can tell, his name is not really attached to it in any way. He did it because it made the most sense and was the most efficient way to share his money.
AND he has been harping on this taxation issue for at least the past several years. I heard him talk about taxation when we were at Creighton.
More specific to the taxation issue, Buffet's income tax rate is so low because he derives most of his income from capital gains and not regular income. Thus, he's taxed at 15%, not the rate of the highest income bracket (which is like 35% or somewhere around there). For example, with the preferred stock that he just bought in Goldman Sachs and GE he was guaranteed a 10% dividend for the next five years (I think). So, just from those two deals he's going to make something like $800 million off the dividend. This $800 million will be taxed at 15%, not 35%. This is a $160 million difference. (This is kind of fuzzy math, because I'm not sure what the exact figures for how much he's making off those deals are. And, these deals were made by Berkshire, so I don't know how what Berkshire makes off the deals actually plays into Buffets personal income. It's just an example.)
Unfortunately, the answer to this problem is not simply raising the capital gains tax. Most workers today, myself included, have some skin in the stock market through retirement investments or even their own personal investments. So, if you raise the capital gains tax you wouldn't just hit the big guys like Buffet, but also a lot of low income workers who don't need anything additional taken out of their retirement income. There are many smart economists out there with ideas on this and I think their ideas should be entertained in public forums.
As to your students' views, they're spoiled brats from Johnson County (like me), what do you expect them to say? Actually, what I think is going to be really interesting to see is if our current economic crisis gets as bad as they say it's going to. A lot of your students' parents and their friends' parents would lose their jobs or take pay cuts. I think their views on helping out would change. It's easy to say, "I should keep everything I make," when everybody around you is doing relatively well. But I think their tune would change if things started getting bad. Unfortunately, I think we are all going to experience this one and it's going to change our views on the world. Well, maybe not you guys in the ivory tower...
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