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Buffett’s Tax Idea Withstands ‘Write a Check’ Critique: View

August 30, 2011

Aug. 31 (Bloomberg) -- For the last week or so, the airwaves have been filled with criticism of Warren Buffett, the billionaire investor. Buffett, you will remember (not that you had a chance to forget) wrote an article for the New York Times op-ed page in which he called for higher taxes on people like himself.

He said that he, one of the richest men in the U.S., paid a smaller fraction of his income to the government than every one of the other 20 people in his office. Buffett paid 17 percent of his income in taxes in 2010. His employees paid between 33 and 41 percent. That’s mainly because, as things now work, salaries are taxed at rates up to 39 percent, while dividends and capital gains are taxed at a top rate of 15 percent. Salaries are also subject to the payroll tax that finances -- or rather, doesn’t finance, but is supposed to -- Medicare and Social Security. Investment profits (dividends and capital gains) are not. All this strikes Buffett as unfair. Us, too.

The centerpiece of the anti-Buffett critique, advanced by a number of prominent politicians and journalists, goes something like this: If Buffett feels he doesn’t pay enough taxes, he is free to pay more. He doesn’t need any change in tax law to give the government as much money as he wants.

The critics regard this as a devastating rejoinder. Rep. Michele Bachmann of Minnesota, for example, publicly taunted Buffett: “I have a suggestion. Mr. Buffett, write a big check today. There’s nothing you have to wait for. As a matter of fact, the president has redefined millionaires and billionaires as any company that makes over $200,000 a year. So perhaps Mr. Buffett would like to give away his entire fortune above $200,000. That’s what you want to do? Have at it. But don’t ask the rest of us to have our taxes increased because you want to have a sound bite.”

Where to start analyzing this farrago of illogic and misinformation? Well, how about with the reminder that no one has “redefined millionaires and billionaires.” President Barack Obama has said that $200,000 of income -- not wealth -- is the point at which the people who have been most fortunate in this country can afford to pay a bit more in taxes. He wants individuals, not companies, to pay more.

Yes, many small businesses are not incorporated, and the income they generate is taxed to the owner like any other income. But that’s because it actually is like any other income, despite efforts to make small-business profits seem somehow especially noble.

In our view of the matter, Obama has been a bit too invidious in his comments when drawing this line. It’s not that people with high incomes are bad people. It’s that the government needs revenue, and it has to come from somewhere. We believe that “somewhere” should include the middle class as well as those with especially high incomes. Buffett, in his article, defined wealthy as starting at $1 million a year of income. Neither he nor Obama has said anything to suggest, even in jest, that anyone should “give away his entire fortune” over $200,000.

We have not spoken with Buffett about this, but we impute to him our view. We presume that he does not want taxes to rise just for the joy of paying more himself. What he wants is to see our country extract itself from the perilous economic situation it finds itself in. And he believes that this will require shared sacrifice -- including a bigger contribution from wealthy people such as himself.

Even Warren Buffett cannot achieve this goal alone. If he gave every penny he had to the cause of deficit reduction, the amount would be too small to make much difference. But if everyone similarly situated were to do the same, that would make a significant difference. It is perfectly reasonable for Buffett to say to his peers, in effect, “This will only work if we do it together. So I will if you will. And together we can achieve what none of us could achieve acting as individuals.”

The “why don’t you just do it yourself?” critique can be applied to many issues other than taxes. Opposition to abortion is fine, and no one needs to have one who doesn’t want one. Just don’t ask the rest of us to give up the right to choice for the sake of a sound bite. Object to same-sex marriage? Fine. Marry someone of the opposite sex. Have at it. But don’t deny the blessings of marriage to Americans who feel otherwise. And so on.

The point is that in a libertarian democracy, citizens get to make most decisions for themselves on an individual basis. But for a few issues -- taxing and spending being the main ones -- achieving a goal requires communal action. It doesn’t disqualify someone’s call for collective action that he is not inclined to act fruitlessly alone.

--Editors: Michael Kinsley, David Shipley

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To contact the Bloomberg View editorial board: view@bloomberg.net.


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