On taxes and investment, ask a guy worth $46 billion
Warren Buffett is at it again. In yet another traitor-to-his-class op-ed article in The New York Times, America’s second-richest man recently threw cold water on the notion that higher tax rates would keep wealthy Americans from investing their money.
“So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased,” wrote the 82-year-chairman of Berkshire Hathaway. “The ultrarich, including me, will forever pursue investment opportunities.”
Buffett’s last foray into opinion journalism came in August 2011 when he used The Times’ op-ed page to argue for a “millionaire’s tax.” He wrote then, “My friends and I have been coddled long enough by a billionaire-friendly Congress.”
At the time, Congress and President Barack Obama were working on their punting game, developing the grand nonsolution to deficit issues that has brought the nation to the edge of the famous “fiscal cliff.” Then as now, the key issue is Obama’s insistence that higher taxes for wealthy Americans be a part of the deal.
Republican leaders so far are holding firm against letting the top tax rate on earned income return to 39.6 percent and raising the capital gains tax. Without a deal, all of the 2001-2003 tax cuts will return to pre-George W. Bush levels on Jan. 2.
It may seem hard to believe, but when the Sixteenth Amendment — “The Congress shall have power to lay and collect taxes on incomes … ” — was sent to the states for ratification, it was quickly and overwhelmingly approved.
This was in 1909. Theodore Roosevelt had just left the White House after seven years of progressive Republican leadership. He had convinced the nation the excesses of the Gilded Age had to stop, that wealthy Americans were skating on the obligations. The notion of progressive taxation — the more of society’s benefits that one enjoys, the more obligation one has to support the society — was not controversial in the least. By 1918, only 15 percent of Americans made enough money to be subject to the income tax and the wealthiest 1 percent were paying 80 percent of the income taxes.
In a fascinating short history of American taxation in the Nov. 25 issue of The New Yorker, Harvard historian Jill Lepore notes that as soon as Democrat Woodrow Wilson left the White House, wealthy Americans began fighting back. President Warren G. Harding named Andrew W. Mellon, one of the nation’s wealthiest men, as his treasury secretary in 1921. Three years later, Mellon published a manifesto arguing that high taxes “kill the spirit of business adventure.” Tax cuts, he wrote, would “advance general prosperity.”
It took 60 years, but Ronald Reagan finally succeeded in selling that argument, even to people who weren’t wealthy but who were utterly convinced that some day they would be if liberals would just stop handing out checks to welfare queens. So complete was the Reagan revolution that even Democrats stopped defending the essential fairness of progressive taxation. After Reagan, people knew only two things about taxes: They were bad and they were too darned high.
By most measurements, they’re not high at all. In 2006, among the 34 advanced nations that are members of the Organization for Economic Development and Cooperation, taxes as a percentage of gross domestic product were lower in the United States than any nation but South Korea.
According to a report in September by Thomas Hungerford of the nonpartisan Congressional Research Service, that “changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth.”
Such changes do, however, “appear to be associated with increasing concentration of income at the top of the income distribution,” Hungerford wrote.
Senate Republicans, shocked that facts contradicted their cherished tax mythology, quickly had the report suppressed.
No one is arguing that the top marginal rate return to 91 percent, where it was during the Eisenhower administration. But returning the long-term capital gains rate to 39.875 percent, where it was in the late 1970s, would equalize the taxes on money made by money and money made by work.
Ask a guy who’s worth $46 billion: “I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that,” Buffett wrote. “A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours.”