Warren Buffett--or Howard Buffett?
By David Henderson
A non-libertarian economist colleague recommended Warren Buffett’s recent op/ed, “Stop Coddling the Rich,” to me and I decided to read it for myself. I came away unimpressed. I won’t do a full analysis, but I will point out a few of my disappointments and disagreements as well as one important point of agreement.
Warren Buffett starts off with his prime example of people who are sacrificing: “the poor and middle class fight [who] for us in Afghanistan.” Put aside the fact that they’re not fighting for me, nor, I suspect, are they fighting for many of the readers of this blog. I have opposed those wars from the getgo and I would have rather they not have fought, not have killed, and not have died.
But the other point is that they are all volunteers. So what they’re doing is not sacrifice in the normal sense of that word. They are choosing what they regard as their best option. The people who are sacrificing for those wars are people who pay higher taxes because of those wars. Buffett could argue that the wars are being financed by debt rather than taxes: tax revenues are fungible so who knows. But debt generally leads to higher taxes in the future. And those taxes are likely to be disproportionately on those who are taxed heavily now. Of course, the government could default and then bond-holders would lose. But bonds are disproportionately owned by the wealthy.
His taxes were “only” 17.4 percent of his taxable income and, he writes, “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.”
Here I agree with him that that’s unfair. Those other people shouldn’t have to pay more than 17.4 percent of their income in taxes. But does he advocate a tax cut for them? No. He says that he would leave their rates “unchanged.” With friends like these . . .
Now one of the big ones. Warren Buffett writes:
I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.
But doesn’t the marginal tax rate affect what one regards as a “sensible” investment? Think of a standard investment decision where you have some probability of a big gain, some probability of a big loss, and a whole lot of other probabilities of lower gains or losses. If you look at the expected values, you’ll conclude that a higher tax rate will push some otherwise “sensible” investments below the threshold. Is Buffett really saying that he and his investor colleagues don’t do those calculations?
Warren Buffett writes:
And 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.
But lots of other things happened too. The baby boomers got into their highest-income years and now a lot of them are in much lower-income years. Moreover, if you’re looking at tax policy, you can’t look at the 20 years between 1980 and 2000 as undifferentiated. 1980 started with top marginal tax rate of 70 percent that fell to 50 percent by 1982, 38.5 percent in 1987, and 28 percent in 1989 and 1990. Then Bush I and Congress raised it to 31 percent in 1991 and Clinton and Congress raised it to 39.6 percent in 1993, where it remained for the whole decade. There’s lots more to say but his simple story is too simple by far.
Now another big one, probably the most important one. Warren Buffett writes:
I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
I agree with his first sentence. I know fewer mega-rich than he knows (three, actually), but I have found them to be decent people. But notice what these decent people have done. He says it himself. They have donated to philanthropy. So given a choice between sending an extra check to the IRS and giving to a charity, they have chosen the latter. What does that say about what they think is the relative value of government spending versus charitable spending? Does Warren Buffett even pay attention to his own actions?
I wish Warren Buffett would emulate his father, Howard Buffett, the late Congressman from Nebraska. Howard Buffett decried the move to the welfare state. He wanted to end it. Also, he wanted the U.S. to get out of the Korean war and move to a non-interventionist foreign policy. Indeed, he was the campaign manager for Senator Robert A. Taft when Taft ran against Eisenhower for the 1952 Republican presidential nomination. I have a proposal for Warren that could cut tax rates for those whom he claims to care about and, at the same time, save having to raise tax rates on him and other rich people: get out of all the wars, close all the foreign bases, and save about $500 billion a year. His father would have liked that.