Billionaire investor Warren Buffett, one of the world’s richest people, has done something virtually unheard of – he’s suggested that the richest Americans undertake a greater share of the financial burden and pay more in income taxes.
In an opinion piece for the New York Times this past Sunday, Buffett observes how the poor and middle class fight for their citizens in Afghanistan and how most Americans constantly struggle to make ends meet. Yet the “mega-rich” continue to get extraordinary tax breaks. Investment managers earn billions of dollars a year but are allowed to classify income as “carried interest” and thereby only pay income tax at a rate of 15 percent. Some own stocks for “10 minutes” and are able to have 60 percent of the profits made from them taxed at the same rate.
Buffett notes that these and other loopholes are bestowed upon the richest of Americans by legislators in Washington “who feel compelled to protect us, much as if we were spotted owls or some other endangered species.”
He relates that although he paid almost $7 million US in taxes last year, this amounted to only a little over 17 percent of his income. Meanwhile the other people in his office, who would have made dramatically less than he did, paid income taxes in the range of 33 to 41 percent.
In the 1980s and 1990s, tax rates for the rich were much higher in the US than they are today. In perhaps his most interesting comment, Buffett states that he has “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.”
The US Internal Revenue Service has kept data on the taxes paid by the richest 400 Americans since the early 1990s. In 1992, this group had an aggregate taxable income of almost $17 billion and paid close to 30 percent of that in federal taxes. By 2008, the aggregate income of this group had risen to a staggering $90 billion, yet the rate paid had fallen to 21.5 percent.
In the conclusion to his piece, Buffett comments on the twelve members of the US Congress that will soon be tasked with addressing the financial challenges facing America. They have been asked to develop a plan to reduce the 10-year deficit by some $1.5 trillion. However, Buffett says this is not nearly enough, and that Americans are very quickly losing faith in the ability of their legislators to deal with the fiscal problems facing the nation. Immediate and substantial action is required to address this problem.
And the solution, at least in part, is to address the issue of revenues. Buffett recommends leaving the tax rates of 99.7 percent of Americans exactly where they are. But for those making more than $1 million annually (there were more than 200,000 individuals in this category in 2009) he suggests raising tax rates immediately. And those making more than $10 million should be taxed at an even greater rate.
Buffett himself says it best: “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”