There has been a lot of discussion lately about taxing the “rich” among us. In a recent ABC News interview, Nebraska’s own Warren Buffett stole a line from Dickens’ character Oliver Twist — “Please, sir, I want some more.” Oliver, an eight-year-old orphan, sought another portion of gruel at the workhouse where he was brought up with little food and few comforts. In contrast, Warren Buffett requested a greater share of the tax burden for “people at the high end,” like himself, who, he asserted, “have it better than we’ve ever had it.”
While most of us would agree that Mr. Buffett is a “rich” man, clearly at the “high end,” there is no consensus about where the lower end of “rich” blends into the middle class. Earlier this year when speaking about financial reform, our President stated, “I do think at a certain point you’ve made enough money.” Although President Obama talks a lot about millionaires when he’s dissing the Bush-era tax cuts and discouraging Congress from continuing them, his plan would actually raise taxes on individuals making $200,000 per year and on couples making $250,000. For him, that’s where the middle class ends and wealth begins. Others disagree.
In Fiddler on the Roof, one of the main characters, Reb Tevye, sings about how life would be “If I Were a Rich Man.” The lyrics reveal many misconceptions the less well-to-do harbor about the lives of the wealthy. But Reb Tevye is spot-on when he sings:
The most important men in town would come to fawn on me!
They would ask me to advise them,
Like a Solomon the Wise.
“If you please, Reb Tevye…”
“Pardon me, Reb Tevye…”
Posing problems that would cross a rabbi’s eyes!
And it won’t make one bit of difference if i answer right or wrong.
When you’re rich, they think you really know!
Although Mr. Buffett has been dubbed the “Oracle of Omaha” for his prowess as an investor, he has no special qualifications which would equip him to advise the President, Congress, or the American public concerning income tax policy in general or regarding the point at which a person moves from the middle class to wealthy. It is true that when Mr. Buffett chooses to speak on any topic, many are ready to lend an ear. Wealth alone may provide a platform for a person to air his views. However, uncritical acceptance of a person’s opinion on any topic just because that person happens to be wealthy is baseless and illogical. Expertise is specific, not general. While Mr. Buffett may be qualified to give expert investment advice, he has no track record regarding government or tax policy for his opinion of current or future income tax rates to merit more consideration than that of any other citizen.
Moreover, Buffett’s objection to the current tax system makes no sense. Our current tax system taxes INCOME, not WEALTH. Buffett complains loudly and often that he is not taxed enough, yet he chooses to hold the bulk of his wealth in a form that is not currently taxable (e.g., in the form of unrealized capital gains) or that is taxed at a lower rate than ordinary income (e.g., capital gains and dividends). If he wants to pay more in taxes, he should convert more of his wealth into taxable income. In other words, it’s his own tax-avoidance strategy that prevents the government from taking more from him in the form of taxes now, under the tax code as it is presently written.
Buffett suggests the “rich” don’t pay their fair share of income taxes at present. How fair is it, though, for only half the population to pay federal income taxes at all? Where’s the fairness in the top-earning five percent of taxpayers (those with adjusted gross incomes over $159,619) paying approximately 58.7 percent of federal individual income taxes while earning only 34.7 percent of the nation’s adjusted gross income?
At some point, fairness and justice part ways. Fairness is a relative term. Justice is not. The focus should be on each citizen paying in taxes what is just rather than what appears fair in the opinion of his neighbor. Until everyone has some skin in the game, a just and equitable tax system is unattainable.
In fact, we could tax the “wealthy” at 100%, and the deficit would still exist. Spending is the greater problem. Historically, when tax hikes have occurred, Congress has failed to follow through on promised reductions in spending. The result? For every dollar in tax increases, the federal government has spent an average of $1.17. Researchers used a variety of models to produce different estimates of the tax-spend relationship — between $1.05 and $1.81. But no matter how they configured the data and no matter what variables they examined, higher tax collections between 1947 to the present never resulted in less spending.
Finally, when taxes are raised on the “wealthy,” tax revenue realized from high-earners goes down. The wealthy either leave or they utilize strategies to avoid realizing income or to avoid tax liability generally. This has been demonstrated time and time again, yet states like Maryland and New York[1. This link takes one to our article recommending John Stossel’s documentary “Battle for the Future”. One segment of the video focuses on high levels of taxation on the wealthy and features interview subjects who have chosen to flee high tax states. It also includes footage of government officials admitting that high taxes on the wealthy fail to raise revenue.] still seek to increase tax revenues by enacting taxes targeting the wealthy and then express surprise when the opposite occurs.
Nothing is stopping Buffett from making a direct donation to the federal government to decrease the debt. In 2009, a little over $3 million was donated through the Treasury Department for that purpose. Obviously, Mr. Buffett, who is a billionaire, is not putting much, if any, of his money where his mouth is. Unless and until he does, the tax laws don’t need to be changed to “soak” him, he’s already all wet!
Since we referenced it above, we thought we’d share the entire “If I Were a Rich Man” song here: