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Buffett's Tax Hikes For The 'Mega-Rich' Questioned

by Leroy Baker,, New York

25 August 2011

It has been pointed out that Warren Buffett’s recent call for additional taxes on the “mega-rich”, which was subsequently picked up in a speech by President Barack Obama, would do little to resolve the United States fiscal debt problem.

In article in the New York Times, the billionaire chairman and chief executive of Berkshire Hathaway, wrote of the fact that he, and his fellow “mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who … are allowed to classify our income as “carried interest,” thereby getting a bargain 15% tax rate. Others own stock index futures for 10 minutes and have 60% of their gain taxed at 15%, as if they’d been long-term investors.”

He disclosed that his last year’s federal tax bill was less than USD7m, or only 17.4% of his taxable income – “and 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% to 41% and averaged 36%.”

He concluded that, as part of a tax reform package, he would immediately raise the tax rate for those making more than USD1m a year, including dividends and capital gains, with an additional rate for those making USD10m or more. He added that, in his opinion, such taxation would not discourage their investment in the US economy.

His article was picked up by President Obama during a subsequent speech in Minnesota, while calling for all in the US “to share in a little bit of sacrifice.” While citing the article by Buffett, he looked for those “who could best afford it - millionaires and billionaires – to be willing to eliminate some of the loopholes that they take advantage of in the tax code and do a little bit more.”

“The point is,” he concluded, “that if we’re willing to do something in a balanced way - making some tough choices in terms of spending cuts, but also raising some revenue from folks who’ve done very well, even in a tough economy - then we can get control of our debt and deficit.”

However, the Tax Foundation has pointed out that raising taxes on Buffett’s mega-rich would not resolve the US debt and deficit problems. Assuming, it said, all loopholes and deductions were eliminated, making it possible to tax those earning USD1m - USD10m per year at an effective rate of 50%, the US yearly deficit and debt would only decrease by 8% and 1% respectively. Furthermore, an effective 100% tax rate on those whose income exceeds USD10m would only reduce the country’ deficit by 12% and the debt by 2%.

It concludes that “there's simply not enough wealth in the community of the rich to erase this country's problems by waving some magic tax wand,” adding that “after everyone making more than USD200,000 (annually) has paid taxes, the Internal Revenue Service would need to take every single penny of disposable income they have left. Such an act would raise approximately USD1.53 trillion.”

TAGS: individuals | tax | investment | economics | fiscal policy | tax rates | United States | tax breaks | dividends | tax reform | individual income tax

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