Joel Bowman

Warren Buffett is a gifted investor. No doubt about it. Over a career spanning roughly six decades, he’s amassed a fortune for himself upwards of $50 billion. As the primary shareholder, chairman and CEO of Berkshire Hathaway, the “Oracle of Omaha” has also done well for his investors. Those who bought shares of his investment company back in 1990 have since made over seventeen times their money, or more than 14% per year. Even though that return has fallen to about 5 or 6% per year over the last decade, Berkshire has still handily outperformed the market. As such, his annual shareholders’ meeting draws an adoring crowd large enough to make most rock bands blush.

Last year, according to his own accounting, Mr. Buffett earned a “taxable income” of almost $40 million. It goes without saying that most of us will never see that kind of money in our lifetimes. Not by a long shot. You’d think, therefore, all would be “good in the hood” for one of America’s richest men.

But Buffett has a big problem: Taxes. He is unhappy with the amount he pays. It’s not enough, he says. Nor is the amount paid by his super wealthy friends. Earlier this week, Buffett’s odd desire to keep less of what he earns led him to pen an op-ed piece in The New York Times in which he decried Washington for “coddling the super-rich.” Perhaps you saw it.

To his apparent disgust, Buffett benefits from an array of “tax advantages” conferred on he and his high net worth mates by members of Congress.

“Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘carried interest,’” he confessed, “thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.”

In 2010, Buffett paid almost $7 million in taxes to the federal government, about 17.4 percent of that whopping “taxable income.” Despite his immense earnings, that percentage came in considerably less than the 20 other folks working in his office. “Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent,” he wrote.

This discrepancy sits uneasily on Buffett’s mind. And perhaps it should. But rather than advocating a less-onerous tax burden for the “little guys” he says he wants to help, Buffett wants the ends to meet from the other direction. He wants to pay more in taxes himself. And he wants his high earning friends to do the same.

At first glance, Buffett’s impulse might appear to be a charitable one. He wants to give more. Certainly there is nothing wrong with voluntary acts of charity. But what is a voluntary act…and how does it square with taxes? Put simply, it does not.

Charity is not consistent with coercion. Any individual, having come about his earnings by honest, voluntary dealings with others, ought to be able to save, invest or otherwise exchange his property in any way he sees fit, provided it does not infringe on any other persons’ ability to do likewise. This goes for the mega rich as it does for the rest of us.

If Buffett wishes to give his money to one institution or another, that is his own business. But by advocating higher taxes, Buffett is not asking that his fellow high earners donate money to causes he sees as worthy. He is not imploring them or otherwise trying to convince them. Instead, he is seeking the hired gun of the government to demand it from them. To steal it.  To expropriate it without their consent. To be clear on this point, there is no such thing as “voluntary taxes.” It is either theft…or it is not.

Moreover, if, as Buffett asserts, his goal is to help the poor and middle classes of America, to alleviate some of the economic hardship they are currently enduring, one could scarcely imagine a worse institution to support than the federal government, an institution that so tirelessly works toward impoverishing them.

Readers of these pages will be familiar with the many and varied ways politicians go about oppressing those they affect to serve, so we won’t go through them all here. Suffice to say that financially enabling an institution that actively steals from the poor and middle classes (both directly, through taxes, and indirectly, through inflation), debases the integrity of their mandatory, unchallengeable currency, pursues reckless fiscal policies at home, promotes costly, immoral military adventures abroad and regulates small and medium businesses to within an inch of their lives, to name but a few of its primary offences, is anything but charitable and compassionate. It’s feeding the beast that burdens a productive society. Nothing more. Nothing less.

But let’s ignore these “abstract” contentions for a moment and get down to the numbers. The main problem here is that they just don’t add up…at least not to much.

In 2008, the aggregate income of the highest 400 earners in the nation equaled roughly $90.9 billion. At present, the government steals about one-fifth of that, some $19.1 billion.

Let’s say for a moment that Mr. Buffett’s friends feel the same as he does, and that they wouldn’t mind kicking in a bit more in taxes. In fact, just for sake of argument, let’s say they wouldn’t mind working for nothing, contributing their entire yearly income…the whole shebang…100%. What does that come to? In an era of $1.5 trillion-plus annual deficits – projected out for the next decade, at least – $90 billion is barely enough to cover a fraction of the ever-increasing interest payments on the national debt. This year the government will spend $3.89 trillion (according to their own budget). That’s around $10 billion per day, give or take. In other words, soaking the mega rich wouldn’t even keep the lights on for two workweeks. And that’s assuming the highest earning individuals in the land are even willing to go along with a 100% tax. Not likely.

But it’s not only his super rich buddies Buffett would like to see cough up.

“[F]or those making more than $1 million – there were 236,883 such households in 2009 – I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains.”

According to Jeffrey Miron, senior lecturer and director of undergraduate studies at Harvard University and Senior Fellow at the Cato Institute, the income earned by these 236,833 taxpayers in adjusted gross income was about $727 billion. “Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue,” writes Miron, “only about 2% of federal spending. And $73 billion is optimistic; the super-rich will avoid or evade much of the surcharge, significantly lowering its yield.”

But let’s go even further. Let’s say these folk, like Buffett’s super-rich friends, decide to give the first million they earn to the state. There’s another 237 billion. And folks who make over $10 million – there were 8,274 in 2009 – they hand their first ten million in cash over too. Another $82 billion. So far we have only about one fifth of this year’s budget deficit. About 8% of total spending. Even if you doubled those “contributions,” you’d still only cover one in six dollars the government currently spends. So you triple it…and still only cover one in four dollars spent. You see where this is going…

And in the end, what would the middle and poor classes get for all this? The richest quarter of a million people in the country, having surrendered their entire incomes to the state, have invested in nothing productive. They have not backed a single startup company, a single business, neither in America nor elsewhere. They have not opened a single factory or employed a single worker. They have not invested any of their capital in the stock market, bought a single American product, a house, a car…nothing. They have slaved for the state, yet still it sinks at a rate never before matched in its history…and with nobody left to bail it out.

Warren Buffett is a brilliant investor, yes. But that only makes us wonder: If the American government were a private company – with a balance sheet in tatters, sky-high debt and a management team made up of crooks and eggheads of every stripe – would he still invest in it? More importantly, would you?

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • Ben

    I think Buffet is pointing out in his own way, the hypocrisy of government and its demonic spawn, the Income Tax system. It is apparently a fact that the super-rich often pay less in taxes – Income tax at least — than does the wage-earner schmuck, both in percentage terms and absolute ($) amounts. How about a perfectly flat tax system (10%? 30%) — for everybody, with no exceptions?

  • J.R. Wirth

    Buffett is playing Shenanigans. The income tax no longer affects him, regardless of the rate. He could pay a 99% rate on his “taxable income” but he will still have 60 billion dollars. Buffett, like many billionaires, is incredibly a conceited control freak (like Bloomberg and Gates). Taxes are but one part of what they would control if they could. I haven’t heard him argue for a “wealth tax” and probably won’t.

    Buffett also has some not so altruistic motives in all of this. Sure he owns Sees Candies and Coca Cola, but he is heavily exposed to insurance and re-insurance of municipal and government debt. He thinks that a heavier tax burden will shore up this industry. He’s spent the last 10 years drastically undercutting competitors on premiums to insure these bonds, which is a great way to gain customers in a good economy, but in an economy that is going from bad to worse there could be a hundred year flood of muni-defaults. In my opinion even the default of a couple medium sized cities would tear a pretty big hole in Berkshire’s finances, not to mention a potential federal default (years from now?).

    Buffett is not stupid and knows perfectly well this exposure, which is why he sounded so strangely desperate when he said after the downgrade that he believes U.S. debt is not only AAA but he thinks AAAA. The whole thing was an eerie spectacle. It was like he put a big neon sign over his head that said “worried about muni debt exposure.”

  • http://www.williamamanning.com/ Will Manning

    Are millionaires disappearing or are they “going Galt”

  • Martin Phillips

    Hey Joel,

    While in London why don’t spend some time finding out the UK system of government works…………….

  • Todd

    What I can not understand is why is he willing to support the very people that stole America dry?

  • Model T

    Warren’s old.

    The stony pillars of his intellect are starting to crumble a bit.

  • DrMindbender

    A few clarifications: taxes are not “theft”…if you are a US citizen, and you live under the protection of the US military, and are protected by regulations, you pay your taxes willingly. if you don’t want to pay US taxes, DON’T BE A US CITIZEN! buy your own military, inspect your own food, and authorize your own drugs.

    If the US govt. were a business…the government is NOT a business, and exists to provide services that can’t be provided by the market, BY DEFINITION.

    Buffet is not saying “taxing us rich people would solve the deficit problem” he says “taxing us rich people would contribute greatly to the comprehensive set of solutions to reduce our deficit spending pattern” so READ HIS ARTICLE!

    Sorry Joel, the DR is usually spot on, but you have missed the mark badly on some factual claims in this article. And after all, Warren Buffett is THE MOST SUCCESSFULL INVESTOR OF ALL TIME!!! He said he has never turned down a good investment because of higher taxes, so he is clearly stating that he would continue to invest in opportunities that would create jobs and productivity… certainly the US government is a monster, but reform or firing squad is the way to fix it, not starving it and letting it’s weight suffocate us all as it dies…

  • chowthen

    “taxing us rich people would contribute greatly to the comprehensive set of solutions to reduce our deficit spending pattern” so READ HIS ARTICLE!

    How’s that going to happen when Joel already pointed out that you can take all the income of the super rich ($90 billion) will barely cover the yearly deficit ($1.1 trillion). No man I’m always suspicious of a pool hustler. He makes you win but the rule of the game is winner pays you just didn’t read the fine print.

  • Geoff O’Reilly

    I absolutely agree that Governments everywhere have over-shot in fulfilling their proper role in the economy and society … but the theme of this piece pushes too far the other way …

    as an Australian Joel, I have little doubt you were educated at substantial cost to the Government and took advantage of security, laws, roads, medical care etc provided by Government … and I doubt you want to give the money that cost back!

    let’s have some balance here, and recognize there is a proper (smaller) role for Government … and perhaps a bigger contribution from the wealthy is PART of the solution … arguing everything in extremus doesn’t wash …

  • Pete

    Dr. Mindbender, YOU sir are all wrong. Not sure if it is out of admiration for Warren Buffett that you speak, or love for the welfare state, but you are sadly mistaken. Taxes are NOT paid willingly and voluntarily. They are paid under threat of fines and imprisonment. Just ask ten people if they didn’t have to pay taxes, would they still do so voluntarily. Would you? Your BY DEFINITION comment about why the government exists is a complete falsehood as well. It does not exist to provide services, it exists at the federal level for the reasons established in the US Constitution, and it’s powers are severely limited. Unfortunately statists have ignored those limitations to the detriment of the country and states, and the wealth and liberty of the people. On Buffets idiotic comment on taxing the rich to reduce spending….one has NOTHING to do with the other!!! Buffett is free to donate as much of his own wealth to the government as he wants. BUT instead of doing that he wants to steal it from everybody else. He may be rich but he is not looking out for anybody but himself…

  • Random reader

    Unfortunately taxing income is always going to be controversial. The alternative is a consumption tax but that is controverial as well. Too many people, especially ‘free market’ types, think that they should have a right to hang on to everything they have earned and yet still benefit from the infrastructure and services society provides. If they had to pay the full cost of using fully privatized infrastructure and services they would be in for an unpleasant surprise. Yes Geoff, in Australia Joel was heavily subsidised in getting educated and he has access to one of the best public hospital and medical systems in the world. He would do well to reflect on this, as well as note the way things work in the UK and Canada. The argument that taxing the rich at the same rate as the not so rich will reduce job creation is a pile of horse feathers. An even bigger problem in the US is that too much of what is collected in taxes is spent on making things that explode and using them to blow things up or to kill people. Not enough is left over to adequately fund those things that actually make life better. The congressional-military-industrial complex has the US public by the proverbials and is not going to let go. So get used to it America and perhaps the only thing left, like Dubya said, is to go shopping. Or perhaps it’s just a bit of window shopping for the unemployed and those living below the poverty line.

  • Scott Benson

    In normal times, 80% of Federal spending goes to five WILDLY popular programs that will never be cut by much: Social Security, Medicare, Medicaid, Interest and Defense. Very little goes to Israel, illegal immigrants and that old favorite: waste, fraud and abuse. Arguing “tax theft” is a waste of time — 320 million Americans think this spending proper, and everyone should feel good paying taxes towards such worthwhile programs. It’s the price to live in a stable, reasonably honest country.

    However, if we are going to use whatever numbers are available to let the rich off the hook cause they “just don’t make enough” (we have NO idea how much wealth & income is being hidden from view under trusts, offshore etc.), then we’re stuck back with cutting the five popular programs above. Good luck with that.

    I don’t think the rich are all that poor myself.

  • Lex

    Unless the author of this article is a billionaire, he does not look like one, he is an unbelievable moron. According to him, the government “steals” 20% of the poor schmucks income. It “steals” 40% from me and I’m certainly not a billionaire. There were over 2,000 individuals in this country last year who made over $1,000,000 and paid nothing in taxes. Tax the suckers at at least 40%. If I can do it so can they. If they don’t like it they can move and see if they can get a free ride anywhere else. This country is changing into a banana republic. A few hundred thousand families own everything. Pay little more now and keep social peace. If not, one day the the have-nots may not stop at 40% and take everything from them.

  • James

    What seems to be said in the comments is that because the government “Over Promises” the government must “Over Tax”!

    How about cutting the “promises” by 50%.

  • http://www.geezertank.org geezerguy

    Didn’t Buffet simply say that the super rich are not shouldering their fair share of the burden?

    Isn’t it true that what Buffet was proposing would HELP to solve the problem?

    Frankly, I resent an article which wastes so much of my time and “newsprint” on off-point matters.

    Slow newsday?

  • emdfl

    Typical liberal – happy to suggest the gov thieves take more of other people’s money while not volunteering to give more of his own.
    “The problem with socialism is that sooner or later it runs out of other people’s money to give away.”| And the present regime has pretty much run out of OPM.

  • Sid Finch

    Buffett is advocating stealing from citizens, however rich, to give to government. F&^% the government!

    So much talk of shared sacrifice – when does government share in the sacrifice?

    The politicians love to demonize Big Oil or Big Tobacco… Well when was the last time Big Government shared in the sacrifice?

    Hugh Hendry points out that socialism – of the kind Buffett is tacitly advocating 0 “Building a moat” around the wealth of these super-rich. They keep their wealth but all capital formation for competitors is destroyed before it can become competetive.

  • Finch

    P.S. Buffett hates humans and wants population reduction through stealth reproductive vaccines.

    Looks like he and Mengele have something in common!

    What a dick.

  • http://www.takeasmartstep.com Andrea Travillian

    Very well written post. It reinforces the idea that we need to solve the problem from many sides. Increase revenue and decrease expenditures. That is exactly what we do in our own finances and the government should be no different. The revenue increase needs to come from across the board as if we all pitch in we can solve our problems. Forcing only one group to deal with the issue is not a formula for a winning plan.

  • 2 funny

    DrRubberbinder says:

    “…Buffet is not saying “taxing us rich people would solve the deficit problem” he says “taxing us rich people would contribute greatly to the comprehensive set of solutions to reduce our deficit spending pattern” so READ HIS ARTICLE!…”

    What’s heavier, Doc – a ton of coal or a ton of feathers?

  • Scott Walker being b***h slapped by a DMV clerk

    @geezerguy

    to paraphrase Clinton: It all depends on what the meaning of the word “fair” is.

    110% taxation sounds about right to spread the wealth properly. The extra 10% is to catch all the skimming, eh?

  • Maker’s Mark

    “Scott Walker being b***h slapped by a DMV clerk”

    This handle makes me laugh aloud every time I see it. It’s too funny! (Unfortunately, I usually disagree with almost everything he says. Still, the name is hilarious.)

  • http://www.investing-for-beginner.org David Hector

    I subscribe to the Financial Times which ran an article a few weeks ago talking about how a lot of rich people don’t work traditional jobs and get their income mostly from their investments. Doing it that way, allows them to have their income taxed at 15 percent rather than the 30 percent they would otherwise pay…probably explains why the rich are so adamant about tax cut extensions started under bush

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