Ben Stein, he of “Ferris Bueller” and “Win Ben Stein’s Money” fame, had a meeting with mega-billionaire Warren Buffett and came away thinking that we should tax rich people more.
Mr. Buffett compiled a data sheet of the men and women who work in his office. He had each of them make a fraction; the numerator was how much they paid in federal income tax and in payroll taxes for Social Security and Medicare, and the denominator was their taxable income. The people in his office were mostly secretaries and clerks, though not all.
It turned out that Mr. Buffett, with immense income from dividends and capital gains, paid far, far less as a fraction of his income than the secretaries or the clerks or anyone else in his office. Further, in conversation it came up that Mr. Buffett doesn’t use any tax planning at all. He just pays as the Internal Revenue Code requires. “How can this be fair?” he asked of how little he pays relative to his employees. “How can this be right?”
Discussions of raising taxes on the rich always bring to mind the classic couplet, “Tax the rich, feed the poor / Till there are no rich no more” from “I’d Love to Change the World,” by Ten Years After.
Jonah Goldberg‘s right that increasing taxes on the rich won’t end the federal budget deficit, as Stein seems to imply.
Still, it makes no sense for Buffett to pay a smaller chunk of his income than do his employees. My guess is that this is happening only because he’s giving oodles of it away to charity or because his capital gains are being turned over and thus aren’t “income” in any meaningful sense.
Goldberg calls for “a Reagan style tax reform that closes silly loopholes, credits and gimmicks. The net result would be a tax increase on the wealthiest, but it would also get the government, albeit temporarily and modestly, out of the business of distorting the economy.” That’s my preference as well. Ideally, I’d prefer a consumption based, rather than an income based, system with some exclusions for foodstuffs, medicine, and shelter. There seems to be little impetus in that direction, however.
UPDATE: Russell Newquist has a detailed post entitled “How the Rich (Don’t) Pay Taxes” detailing how Buffett’s calculus came to be.
Interestingly, conservatives have been arguing for a flat tax and other alternatives to our present system as long as I can remember while liberals/progressives have argued for tweaking our current system to make it more progressive. It would seem that the conservative plans would achieve that objective far more readily and simply.
