Nice try, Warren Buffet. |
Exactly half of all Americans think the amount they pay in federal income taxes is too high, according to an April 2011 Gallup poll, but legendary investor Warren Buffet is not among them. In 2010, Buffet handed over nearly $7 million to Uncle Sam but in his estimation this wasn't enough. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” he exclaimed in a recent New York Times op-ed. “It's time for our government to get serious about shared sacrifice.”
Currently, the U.S. national debt stands at around $14 trillion. The federal budget deficit is $1.4 trillion. To help put a dent in these numbers, Buffet suggests, our lawmakers need to stop coddling him and his “mega-rich friends” and raise their taxes. Presumably, the world's third-richest man knows his way around a calculator, but as Buffet lays out his plan, he's fairly vague in regard to specific numbers. He does, however, appear to be surprisingly gregarious: As he fleshes out his proposal, it becomes clear that his “mega-rich friends” include not just his fellow billionaires but anyone who makes at least seven figures a year. There are 236,883 households in the U.S. that had taxable income of $1 million or more in 2009, and Buffet wants to raise rates on them all. For the 8,274 households that earned in excess of $10 million, he would impose additional increases.
Amidst all his talk of the “extraordinary tax breaks” and “bargain tax rates” the mega-rich enjoy, Buffet leaves a few facts somewhat uncharitably unsaid. According to estimates prepared by Factcheck.org using data from the Congressional Budget Office, the top 1 percent of income earners have contributed between 20 percent and 27.5 percent of all annual federal tax revenues over the last decade. According to a 2009 estimate prepared by the Tax Policy Institute, the top 20 percent of income earners were expected to contribute 67.8 percent of all federal tax revenues in 2010. In other words, most of the tax revenue the federal government collects each year already comes from the wealthy. According to the Tax Policy Institute, 99.7 percent of households with annual income above $1 million pay federal taxes, with approximately 27 percent of their earnings going to the government. Meanwhile, approximately 49 million low- to middle-income households pay no federal income taxes at all.
Some of Buffet's mega-rich friends — and a fair number of more pedestrian millionaires — must be feeling a little short-changed by his characterizations of them. He makes it sound as if they're shirking their duties as Americans, abandoning their compact with democracy, when in fact they're picking up the tab for most of the programs and services the federal government offers.
Of course, we could always compel them to pay more. After a couple mostly unsuccessful attempts to collect federal income tax in the 1800s, Congress managed to pass the 16th Amendment in 1913, giving it the “power to lay and collect taxes on incomes, from whatever source derived.” In that first year, it levied a tax of 1 percent on households with an income of $4,000 to $20,000. For households earning more than that, additional charges were levied. The top rate, applying only to those earning $500,000 — or $11.4 million in 2011 dollars — was 7 percent.
In 1913, few households in the U.S. earned more than $4,000 (or $91,281 in 2011 dollars), and the new tax was explicitly seen as a tax on the rich. “The bill is popular because it taxes so small a part of the population,” a New York Times editorial observed at the time. “The reason of the bill's enactment was that it transferred the burdens of the many to the shoulders of the few and taxes some States of the Union for the benefit of other States.”
So Buffet is not without precedent in suggesting that we stick the rich with even more of our national tax burden than we already do. Unfortunately, his plan has a flaw. According to IRS data presented by a nonpartisan research group called the Tax Foundation, households earning $1 million to $10 million made a total of $486 billion in 2009, while those earning $10 million or more made a total of $240 billion that year. Collectively, they paid $176 billion in taxes, for an effective tax rate of 24 percent. If we taxed all earnings from the $1 to $10 million households at the current top rate of 35 percent, and taxed those households earning $10 million or more at a super-premium rate of, say, 50 percent, it would yield an additional $114 billion. Unfortunately, this is only 8 percent of our federal budget deficit, and less than 1 percent of our current national debt. So if we really expect the nation's wealthy to save us, we can't just raise their taxes — we also have to help them earn far more money than they currently do. If you happen to run into Warren Buffet somewhere, hire him to mow your lawn and don't be cheap about it. The man has his work cut out for him.
