What's On Buffett's Menu? Higher Taxes For The Wealthiest Americans!

It's time to Break It Down!

Warren Buffett; second wealthiest man in America (Bill Gates is the wealthiest), has a reported net worth of $45 Billion, that’s billion with a B. Mr. Buffett made three salient points recently, in an interview with CNN’s Poppy Harlow, at Fortune’s Most Powerful Women Summit in Washington, D.C.

In response to questions from Ms. Harlow, Buffett said:

1. The nation’s tax code is broken and needs to be recalibrated.

2. The middle class, upper middle class, and lower middle class should receive a further cut in their
    respective effective tax rates.

3. The government should raise taxes on the richest 2 percent of the country.

In framing his argument, the mega-investor posited that taxing the rich is the best way for government to raise the level of income coming into government coffers. To laser in on his point, he added, “The question is, Do we get more money from the person that’s gonna serve me lunch today, or do we get it from me? I think we should get it from me.”

Not surprisingly, there is vigorous opposition to this argument, which coincidentally happens to serve as the foundation for President Obama’s proposal to permit the so-called Bush-era tax cuts for the wealthy to expire at the end of this year. Key opponents to this idea include the Republican Congressional Leadership tag team of Senate Minority Leader Mitch McConnell, Kentucky, and House Minority Leader, John Boehner, Ohio. Both contend tax hikes, such as proposed by Mr. Buffett and the President would negatively affect half of all small business income.

In formulating his response to that claim, Buffett observed that the government is faced with the challenge of closing the deficit, and basically has two choices:

1. Tax the rich

2. Delay repaying the debt

In essence, he is saying the money will be taken from the economy either way. It is just a question of whether it is obtained through taxing or by borrowing. In “Breaking It Down,” Buffett says, “If you get a hundred billion more of taxes – just pick a number – from people like me at the top, it means you borrow a hundred billion less out of the economy. Somebody’s gonna come up with a hundred billion.”

On its face, this debate poses an interesting logic gap for the Republican and Tea Party talking points. They consistently present a full-throated roar trumpeting the ideal that reducing deficits, they say, Democrats perennially expand by continuing to implement a variety of costly programs. In turn they maintain that they resist many programs, not because they oppose the programs themselves, but because they are conservative guardians, fundamentally opposed to adding programs without also concurrently providing the revenue to pay for them.

Here’s the rub; since the advent of the Bush tax cuts, the deficit has spiraled. In effect, the tax cuts are and have been a significant factor in driving the deficit. They are the equivalent of adding expenses without countervailing revenue. In plain English, they contribute to increasing the deficit.

The proposal suggested by Mr. Buffett and proposed by President Obama has the intended consequence of slowing the bleeding, by spurring the following outcomes:

• Stimulating the economy by putting more money back in the hands of people most likely to ignite the
  economy by spending

• Counteracting the growing deficit trend by generating more revenue

However, we should not lose sight of the fact there are both long term, as well as short term consequences to consider. The Congressional Budget Office (CBO), a nonpartisan agency, has released a report that suggests proceeding with caution on the matter of extending any of the cuts. The CBO’s research concludes extending the cuts, except those the President proposes allowing to expire, would provide a net benefit in the immediate future, but if permanently retained, would result in pushing the public debt, 53% of the Gross Domestic Product (GDP) to nearly 70% of GDP by the year 2020, a level not seen since the 1950's, the Post World War II era.

Douglas Elmendorf, CBO director, made clear policy-makers face a difficult choice, and a delicate balancing act. There is public and political pressure at virtually every point across the spectrum. From the public’s point of view, almost no one, regardless of income, wants to pay more taxes. The fact that only two percent of earners would pay more taxes under the President’s proposal seems to be perpetually “Lost in Space.” The aforementioned full-throated roar appears to successfully drown out that rather significant point.

On the political side of the equation, we are reminded that, “Politics makes strange bedfellows.” While Republicans have been seeking for an avenue to make the Bush tax cuts permanent, for years, many Democrats facing a tough mid-term election season have suddenly converted to the position that now is not the time to propose, support or vote for any new taxes…on anyone.

Given the multiple considerations that affect outcomes in the near future, as well as a decade from now, it seems the appropriate course is to eliminate the cuts for the most wealthy now, monitor the economy for sign revitalization and recovery, and devising a mechanism to revisit and phase out the remainder of the tax cuts, as the economy rebounds and is better able to sustain itself. Such a strategy, while prudent, will not be politically expedient. In that light, it is unlikely to be implemented.

On July 29th of this year, Michael Linden and Michael Ettlinger, writing for the Center for American Progress, articulated “Three Good Reasons to Let the High-end Bush Tax Cuts Disappear This Year.” In enumerating their points, they included the following:

1. Billions of dollars in tax breaks for the wealthy is just about the least efficient use of that money....

The Congressional Budget Office evaluated a variety policies earlier this year based on their ability to boost overall economic growth and employment. The number one thing Congress can do, according to the report, is to increase aid to the unemployed.

2. The Bush tax cuts didn’t deliver what they promised

Overall, the six years following the Bush tax cuts saw a 4.8 percent increase in jobs.....President Clinton, after raising taxes in 1993, oversaw an economy that (saw) an increase of 16.2 percent, and more than three times better than under the Bush tax cuts.

3. The tax cuts for nearly all Americans and American small businesses would stay in place

A recent report from the Joint Committee on Taxation points out that less than 3 percent of all taxpayers with any positive business income at all—big or small—would be affected by the increase in rates.

Just to put this discussion and the ensuing debate in a somewhat more level ground perspective, for those who are neither economists, nor prone to eat, sleep, and drink the particulars of this subject, consider this:

• President George W. Bush and a GOP-led Congress proposed and enacted a series of substantial tax
  cuts from 2001 to 2006

• The cuts reduced everyone’s taxes, but were slanted in favor of the wealthiest Americans

• This year more than half the tax cuts will accrue to the richest 5% of Americans

• At the same time the middle 20% of Americans will derive only 7%

• All of the cuts are slated to end December 31, 2010

• The entire Congress is in virtual agreement that the cuts should remain for those who earn less than
  $250,000; 98% of Americans

• That leaves the 2% Mr. Buffett suggests and President Obama proposes eliminating, and which the GOP
  and Tea Party insist continue receiving the cuts

That is a fairly concise synopsis of the pertinent details about this debate. Yet, somehow, I feel I don’t have your full attention. OK, how about this. According to Princeton Economist, Paul Krugman, in an Op-Ed piece that appeared in the August 22, 2010 Edition of the New York Times, if the so-called conservatives have their way, the check paid out to the richest 120,000 Americans would average $3 million. Understand, that is not their income, nor their tax refund, but the difference they would see in their tax refund (or taxes paid) due to retaining the Bush tax cuts. The headline for that particular Op-Ed was, “Now That’s Rich.” Indeed!

Few people would argue that Warren Buffett knows more than most about the intricacies involved with acquiring and building wealth. Certainly one could disagree with his politics, and as a staunch supporter of President Obama, many no doubt do. But his expertise in this area of wealth building trumps exceeds that of the 99.9 percentile. His theories on social programs might be suspect. He may not be an expert on developing education policy. Geology, astronomy, and/or astrophysics are probably not his strong suits. But when the question is money; how to make it, save it, and yes, even spend it, he’s likely one of the folks whom we should consider among the ultimate Subject Matter Experts (SME).

Many years ago, Albert Einstein, a guy we now think was pretty smart, had this to say about insanity:

• Insanity: doing the same thing over and over again and expecting different results.

President Obama has made a similar observation related to this discussion. He uses the metaphor, Republicans drove the car in the ditch, and are now asking for the keys back, all the while pledging to remain committed to the same practices that resulted in driving the car into the ditch. Based on his presentation of the subject, it sounds as though Mr. Einstein would have considered doing that insane. What do you think?

What’s on Mr. Buffett’s Menu? Higher Taxes for the Wealthiest Americans! It’s time to serve it up.

I’m done; holla back!

Read my blog anytime by clicking the link: http://thesphinxofcharlotte.blogspot.com. A new post is published each Wednesday. For more detailed information on a variety of aspects relating to this post, consult the links below:

http://money.cnn.com/video/news/2010/10/05/f_mpw_buffett_taxes.fortune/?hpt=T2

http://finance.fortune.cnn.com/2010/10/05/buffett-says-cut-taxes-for-the-poor/

http://www.huffingtonpost.com/2010/10/05/warren-buffett-tax-cuts_n_751503.html

http://money.cnn.com/video/news/2010/10/05/f_mpw_buffett_economy.cnnmoney/

http://money.cnn.com/video/news/2010/10/05/f_mpw_buffett_administration.cnnmoney/

http://www.washingtonpost.com/wp-dyn/content/article/2010/08/19/AR2010081906102.html

http://www.americanprogress.org/issues/2010/07/let_cuts_expire.html

http://www.nytimes.com/2010/08/23/opinion/23krugman.html?_r=2

http://thehill.com/blogs/on-the-money/budget/116295-savings-in-boehners-spending-cuts-would-be-canceled-by-tax-cut-extension

http://www.counterpunch.org/freeman05302003.html