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The “Buffett Rule” Is Pure Demagoguery – Taxing The Rich More In America Would Do Nothing To Spur Enterprise, The Only Engine For Investments and Jobs Creation
By Paolo von Schirach
September 30, 2011
WASHINGTON – President Obama has his “jobs plan” on the table, along with a fiscal package to finance it. We know that it has no chance of passing the Republican ruled House, and so it is as good as dead. But politically it is alive. It is something to talk about to an otherwise demoralised Democratic Party base. And within Obama’s plan, loud cheers for the “Buffett Rule –all about taxing the rich– named after billionaire investor Warren Buffett, head of famed Berkshire Hathaway. Buffett complained in a now famous The New York Times op-ed piece that billionaires like him do not pay enough taxes in America. And Obama latched onto this, advocating higher taxes for the rich in order to re-establish social justice in America.
What Buffett meant to say
Prompted by the media fracas on all this, Warren Buffett clarified his position. He is not advocating higher taxes for high income people across the board. He meant to say that it is unfair that investors like him, who make most of their income from capital gains, are taxed at a lower rate than other people, including rich people, who make money from wages or other income. His point was that some people, himself included, enjoy an unfair advantage because capital gains in America are taxed at a lower rate, compared to ordinary income. Fair enough.
50,000 investors unfairly protected by the tax code
And how many people are we talking about? According to Buffett’s estimate, (and he know the investment world like no other), we are talking about may be 50,000 people. That’s all? Yes, that’s all: 50,000 in a country of 310 million. And, while many of them may be very rich indeed, few would get even close to being multi-billionaires like Buffett.
Still, the fairness argument is valid. Let’s change the tax code and let’s tax investors at the same rate we tax wage earners. This way these people will no longer be treated favorably. Fairness will be re-established and we shall all be happy.
This has nothing to do with jobs creation
But what has this got to do with getting America back to work, the central theme of Obama’s jobs package and all the accompanying speeches? You guessed it: practically nothing. If the idea is that we shall finance a jobs program with increased taxes on investors, we are out of luck. You can double Mr. Buffett’s and fellow investors taxes, and you will collect hundreds of millions, may be a few billions, I do not know. But this will not finance anything meaningful in a country of 310 million with millions unemployed or under-employed. In fact, you may actually confiscate the entire fortunes of all the investors and you will not put America back to work.
Alright, if taxing Buffett and friends does not do it, let’s go further. Forget about what Buffett really meant to say and go ahead with higher taxes on all rich Americans, investors and wage earners alike, and that would still not take care of the problem. The problem in America is lack of new enterprise and investments. This is the root cause of a slow economy that does not generate the millions of jobs we need to get out of this lingering crisis.
Pure populism, not an economic growth strategy
Every responsible policy maker knows this. But who cares about policy here? Taxing the rich to fund jobs for the poor is populism, demagoguery and grandstanding, all nicely combined. Taking from the rich to give to the poor sounds like an attractive idea. The base likes it. Even though it is practically meaningless as a jobs creation measure, Obama will keep repeating that “It is unfair that Mr. Buffett’s secretary is taxed at a higher rate than he is”.
As I said, we could and should rectify this patent inequity of low tax rates on capital gains. And, when we are done, could anybody come up with a genuine economic growth strategy? This is not it.
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