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Warren Buffett Endorses Minimum Tax for the "Ultrarich"

Written By Brian Hicks

Posted November 27, 2012

In Sunday’s opinion column for the New York Times, Warren Buffett took a strong stand on the fraught issue of raising taxes for ‘the rich.’

He pointed out that his business did “pretty well” between 1951 and ’54, when the capital gains rate was around 25 percent and marginal rates on dividends hit 91 percent in some cases.

But even from 1956 through ’69, as the marginal rate declined and capital gains rates rose, the idea of taxes as a factor in declining investment opportunities simply never arose.

Instead, despite those apparently “burdensome” rates, employment and the GDP both rose healthily, with the American middle class and the upper class enjoying gains. Buffett’s point is simple:

“The ultrarich, including me, will forever pursue investment opportunities.”

Indeed. In other words, the idea of some fractional (i.e., the rich) segment of the nation’s population deciding to strike in protest against raised taxes (capital gains and ordinary income rates) is not one that Buffett entertains seriously.

Indicating the salient fact that the Forbes 400 established a new record for combined wealth this year ($1.7 trillion), Buffett directly indicted a series of tax rate decreases for this astonishing disparity between the middle class and the super-rich.

In 1992, as he points out, the people with the 400 highest U.S. incomes paid around 26.4 of adjusted gross income in taxes. In 2009, that dropped to 19.9 percent.

Bear in mind, of course, that inflation, cost of living, income, etc. have all gone up during this period.

Even more glaringly, the Forbes 400 group’s yearly income averaged to $202 million in 2009. However, more than 25 percent paid less than 15 percent between federal income and payroll taxes. Half paid less than 20 percent, and some apparently paid nothing at all.

It’s against this background—a tale of illogical gaps and class divisions—that Buffett makes his key point, with a caveat:

“I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.”

Moreover, he suggests that Congress enact a minimum tax on high incomes, something along the lines of 30 percent of taxable income between $1-$10 million, and 35 percent on incomes above that.

But what’s the point of such a minimum tax?

“A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.”

Buffett’s main idea here is that a simply-enforced change like that can take the sting out of the current crisis, while paving the way for more far-reaching ‘reforms’, which tend to be much more complex (and thus will be fought out over longer terms).

Here’s his position on the current mess between lobbyists, interest groups, and certain ideologues:

“We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.”

Buffet would like to see the government try to get revenues of 18.5 percent of the GDP while spending roughly 21 percent, based on past patterns. While this is obviously not intended to reverse budget deficits, what it will do is keep national debt stable vis-à-vis the gross economic output.

This is something that is badly needed anyway, since in just the previous fiscal year, revenues were a mere 15.5 percent of the GDP while spending hit 22.4 percent.

Ultimately, Buffett’s position amounts to a solid backing of the initiatives proposed by the Obama administration, with some modifications that he feels would even out the situation faster and perhaps more efficiently.

Given the man’s personal economic history, and the fame his Berkshire Hathaway (NYSE: BRK.B) enterprises have earned him, maybe Congress—and the American public—should pay heed.