Buffett: Stop coddling the mega-rich

2011-08-29 10:18

Our leaders have asked for “shared sacrifice”.

But when they did the asking, they spared me.

I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.

These and other blessings are showered upon us by legislators in Washington, who feel compelled to protect us, much as if we were spotted owls or some other endangered species.

It’s nice to have friends in high places.Last year, my federal tax bill was $6 938744 (R50 million at the current exchange rate).

That sounds like a lot of money. But what I paid was only 17.4% of my taxable income.

That’s a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33% to 41%, and averaged 36%.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine.

But if you earn money from a job, your percentage will surely exceed mine – most likely by a lot.The mega-rich pay income taxes at a rate of 15% on most of their earnings, but pay practically nothing in payroll taxes.

It’s a different story for the middle class.

Typically, they fall into the 15% and 25% income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 90s, tax rates for the rich were far higher.

According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.I didn’t refuse, nor did others.

I have worked with investors for 60 years and I have yet to see anyone – not even when capital gains rates were 39.9% in 1976/77 – shy away from a sensible investment because of the tax rate on the potential gain.

People invest to make money, and potential taxes have never scared them off.Since 1992, the Internal Revenue Service has compiled data from the returns of the 400 Americans reporting the largest income.

In 1992, the top 400 had aggregate taxable income of $16.9billion and paid federal taxes of 29.2% on that sum.

In 2008, the aggregate income of the highest 400 had soared to $90.9billion – a staggering $227.4million on average – but the rate paid had fallen to 21.5%.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income.

I know many of the mega-rich and, by and large, they are very decent people.

They love America and most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress have been instructed to devise a plan that reduces the 10-year deficit by at least $1.5trillion.

It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfil. Big money must be saved here. The 12 should then turn to the issue of revenues.

I would leave rates for 99.7% of taxpayers unchanged and continue the current 2 percentage point reduction in the employee contribution to the payroll tax.

But for those making more than $1million – there were 236883 such households in 2009 – I would raise rates immediately on taxable income in excess of $1million, including, of course, dividends and capital gains.

And for those who make $10million or more – there were 8274 in 2009 – I would suggest an additional increase in rate.My friends and I have been coddled long enough by a billionaire-friendly Congress.

It’s time for our government to get serious about shared sacrifice.

 »Warren Buffett is chairperson and chief executive of Berkshire Hathaway

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