Thursday, August 18, 2011
More media incompetence
First, let's look at the title: "Why Warren Buffet is wrong".
Does the article actually show that Warren Buffet is "wrong"? No. It shows that a libertarian doesn't want rich people to pay taxes, and will repeat libertarian talking points because if something is repeated often enough, the Very Serious People will think it's a Very Serious Point and that it Deserves Consideration.
But let's not quibble; let's dig in.
The first problem with Buffett's view is that the number of super-rich is too small for higher rates to make much difference to our budget problems.
"The first problem with Buffet's view is that, while his ideas will help, they won't magically make all problems go away!" Yeah. Not very impressive. No one claimed that if the rich pay a tad bit more in taxes, the world would turn to Magical Rainbow Land with Cotton Candy Clouds and cute baby kittens and puppies that poop gold.
No, Buffet's point was that we have a political party that's whining that it's horrible and unfair to make the rich pay even a penny more in higher tax rates, and that's stupid. The rich have done quite well, and have received massive benefits from a strong government that protects their interests, and helps them do business, and therefore, it's perfectly justified to ask them to pay a bit more in taxes.
We then see the naked assertion that if we were to place, say, a 10% surcharge on the income of the very rich, "...the super-rich will avoid or evade much of the surcharge, significantly lowering its yield."
This is an interesting idea to consider. There was a time when the top marginal rate was 70%. You know what a lot of well-to-do business owners did? They started generous pension funds. These funds would tend to have more than 30% of the benefits going to the business owner, who was typically older (and hence, closer to retirement), and, obviously paid more.
Note that at a 70% tax rate, giving one's self more than 30% of the pension contributions means a net benefit to the employer, since taking the money home would mean a 70% tax hit.
Another thing business owners did was make charitable contributions - maybe they supported the local little-league team if they had a few bucks, or maybe they supported the local opera company if they had more.
Not every tax avoidance scheme is a bad thing - many are good!
Let's look at the next point:
Focusing on the super-rich also fosters a counterproductive attitude toward material success. The way to promote a hard-working, entrepreneurial and innovative society is to celebrate great wealth so long as it has been earned by legitimate means. When this is not the case, policy should target the wrongdoing directly, not demonize everyone who hits it big.
Get this: if you think a person making a million bucks a year should pay, I dunno, 5, 10, 15% more in taxes on the money over that first million, you're DEMONIZING SUCCESS!!!! You horrible, awful person!
Or, maybe you're just saying that hey, the wealthy make their money in large part because of the country we live in, so maybe they should help support that country.
Look: when Apple and Google and Microsoft and who-knows-who-else get into a big patent fight, there are possibly billions of dollars at stake. Well, we have courts just sitting there, willing to give them a clean, final judgment on who is right and who is wrong. That judgment is worth a lot more to them than it is to some working class person making $30,000 a year. So, why not let the millionaires and billionaires pay a bit more towards the government that keeps that court system up and running for them? And, of course, the courts are just one example of the many places where the wealthy get proportionally more benefit than the less-wealthy.
The fact of the matter is, a good, strong government is what makes the wealthy able to become wealthy; asking for a few extra pennies on the dollar in taxes in return for those proportionally higher benefits is only fair.
At this point, the article meanders into nonsense.
Excessive licensing requirements, permitting fees, restrictive examinations and other barriers to entry into medicine, law, plumbing, hair styling and many other professions are bad for economic productivity because they artificially restrict the supply of these services. And these barriers redistribute income perversely by raising incomes for those protected and raising prices for everyone.
When did Warren Buffet say "Oh, yeah, and licensing requirements! Permitting fees! They should all be raised, too!"? He didn't? Okay.
See, I told you - libertarian talking points. And not even very sensible ones, given the discussion topic.
Finally, we come to this:
Buffet asserts that taxing capital income has never deterred anyone from investing. Well, then he has never discussed the issue with me or many of my friends.
Folks, Buffet is an investor, and a wise one. Now, it's true that tax rates on capital income can create distortions. If inflation is 3%, and taxes on interest income is 50%, then anything less than 6% earned interest is wasting your money - interest rates will have to start at about 10% to attract investors. (50% taxes on 10% interest gives you 5% interest - 2 points above inflation, which is generally the lowest interest that will be, well, "interesting".)
So, yes, tax policy needs to be set carefully. If you tax capital income in a foolish manner, you will distort what investments are sensible.
But people with money to invest will find a way to invest it. That's the wonder of the free market. We don't need to give them a free ride; we just need to make sure the taxes aren't so high as to discourage investment.
Are they so high they discourage investment? Well, remember the big crash in 2008? That was caused by wild levels of over-investment. Can I prove that our tax policy caused companies to leverage themselves 40-to-1, and caused them to be so greedy, so dishonest, and so stupid, as to bring us to the brink of a worse collapse? No. But let's not pretend that "investment" is a purely good thing, either. Distorted investment was at the base of a financial collapse that caused a huge amount of grief, and could have caused a lot more.
No... let's not pretend that the wealthy need a free ride, or that they shouldn't support the system that makes them wealthy, or that we have to leave them free to invest wildly, possibly causing another big bubble to pop. Let's instead consider sensible tax policies, which will, of course, include sensibly higher tax rates on the wealthiest among us.