Warren Buffett is making sure no one ever gets as rich as he became — or as ridiculous.
In a Monday op-ed in the New York Times, billionaire Warren Buffett called on Congress to “stop coddling the super-rich [and] … raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains.” That’s easy for Buffett to say, now that he has about $50 billion to his name. But beyond the gall of a billionaire wanting to make it harder for everyone else to get rich, Buffett’s arguments range from misleading to ridiculous.
First, the idea that the “rich” have been “spared” by changes in the tax code is preposterous. The Bush tax cuts made the American income tax system its most progressive — which is to say most penalizing of success — ever. The share of federal income taxes paid by the top 1% of earners rose from about 34% in years 2000-2002 up to 40 percent in 2007, dropping slightly to a still nose-bleedingly high 38% due to the economic turmoil and recession in 2008.
While the bottom 50% of earners pay less than 3% of all income taxes while making about 13% of national income, the evil top one percent who pay almost 40% of all taxes earn about 20% of national income. On a percentage of national income basis, the “rich” pay almost twice as much in taxes as they earn. What argument, other than one which Karl Marx or Paul Krugman (pardon my redundancy) might make, can possibly justify claiming that the rich aren’t paying “their fair share”?
Furthermore, as Hauser’s Law shows, at least with our nation’s current tax system which excludes a national sales tax, the federal government’s ability to collect more than about 20% of national income, regardless of changes in the tax rate, is extremely limited. In other words, data does not support the theory that raising tax rates will raise federal tax income.
And that’s particularly true for capital gains taxes, the “low” rate for which seems to be the particular burr under Buffett’s tired old saddle.
Democrats often claim the Clinton years as proof that higher taxes don’t damage economic growth. They hope and believe, not without some justification, that Americans will forget that Clinton passed two very different pieces of tax legislation: the 1993 income tax rate hikes and the 1997 capital gains tax cuts.
While each bill contained other provisions, the key aspects of the 1993 bill were:
• Increasing the top marginal income tax rate from 31% to 36%, with a 10% surcharge for a total of 39.6% for those earning over $125,000 as an individual or $250,000 as a married couple filing jointly.
• Raising the portion of income subject to Social Security taxes and removed the cap on income subject to Medicare taxes.
As J.D. Foster of the Heritage Foundation notes, “According to the original Treasury Department estimates, the Clinton tax hike was to raise federal revenues by 0.36 percent of gross domestic product (GDP) in its first year and by 0.83 percent of GDP in its fourth year.”
An early look at the results of the 1993 law in a study published by Martin Feldstein and Daniel Feenberg said that “high-income taxpayers would have reported 7.8 percent more taxable income in 1993 than they did if their tax rates had not increased… [T]his decline in taxable income caused the Treasury to lose more than half of the extra revenue that would have been collected if taxpayers had not changed their behavior.”
Furthermore, according to a 1996 report of the Joint Economic Committee:
According to IRS data, the income generated by the top one percent of income earners actually declined in 1993. This decline is especially significant since the retroactivity of the Clinton tax increase in that year limited the ability of taxpayers to deploy tax avoidance strategies, temporarily resulting in an increase in their tax burden. Moreover, according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89).
But perhaps the knife in the heart of the tax-raisers’ argument is Feldstein’s:
[The] deadweight loss associated with the 1993 tax rate increases is nearly twice as large as the net revenue raised by those increases. This means that for every dollar of additional revenue collected by the government as a result of the higher tax rates, taxpayers experience a decline in their well-being equivalent to $3 as a result of the induced changes in work, in the form of compensation, and in tax deductible expenditures.
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