This guy wants to pay more in taxes-Bullshit.

Posted by Jeff Carter
on April 7th, 2010

In the Washington Post today, there was an article about a liberal investment banker that feels he doesn’t pay enough in taxes. Warren Buffett has said he doesn’t pay enough either. Well, there is only one word for that, bullshit. Can’t sugar coat it.

Why do I say that? First off, understand how very wealthy people pay taxes. Much of their wealth is invested in income producing assets. Mr. Buffett earns most of is income off of capital gains from stocks and bonds. The tax rate on those long term gains is 15%, going up to 23.9% in 2011. I assume Mr. Buffett is a generous man. Most very wealthy people are very charitable. He pays his assistant a decent wage I am sure. She has a higher tax rate than him, maybe as high as 35%, going to 39.5% next year. Hmmm, this doesn’t seem right does it? The rich Mr. Buffett pays at a far lower rate than his own assistant. That is what we call a normative statement. It’s based on emotion. The wealthy pay far more dollars in taxes than anyone else. The top 5% of earners pay almost ~~50%~~60% of all taxes!

Here is something that we don’t consider when we hear these normative/emotional arguments on taxes. Mr. Buffett’s assistant is guaranteed a wage, as long as they work for Mr. Buffett. No risk. They go to work and in return collect a check. They might get a bonus at the discretion of Mr. Buffett, but the only risk they run is Berkshire Hathaway going out of business, or getting let go for some reason by Mr. Buffett.

On the other hand, Mr. Buffett has assumed quite a bit of risk. He stands to lose quite a bit of his fortune if one of his companies failed, went out of business or was displaced by the creative destruction of a capitalist society. In return, Mr. Buffett makes quite a bit of money for assuming that risk. The tax code also “pays” him to take that risk by offering him lower tax rates. We as a society should benefit from Mr. Buffett assuming this extra risk.

The liberal investment banker mentioned above could volunteer to pay more taxes too! It’s his money, he can do whatever he wants with it.

Interestingly, there is a state that you can voluntarily pay more taxes. In Massachusetts, you can pay at the old rate, 5.85%, or the new rate, 5.3%. Entirely voluntary. The Boston Herald reported that of close to two million tax payers, only 189 have opted for the higher rate!

If you feel that you don’t pay enough taxes to the Federal Government. The IRS will allow you to pay more. Among the ocean of forms they have, I think you use the Form 2210. Odds are good that you will be audited, because it is such an odd circumstance that someone would want to pay more-but they will let you. What do you think the chances of Mr. Buffett and the folks that think like him will put a little something in their check to the IRS this year?

UPDATE
There are those that will read this and say, simple answer is to raise capital gains rates. That is the wrong answer. In other posts on this blog, we have written extensively about capital gains. It is a tax on innovative capital that builds GDP, and creates jobs. Raising cap gains creates more unemployment, and stifles innovation.

The real answer-end all write offs for anything. Have a flat tax of something like 15-20% for everyone. Corporations included.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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