It's Wise to Ignore Buffett's Tax Rants

Fiscal Policy: Warren Buffett may have hoped his call for a tax increase on the rich would make him look selfless. Instead, it just made him look like an uninformed hypocrite.

In a New York Times op-ed on Monday, Buffett complained that he and his super-rich friends "have been coddled long enough by a billionaire-friendly Congress" and should have their taxes raised immediately in the name of "shared sacrifice."

In making his case, Buffett noted that the richest 400 taxpayers saw their average tax rate drop from 29.2% to 21.5% since 1992, and that he paid only 17.4% of his income in federal taxes last year.

But if Buffett really thinks that he and his rich friends can and should pay more in taxes, why doesn't he just write a fat check to the government? Indeed, if Buffett really believes he's under-taxed, doesn't he have an obligation to pay more? Not just for last year, but for all the years he's coughed up less than 29.2%?

And shouldn't he be cajoling his rich friends to do the same? After all, Congress can take forever to act, but the need for more tax dollars is oh so urgent.

Somehow, we doubt Buffett or any of the other rich liberals claiming they aren't taxed enough will actually have the courage of their convictions.

Not that it would make any meaningful difference. Even if you doubled the taxes paid by every millionaire in America, you'd still make only a dent in the deficit. Millionaires and billionaires aren't that plentiful. And that assumes they'd actually pay the higher rates, something history shows won't happen.

The simple fact is that the rich have a tremendous amount of flexibility as to where, when and how they make money. Raise rates too much, and they'll just get their army of accountants to find ways to avoid them.

The taxes paid by the richest 400 in 1994 were almost identical to the amount they paid in 1992, despite the intervening Clinton tax hike. And by 2000, just 123 of these 400 paid 25% or more in taxes, down from 305 before Clinton's tax hikes went into effect, IRS data show.

In contrast, capital gains taxes paid by these super rich exploded each time the capital gains rate was cut, as they were more willing to realize gains at the lower rates. Indeed, realized capital gains climbed 28% after the rate cut in 1997, and 21% after the 2003 cut, according to the IRS.

Nor is it true, as Buffett claims, that the rich have been "coddled." Indeed, the top 0.1% of income earners - the millionaires and billionaires Buffett says have made out like bandits - paid a third more in federal income taxes in 2008 than they did in 2001.

The richest 400 paid almost two-thirds more. And the share of federal income taxes paid by the rich climbed after the Bush tax cuts went into effect.

If Buffett were as smart about tax policy as he is about investing, he'd be calling for tax reform that cuts rates and eliminates loopholes, instead of playing up the class warfare rhetoric.

Until then, we'd all be well advised to ignore Buffett's tax rants.