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To Tax Or Not To Tax: Warren Buffett Breaks the Piñata

(First published on Urban Times on 17th Aug 2011)

This is the first piece in a series of articles that aim to provide food for thought on the issues of wealth, taxation, and the economic crisis.

Warren Buffet, Billionaire Businessman & Philanthropist

Warren Buffett has spilled the beans on the tax issue. He has urged the US government to tax him as well as all his mega-rich friends, because they can afford it. And that makes for one hell of a statement. In an op-ed in the New York Times, amongst such hazzy statements as “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”, the billionaire shines a light on some genuine issues in the US tax code:

“Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

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 — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

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.”

This is an extraordinary step, if you stop and think about it, whatever your political disposition. I mean, when you hear it from the horse’s mouth, it’s hard to argue back, throwing ideology, theory, and bias right out the window. Thank you Mr. Buffett for clearing the air on the mega-rich tax issue in a way only a mega-rich person could.

How does the call work? By laying out the argument simply, without getting caught up in anything other than plain necessity. Mega-rich Warren Buffett has told Congress this: “let me contribute my fair share in the effort to get us out of this mess. Why should the poor and middle class carry the brunt of the cost as things stand? Let me help, I can afford it – and stop scoring political points in the process. This is nor the time or place for it.”

The last part was never stated explicitly of course. You have to read between the lines to find it. I have found it and taken the liberty to emphasize it.

It’s a compelling statement. The bitter ongoing conflict between members of House and Congress – and the political parties involved – on whether to raise US taxes or not needs a kick in the backside to get unstuck from the rut it has gotten itself into. Buffet has delivered it superbly. His initiative has taken self-righteous morality and expedience away from all those arguing against tax increases: Republicans, for example, who seem to have made the Bush tax-cuts their ultimate goal, waging a political and ideological fight to the death against the “Socialist” Obama administration and its “evil” policies; or the The Tea-Party, who have gone even further, making tax-freezes their war cry, rallying votes behind them as if there were a local conspiracy by American Neo-Soviets to take over the land and crush citizens’ rights in a post-cold-war economic offensive only George Orwell could have scripted.

Strange how loony-ism has weaved its way into mainstream politics. People are suddenly seeing barbarians everywhere, crying wolf left, left and left.

The saddest part is that there is logic in some of these libertarian cries, including the need to shrink government (budget and scope), the right for individual States to administer themselves without Federal interference, and the dangers inherent in wanton debt economics and federal banking politics. But the anti-leviathan cause has been glazed in so much fanaticism and anger that its merits are hardly discernible anymore. Shame to the Tea Party politicos for having hijacked and tainted an otherwise substantial call to reason.

Having said that, Warren Buffet’s plea strikes at the other side too, sparing no quarter. It takes self-righteous morality and expedience away from those arguing for tax increases, namely, ideologue Democrats and other liberal do-gooder saviors, who have made it their life mission to attack wealth and raze it to the ground, finally knocking that nail in capitalism’s coffin and fulfilling a lifetime dream. No more vicious, greedy, insensitive business, they say. No longer shall the “wolves” of free-marketeering prey on the weak and needy and get away with murder. This is it, the time of the stake, to be driven straight through the heart of the “greed monster” – and they, self-appointed Van Helsings, are all too eager to swing the hammer and strike it in.

Clearly, both political sides are using the economic crisis as an arena in which to wage their ideological battles, in an effort to push forth their agendas. All without considering the practical necessities of the economy and the individuals who make it up.

Fortunately we need not address the globe’s major economic and political problems based on the ideologies and righteousness of these partisan demagogues anymore. Warren Buffett has re-framed the issue in terms of common sense, seizing the initiative as well as the moment. He has asked to be taxed, not because Keynesian economic policies are right, but because the situation demands it. Because he doesn’t mind. He doesn’t care. It won’t affect his business, he claims, or his investments, or his quality of life, if done wisely and with discretion. Applied temporarily and on a pragmatic basis, and in addition to all the other measures needed to be taken right now – entitlement cuts, small- and medium-sized business stimulation and incentives, payroll tax-cuts extensions – the economy may start getting itself back on track. We shall be all the better for it, all of us.

When you hear it from the horse’s mouth, it’s hard to argue back. Especially when the horse asks for a crack of the whip with a smile.

Of course the important word here is crack. Not wanton lashing or habitual beating. Make a note, please. Let those in charge not get carried away. Let them keep in mind that increased tax rates would be a temporary measure that would work only if applied temporarily and with prudence. Institutionalize tax hikes at any level, on either rich or poor or the middle class, and you transfer power from the individual to the politicos and their committees. A look at the debt ceiling crisis and the Congressional bickering that took place in July and August is enough to remind us that legislators cannot handle such power. Nor should they, for it is too easy to merge economic policy and resolute leadership with self-interested rhetoric, leading to populism, deadlock, unworkable compromise, and, inevitably, decline.

In the wake of the debt-ceiling deal and the debacle that arose from it, one thing remains. The economy is still in crisis and much strapped for cash, with most key issues un-addressed, let alone solved. Extraordinary steps need to be taken to recalibrate the situation and make the recovery possible.

Enter Buffett’s call. The claim has been made and the piñata has been broken. Those listening to him ought to take heed and not carve their teeth too sharp, ideologues most of all. This is an offer of reason and common sense amidst the craziness surrounding the tax issue by a person who can afford, and doesn’t mind to offer, a larger contribution to the vexed economy in a time of deep crisis, for the duration of the recovery process, with the aim to make the recovery possible. It is not a legitimization of heavy and wanton taxation, nor is it a step toward socialism, nor an invitation to the state to go berserk on its citizens’ wallets. So long as a spike in taxes on the rich remains a temporary measure – as opposed to a fixed and permanent one – Buffett’s call seems difficult to argue against. Unless of course you’re a mega-rich person with no trust or respect for those siphoning your rightfully-earned money away.

This is an area we shall examine next. For now the issue remains. To tax or not to tax? The answer goes hand in hand with what is conducive to the strongest economic recovery, the creation of a robust political environment, and the promotion of a fair and fit society.

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