The Buffet Tax?

by

Warren Buffet along with various other wealthy individuals called for higher taxes on the wealthy. His claim was that he was under taxed, suffering a rate lower than his secretary and other employees (who must be well paid, as he claims they are suffering a 33 percent burden). Perhaps there is a way we can give Buffet and friends what they want.

In an earlier post, I suggested a tax on wealth instead of a tax on high income. However, that may not be politically palatable, as too many it smacks of socialism. Buffet’s lower tax rate is due to dividends suffering a lower rate of tax than other forms of income. The logic (and yes, I realize the logic is convenient for the wealthier political donors) is that the corporate income is already taxed, before becoming dividends.

What I suggest is that we cut the corporate income tax rate to, say, 5 percent, but charge dividend income as regular income. This would allow Buffet and friends to pay tax at rates they deem fairer and might encourage capital formation or the repatriation of overseas profits. Such rate changes are likely easier to implement than more complex “reform.”

I am sure such changes could be set to achieve the magical “revenue neutral” effect on the budget. It might even allow Warren to pay as much tax as his secretary.

Notes:

I suggest a low corporate tax rate rather than a zero rate because I hope to slyly capture some pass through income from corporations flying flags of convenience. At current rates US companies may headquarter or declare profits overseas to avoid high rates. I would hope that a low rate would convince overseas companies to do the same in the US.

Regarding the tax on wealth and “socialism”: I see true socialism as about ownership, control, and a punitive attitude to wealth. While punitive is, to some degree, in the eye of the beholder, I feel that a low enough tax on wealth is no more punitive than a tax on income, sales, or any of the other myriad of existing taxes. Capitalistic societies provide strong protection for property. It does not seem unfair that such property bears a charge for that protection. Of course, such a tax is not without its own problems (e.g., the cash poor but asset rich) and opens another channel of potential abuse.

About these ads

One Response to “The Buffet Tax?”

  1. Kane Says:

    What about capital gains from the sale of stock? I believe most individuals who live off of their investments do so more from selling their investments and realizing capital gains than from the dividends their investments yield.

    I agree that there is a distortion in the system. By applying such obscene tax rates to high salaried workers, we make it much harder for them to build true wealth. The super rich live off of investments. People who are taxed in the highest brackets are typically people who grew up middle class and are trying to work their way up in the world, but are prevented from doing so by the government stealing so much of their income.
    [DU: It would make sense that those whose income derives from trading would be taxed at regular income tax rates. I suppose it is difficult to decide/prove what was trading and what was investment. Indeed the entire differentiating between trade/invest or short/long term raises its own problems (e.g., I believe that the tax treatment of futures trades, however long held, is something like 60 percent long term rate/40 percent short term rate). One possibility is rate that declines a little each month, so that very short term (e.g., one month or less would be at the full rate, each month after that the rate would fall a little. This would avoid forcing people to hold investments for 1 year and a day just to garner the lower rate. It would mean investors could focus more on acquisition/selling decisions and not tax implications. The top rate could be set as equal to the taxpayers marginal rate.]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

%d bloggers like this: