Buffett Argues Super Rich Should Pay More Taxes

In an op-ed in The New York Times this week, billionaire Warren Buffett argued that his federal tax bill last year — about $7 million — was too low. That he, and the rest of his super-rich friends, should pay more in taxes. Melissa Block explores that idea with Joseph Thorndike, director of the Tax History Project at the nonprofit group Tax Analysts.

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MELISSA BLOCK, host: Stop coddling the super rich. That was the headline over a recent op-ed in the New York Times that has ignited a fervent debate. The writer? Investor Warren Buffett, a billionaire perhaps 50 times over.

Buffett argued that his federal tax bill last year, about $7 million, was too low, that he and the rest of his super rich friends should pay more in taxes.

We're going to explore that idea now with Joseph Thorndike. He directs the Tax History Project at the nonprofit group Tax Analysts.

Thanks for coming in.

JOSEPH THORNDIKE: Oh, my pleasure.

BLOCK: Warren Buffett, in his op-ed, is explaining that he's part of a class making money with money and that accounts for his federal tax bill for 2010 ending up at about 17 percent of his taxable income. Explain how that works.

THORNDIKE: Well, by and large, someone like Warren Buffett makes his money from capital gains income and capital gains income has always been treated preferentially under the tax system. Almost always.

I mean, if you go back decade after decade, you find only a few windows where it was treated like ordinary income. By and large, we give it a break and the theory being that, if you give a break to that sort of income, you'll encourage the kind of growth-producing investment that everybody wants.

BLOCK: And the argument for keeping capital gains taxes lower is that capital gains are effectively a double tax, that this is already taxed as corporate income?

THORNDIKE: Well, there is some truth to that, that corporate income is taxed at the corporate level and then taxed again at the individual shareholder level, but it's also true that a lot of capital gains income is never taxed.

Also, if people choose not to realize their capital gains, then for year after year after year, they're making money in the stock market. Warren Buffett is getting richer by billions and billions and billions all the time, but if he doesn't ever sell any of that stuff, then he doesn't actually pay any taxes on that.

BLOCK: Well, let's say that capital gains for Warren Buffett and everyone else were taxed at the same rate as regular income. Are there estimates of how much revenue that would bring in?

THORNDIKE: There are estimates. They vary somewhat. But I think it's fair to say that it would raise 30, 40 billion dollars a year.

BLOCK: Warren Buffett is also calling for a new, higher marginal tax rate for the top .3 percent of taxpayers, the very wealthy. And why don't we start with those making more than $1 million a year. First of all, there are about 237,000 of them. If their tax rates were to go up, why don't you pick a point and tell us how much it might bring in?

THORNDIKE: Well, for instance, if you raise the top rate to 50 percent from 35 percent now, then you might make about $34 billion annually. At least, that's what the Tax Policy Center has estimated.

BLOCK: Now, that would be a huge jump from 35 to 50 percent.

THORNDIKE: Yeah. Huge and probably politically impossible, but - yeah.

BLOCK: Well, there are currently six tax brackets. What do you make of the argument that we need actually more tax brackets, not fewer, that there's not a single wealthy class now?

THORNDIKE: Well, historically, there's plenty of precedent for having lots of tax brackets. I mean, there used to be dozens of them, so the notion that we only need one or two or three or five is really sort of a modern idea and, to my mind, not really defensible because I think that there's a big difference.

You know, the top bracket now starts in the sort of $350,000 range. There's a big difference between somebody like that and somebody like Warren Buffett. I mean, someone who makes $350,000 or somebody who makes $350 million in a year. I don't see any reason why those people would be treated the same under the tax system.

BLOCK: It's interesting, though. I've seen numbers from the group Citizens for Tax Justice, a liberal leaning group, which says that the richest one percent - their share of total income is 20.3 percent. They end up paying about 21.5 percent of total taxes. Would you say that is their fair share? That they're paying a percentage commensurate with what they make as income?

THORNDIKE: I mean, that's really a very hard question to answer because it's sort of a gut level question. Does it seem fair to you? There's no equation that you can plug in that will tell you whether that's fair or not. It's just an issue of whether it seems like they're carrying their part of the burden.

I think, if you look at effective tax rates over time, which is, to me, a very illuminating number, you see them declining substantially for those who are very rich.

They decline for people in the middle class and for poor people, as well, but the rich have done particularly well. I think that's an argument for increasing taxes on the rich, especially in a bigger context where we're really going to be raising taxes on everybody.

BLOCK: Joseph Thorndike, thanks so much.

THORNDIKE: My pleasure.

BLOCK: Joseph Thorndike directs the Tax History Project and is the author of the forthcoming book "Their Fair Share: Why Americans Tax the Rich."

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