In essays on consecutive days in the New York Times, Steven Rattner and Warren Buffett call for higher taxes on upper income Americans to close the federal budget gap. Rattner calls for raising the top tax rate on capital gains to 28 percent, the same rate during Bill Clinton’s first term. He asserts that “capitalists” would not be adversely affected by the rise in tax rates. He also would eliminate the “carried interest” tax preference (15 percent rate), the “indefensibly low tax rate” that is paid by some private equity and hedge fund investors. In addition, Rattner would cap deductions on the wealthy taxpayers and increase taxes on dividends as well.
In sum, Rattner asserts the economy would not be adversely affected one iota if his tax proposals were enacted. There would be no negative impact on capital formation, R&D, mergers and acquisitions, employments, sales, profit margins, etc. And small businesses would not be “damaged” because of higher tax rates. This is the conclusion of a New York Times columnist, former Obama economic adviser, and wealthy money manager.
Warren Buffett calls for a “minimum tax on the wealthy” to address the federal government’s fiscal imbalances. He argues that the investors he has dealt with in his illustrious career have never asked him about tax rates when he presented them with investment ideas even when the marginal tax rates on the wealthy were as high as 91 percent in the 1950s. Buffett reveals that the wealth of the Forbes 400 hit a record $1.7 trillion this year, five times the 1992 total. In short, the super rich have seen their wealth skyrocket “leaving the middle class in the dust,” proving how the Federal Reserve’s easy money policies of the past two decades have goosed asset values and redistributed income from lower and middle income workers to the uber rich.
So what is Buffett’s solution to the fiscal cliff? Eliminate the Bush tax cuts for high-income taxpayers, preferring a cutoff of $500,000 or so instead of the president’s $250,000; a minimum tax of 30 percent on taxable income between $1 million and $10 million and 35 percent on income above that. According to Buffett, his proposal would get revenues up to 18.5 percent of GDP while spending should decline to 21 percent of GDP, still leaving the federal budget in permanent deficit. Who cares as long as the rich are paying “their fair share” and America has troops stationed around the world while the military takes orders to bomb nations that do not genuflect before America’s military-industrial complex.
Let’s assume that Rattner and Buffett are right, the American economy can live with higher tax rates on them and their fellow wealthy capitalists. In other words, prosperity is right around the corner if tax rates are raised and the federal government’s welfare-warfare state remains intact. It is telling that both Rattner and Buffett do not call for spending cuts of any kind in their respective essays. Can we assume that they believe that every dollar of federal spending at home and overseas is sacrosanct? Inasmuch as they are silent on the issue of the proper role of the federal government in our society, we can conclude that they embrace the welfare-warfare state.
But leaving aside the spending side of the fiscal cliff, I propose that since both Rattner and Buffett are nostalgic for tax rates of the past, we can address the fiscal cliff with a return to an income tax policy that really socks it to the rich and eliminates the tax burden on the middle class.
The original income tax of a hundred years ago exempted 98 percent of taxpayers. It was a “rich man’s” tax. The first $4,000 of a couple’s income was tax exempt. And tax rates went all the way to 7 percent. Clearly, taxing the wealthy at 7 percent today would not bring in enough revenue to pay for the welfare-warfare state that has evolved under both Democratic and Republican administrations.
To implement Rattner’s and Buffett’s proposal, I advocate that to really sock it to the rich so the middle class can have permanent tax relief, because tax rates as high as 91 percent did not slow down the American economy 60 years ago according to Buffett, let’s put his thesis to the test.
I propose that all federal income and payroll taxes for Americans up to one million dollars be eliminated. Furthermore, all incomes above $1 million be taxed at 100 percent. No, that is not a misprint. My proposal would get us to at least 99 percent of my goal for a tax-free America.
In short, I am compromising my goal of a tax-free America with a proposal that puts the cost of the welfare-warfare state on the people who are most able to fund it and apparently embrace it with all their heart and soul.
My proposal would be in line with two of President Obama’s smartest advisors. Make the wealthy not only pay their fair share, but have them pay for all of the costs of the federal government. After all, the super wealthy have reaped untold trillions because of low tax rates and easy money, and it is now payback time to help the country avoid the fiscal cliff. R&B assert that investing, capital formation and employment would not be adversely affected by higher rates. Let’s put their thesis to the acid test beginning in 2013.
Murray Sabrin, a professor of finance at Ramapo College of New Jersey in Mahwah, has been a candidate for statewide office on both the Republican and Libertarian Party lines.