Omaha's Homespun Humbug

Warren Buffet has penned a column in the NYT calling for his (now eponymous) Buffet tax on high earners.  Mr. Buffet has always been a master at PR, but this is clearly his most brilliant work to date.  Mr. Buffet argues that it is silly to believe that people's investment decisions will be changed by a change in the marginal tax rates.  He cites his experience as a fund manager:

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Of course while Mr. Buffet is talking about capital gains rates he is advocating higher marginal rates on income.  Cleverly the Homespun Humbug claims that investors don't (or shouldn't) care about marginal tax rates on income and argues that they should be raised substantially on high earners because his fund is optimized to avoid taxes on income.  Indeed, with a higher tax rate on income, Berkshire Hathaway will become a more attractive investment alternative for the very rich, making Mr. Buffet and his investors billions which will not be subject to the 'millionaires' tax that Mr. Buffet is proposing.

But lets unpack his 'theory' of the market a little more:  Essentially Mr. Buffet is implying that the after tax yield of an investment does not influence investors - they'll always make the investment.  This is great news because it gives us an easy way to close the deficit - just eliminate the tax exemption on tax free bonds - their value won't change because Mr. Buffet says so - investors don't care!  We could also clean up by eliminating the tax deduction for charitable giving, because if income tax rates don't matter for investing it would be crass to assume they mattered for charitable giving.  And while we're at it, lets deep six the mortgage interest deduction because it clearly will have no impact on housing prices.  Deficit problem solved.  Ka-ching!

By making such a sophomoric and partisan argument, Mr. Buffet does a grave disservice to the debate - openly promoting junk economics in a cynical attempt to advantage his business.  As a great Prog once said:  "There comes a time when you've made enough money".  But in our increasingly elitist, technocratic society the 'expert' who has the 'right' politics can get the most incoherent, self serving dreck published.  Especially in the New York Times.  

Perhaps we should establish a 'billionaires tax' that taxes fortunes of over $250 million (I can deflate as well as the next 'progressive') 1% of their market value each year - essentially a property tax for the very rich.  This would have the advantage of attacking the real 'problem':  disparities in wealth .

Do this and you will see what the ever so progressive Mr. Buffet and the rest of the very rich (who are heavy supporters of the President) really think about 'sharing the burden'.  But you'd better buy earplugs because the screeches will be deafening.