By Paolo Pontoniere
Lately I’ve been really intrigued by the so called Buffett Rule. On the impact it would have on the US deficit–null–and on the impact it would have on future taxpayers, profound. I can’t help but thing that is kind of weird for somebody who has been (and still is) in the running for becoming the richest man on the planet to propose to strongly increase tax imposition for people making more than a million buck a year. And in fact his 30 per cent tax on earned income would do nothing to curb, or contain the mind boggling growth of his wealth. On the contrary rather than diminishing it would set it in stone. And this is why. Buffett became rich taking advantage of all the tax writeoffs and loopholes approved by US administrations since the end of World War II. Not only that, but the tax rate at which he was taxed has been instrumental not only to the preservation of his wealth but also to its growth. Now he is proposing to put an end to this shame. But mind you he sits already on top of about $50 billion of personal wealth. A doubling of his income tax rate–event a tripling–would do nothing to fill the gap between him and the majority of Americans who, if they lose their job or become ill, have zero or less than a month of savings to rely upon to face the loss of income. What the Buffett Rule will do instead is to make sure that in the future to become a super-rich (like Biffett and his piers) people would have to work much harder than Warren (or any other of the Forbes’ super-rich) has ever done . In fact I am not quite sure that in such a scenario anybody would ever be able to amass a fortune comparable to Warren’s again, and furthermore with such easiness.
The introduction of the Buffett Rule would transform Buffet’s (and his current piers) super-rich status almost into a God-given right. Like feudal nobility passed along from father–or mother–to offspring via birth right. Different story would be if the tax could be applied to assets, incrementally and up to 100 per cent of their value in excess of a certain (agreed upon) threshold. Now, I bet, this would push people to invest, and to keep their money mobile, thus creating jobs and redistributing wealth. But this is just pol-fi (political fiction) because it would be real reform. Or wouldn’t it?
Now somebody may think that I am a fool. And they’re not totally wrong there. But if I am a fool I am in good company. Institutions like the Financial Times and some of America’s most read bloggers support a similar point of view. Here’s what they write:
“The Financial Times, in an editorial, noticed that the income tax increases Buffett suggests will barely apply to him, because most of his wealth is in the form of unrealized capital gains, which don’t count as taxable income or capital gains of the sort he proposes to raise taxes on. If anything, raising such taxes would actually improve Buffett’s position relative to the other wealthy people against whom he competes to acquire businesses. It would also help him to achieve his longtime goal, as his wife Susan described it in her own Charlie Rose interview three months before her death in 2004, of being “the richest man in the world.” The Financial Times suggested that in Buffett’s case, “shared sacrifice probably requires a wealth tax. Set at a modest 2 percent, he would owe about $1 billion a year, or 25 times his current taxable income.” (The Buffet Gambit, Ira Stoll, Commentary, October 2011)