1. The utility of money is not linear.Another reason is that, quite frankly, that's where the money is. If we're going to have a government capable of undertaking large projects (be they social, infrastructural, military, or what-have-you), then we're going to have to take large amounts of money from the wealthy. You can't squeeze blood from a stone. So one way to look at it is this: which is less moral: doing without those projects or taking more money from the wealthy?
2. The utility of government services is not linear.
As to the first point: psychology and economics tell us that, for example, $100,000 is worth far more to someone who has nothing than to someone who already has a billion dollars. So, it's okay for marginal tax rates to go up as a person's income increases. The higher percentage is offset by the diminishing utility of increased income.
As to the second point: the public goods and services provided by government (e.g. defense, health care, infrastructure, financial regulations, the court system, police) are worth far more to someone who has a lot than to someone who has very little. As you have more to lose, the value of these protections go up. Therefore it is reasonable to expect the wealthy to pay a larger proportional share of the cost because they derive more proportional utility from the public goods and services.
Tom [Brokaw]: You've talked about in your office, for example, you pay a much lower tax rate with all of your wealth than, say, a receptionist does.OP, you have a long way to go if you want to convince that the super-rich are shouldering "more than their fair share" in America. I recommend getting clear on your concepts and your facts.
Warren: That's exactly right, Tom. And I-- I think the only way to do it is with specifics, and-- and - and in our office, 15 people cooperated in a survey out of 18. I didn't make anybody do it. And my total taxes paid-- payroll taxes plus income tax-- and the payroll tax is an income tax. It's based on income.
Tom: Yeah.
Warren: Mine came to-- 17.7 percent. That-- that was the-- that was line 61 I think-- or, no, line 43-- is the percent of taxable income, plus payroll taxes, 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office from the receptionist on that paid as low a tax rate. And I have no tax planning. I don't have an-- I don't have a-- an accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do.
Tom: Why do you think that there's not more outrage about that?
Warren: I-- I don't think people understand it. For one thing, you'll see a lot of surveys that say the rich, the top one percent pay this much of the income tax. Now I think what people don't realize is that almost one third of the entire budget comes from payroll taxes. And payroll taxes on income, just like income taxes are taxes on income.
And the payroll tax is over $800 billion out of two and a trillion, or something like that. And people don't understand-- they-- they-- that the rich pay practically no payroll tax. I mean, I paid payroll tax last year on $90 odd thousand, whatever the number is. I paid income tax on $66 million. But my double income tax, one of 'em quits at $90,000. And the remaining $66 million does not get taxed with payroll tax. So, the person who makes $60,000 in our office gets ta-- taxed in full on the payroll tax, and taxed in full on the income tax. And-- and all the statistics you read, particularly the one don't like taxes, well now, they totally ignore the payroll tax. And it's huge now. ...
Most of my income is taxed at 15 percent, and-- and doesn't pay a payroll. Mainly it’s dividends and capital gains. And if you look at the ... Forbes 400, a bunch of my fellow rich guys-- ... their tax rate overall to the federal government will be less than that of their receptionist. And I challenge anybody. If they want to make me a bet on that, and I've urged Congress, both the Senate and the House, to get the figures anonymously from the IRS. Just look at that Forbes 400. Takes a billion three to get on the Forbes 400 this year. And the aggregate wealth is just staggering. And those people are paying less percentage of their total income to the federal government than their receptionists are.
Tom: Will you put some money on the table on this one?
Warren: What--
Tom: You said-- you said you'd pay a million dollars to somebody.
Warren: I'll-- I'll bet-- I'll bet a million dollars against any member of the Forbes 400 who challenges-- me that the average for the Forbes 400 will be less than the average of their receptionists. So, I'm-- I'm-- I'm-- I'll give 'em an 800 number. They can call me. And the million will go to whichever charity the winner-- designates.
Tom: How much are you hearing from your fellow rich fellows, as you describe them?
Warren: I don't hear anything. They're happy. They are not paying the tax rate their receptionists are.
Now people who think they do it all themselves, I pose to them the problem of let’s just assume they were in the womb as one of two identical twins—same DNA, same wiring, everything the same—and a genie came along and said one of you is going to be born in Bangladesh and one of you is going to be born in the United States. All the human qualities are the same. Which one will bid the higher percentage of the income they earn during their life to be the one born in the United States? The bidding would get very spirited. I mean, all these qualities of luck and pluck and all these things that are supposed to take us to the top—you know, like Horatio Alger—would not work as well in Bangladesh as here. This society delivers huge opportunities to people who happen to have the right wiring. And it delivers a pretty damn good result to people who could function here compared to the rest of the world and compared to a hundred years ago; but the disparity will widen absent the taxation system. That’s one of the things you need government for in my view -- Warren Buffett."I'm practically a commie canadian but I'd have no problem paying 60, 70, or even 80% of my income over say 100K a year to be born in Canada rather than Bangladesh. Especially if it means the guys across the street or across town isn't forced to eat uncooked no-name kraft dinner for a week (including the box it comes in) in order to see his doctor about his shortness of breath. Heck I pay more tax to live in Canada instead of the US already which is something I could change at anytime.
But I think I'm exactly backwards from your philosophy in at least one key respect, though. I think it IS a moral obligation, and only that. For the government to try to be the instrument of making this happen is counter to human nature, common sense, etc., etc., at least beyond a certain point. Progressive taxation, for example, makes sense because of ability to pay, but to actively seek to "cut off the tall stalks of grass" by taxing the wealthy until they're not wealthy so as to give it to the poor fails in at least two respects:
- historically, the wealthy find a way around the taxes. If need be, they'll move their money to another country, if it gets bad enough.
- historically, the money raised doesn't seem to make it to the poor that well...
As to your immediate question, the rich are expected to do more as a % of their income because they can afford it. Someone who makes half what I do may be able to give nothing; my family may be able to give 10%; Bill Gates is giving away large chunks of his income, probably more money than I'll ever make in a lifetime, and he isn't missing it.
But, I repeat - this is a moral obligation, not something we seem to be able to legislate very well.
posted by randomkeystrike at 6:46 AM on April 22, 2011 [5 favorites]