Wealth for the Common Good

Originally posted on The Huffington Post, August 16, 2011

Warren Buffett is calling. We need more wealthy folks like him to speak up for taxing the wealthy.

Billionaire super-investor Warren Buffett has done it again. The Oracle of Omaha has made a bold and revealing statement about “taxing the wealthy.” In his op-ed in Monday’s The New York Times, Buffett wrote,“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.”

Buffett revealed that his own effective tax rate — the percentage of his income that he actually pays — is far below his co-workers, thanks to how investment income is taxed at lower rates. Buffett pays an effective rate of 17.4 percent, whereas most middle and upper income individuals pay over 30 percent of their income. He revealed one of the dirty secrets of tax policy — the privileged treatment of income from wealth over income from work and wages.

We now need ten thousand more like Warren Buffett to speak up, people with incomes over $250,000 that know in their hearts that they should pay more.

Of course, we need an engaged public — people in the bottom 98 percent — to mobilize and press for tax increases on the wealthy before any further budget cuts. But enlisting the voices of wealthy people for the common good is a key part of the strategy to change the political dynamics.

The good news is there are already several thousand who have stepped forward and spoken up. Several hundred business leaders and wealthy individuals have joined Patriotic Millionaires for Fiscal Strength, a joint initiative of the Agenda Project and Wealth for the Common Good. On June 7, the tenth anniversary of the Bush Tax Cuts for the wealthy, they issued a powerful video calling on Congress to let the tax cuts expire.

These folks, in the top 2 percent of income and wealth holders, eloquently make the case that they have benefited from the generations of public investments that made their wealth possible. They celebrate the fertile soil we have created together in U.S. society for business and wealth creation and believe they have an obligation to future generations to pay their taxes so that others have the same opportunity.

Almost 500 high-income taxpayers support the Fairness in Taxation Act, that would increase top tax rates on millionaires, generating an additional $78 billion in urgently needed revenue. This legislation would also tax both capital gains and wage income over $1 million at the same rates. It would eliminate the “carried interest” loophole that enables billionaire hedge fund managers to have their income taxed at a low 15 percent. This legislation would eliminate the economic distortions that come from taxing income from work at twice the rate as income from wealth and investments.

There are now thousands of business leaders and wealthy investors calling on Congress to stop aggressive tax corporate dodging. They point out that it is bad for business when companies like General Electric and Verizon pay no taxes — and force patriotic domestic companies to compete on an unlevel playing field.

In early July, Senator Carl Levin reintroduced the Stop Tax Haven Abuse Act. At a press conference Senator Levin was joined by spokespeople from Business for Shared Prosperity and the Business and Investors Against Tax Haven Abuse campaign. Rep. Lloyd Doggett introduced a version in the House.

Polls show that the public supports raising taxes on millionaires and closing offshore corporate tax shelters as part of getting our fiscal house in order. Yet the Tea Party Republicans have pledged to destroy the economy before raising taxes on their rich patrons. The bottom 98 percent needs to get organized — in mobilizations like the “Other 98 Percent” — to press for tax fairness. But it will enormously help the cause to have more of those who will pay these taxes step forward and speak up.

In our organizing work at Wealth for the Common Good, we share Warren Buffett’s view that many of the rich “love America and appreciate the opportunity this country has given them… Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.”

Polls show that wealthy people know the tax code is getting less fair and is out of balance. But many of them — like the population as a whole — don’t feel the intensity about tax fairness that they feel about other pressing matters such as education, children’s health, and ecological degradation. Very few people of any economic class feel passionately about tax fairness — to the point where we are politically engaged.

Now is the time for all of us to understand how important this tax debate is — and that everything we care about is under attack by the current drift in politics. We have to get real fired up about tax fairness.

Revenue must be on the table as part of debt and budget debates in the coming months. Congress must let the Bush tax breaks for the wealthy expire, increase top tax rates for millionaires, and eliminate aggressive corporate tax dodging.

Right now, our silence is consent to the status quo of budget cuts and unequal sacrifice. We need millions of ordinary citizens to speak up. And to compliment this, we need tens of thousands of our nation’s business leaders and wealthy individuals to speak out.

The alternative is austerity for everyone but the rich — and a growing economic apartheid in America.

Published in The New York Times

August 14, 2011

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

Originally posted on The Hill, August 5, 2011

I love America, and have proudly invested in America. I have invested by building successful businesses employing thousands of American workers. And I have invested in our country by paying taxes.

But our nation loses $100 billion a year to tax dodging by some of our largest corporations and wealthiest people. That’s a trillion dollar hole in our national treasury over the next decade unless we act now to plug it.

Tax dodging companies are disinvesting in our country – not investing in it.

Many U.S. multinational companies use a gimmick called “transfer pricing” – shifting patents to their offshore subsidiaries, for example – in order to pretend they’ve earned their profits in a tax haven like the Cayman Islands, Bermuda or Luxembourg, even though their operations there may be little more than a mail box. What they’re really doing is transferring their U.S. profits offshore and transferring their tax responsibilities to the rest of us.

In this global version of a shell game, corporations move their profits to offshore shell company subsidiaries; the U.S. parent company reports to the IRS that they’ve made almost no profits, or even lost money on their U.S. operations. These companies are passing the buck to other taxpayers and robbing our national treasury of funds we need.

It sickens me that businesses like mine responsibly paid taxes at the rate of 35 percent on millions of dollars in profits while companies like GE would pay zero percent on billions of dollars in profits. Even worse, they had so many tax loopholes and tax subsidies that Uncle Sam actually owed them money. From 2008 to 2010, GE had $7.7 billion in pretax U.S. profits and $4.7 billion in tax refunds, giving it a negative 61.3 percent tax rate, reports the tax experts at Citizens for Tax Justice.

We need to ask what kind of country we want to have and who is going to pay for it.

I have been fortunate to live the American Dream. I know my success is due to many factors. I know, for example, as a software entrepreneur, that I would have had no business at all without the government assistance I received for my college education, or the government research that led to the Internet.

It’s obscene that computer and internet companies like Google, Microsoft, Apple and Cisco are part of a coalition clamoring for a tax holiday to “repatriate” profits they shifted to tax havens to avoid U.S. taxes.

It’s obscene that so many members of Congress are willing to legislate austerity for American workers, small businesses and retirees while leaving the door open for big corporations to dodge taxes through tax havens.

We all benefit from public services, infrastructure and research paid for by tax dollars – education and public transportation, the Centers for Disease Control and food safety inspections, roads, bridges and waterways, the Small Business Administration and economic development programs, police and courts, and the public safety nets, from unemployment insurance to food stamps, that so many depend on in these hard economic times.

Instead of reducing our debt by cutting vital services, we need to close two big tax deficits – the tax haven deficit and the deficit from the Bush tax cuts for the affluent. Each is worth a trillion dollars over the next decade.

The Stop Tax Havens Abuse Act introduced recently in Congress by Senator Carl Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas) would close the loopholes that reward those who disinvest in America and dodge taxes to unfairly boost their corporate treasuries. It should be a no-brainer solution in deficit reduction.

It is simply outrageous that we would ask unemployed and disabled Americans and Medicare and Social Security recipients to sacrifice more while continuing to shower tax savings on millionaires and billionaires who have a larger share of the nation’s income than any time since the 1920’s.

It’s time for Congress to plug the loopholes that allow our largest corporations to avoid billions of dollars in taxes, and it’s time for Congress to ask our wealthiest individuals, including people like me, to also pay our fair share of taxes. After all, American corporations and wealthy individuals should be proud to support our country and invest in its future.

Paul Egerman, a software entrepreneur, is co-founder and former CEO of the medical information technology company eScription.