Warren Buffet: "Please Put Up or Shut Up" And Other Tax and Spending Fallacies

Most people probably know who Warren Buffet is. Depending on what data source you use, his net worth is about $45 billion and he is always ranked in the top five as far as the richest people in the world. Obviously, he has been very successful, so when he espouses an opinion it is no surprise that his opinion gets wide press coverage.

Thus, it is not surprising he got coverage recently when he claimed that he does not pay enough in Federal income taxes and that he deserves to pay more. He claimed that although he paid about $6.9 million in Federal income taxes in 2010, that was only about 17% of his earnings, a percentage that he also claimed is lower than the tax rate of others in his employment. He also opined that other fortunate billionaires in America should also pay more in taxes.

Mr. Buffet is certainly entitled to his opinion. However, I have two major problems with his comments. First, while he thinks he should be paying more in income taxes, he does not speak for the rest of the billionaires in this country. They should be free to legally pay what is required of them under current laws without being hassled by Buffet and the political class. These billionaires did not make the tax rules, they are just following them. Bad mouthing them for doing nothing illegal should have no place in this country.

Second, and more importantly, if Mr. Buffet thinks he has not been taxed enough then I strongly suggest that he write a check and send it to the Federal government for the amount that he has been undertaxed over the years. If he really feels that strong about the situation, then be a man, step up,  and write that check.

The Federal government, via the Treasury Department, has operated a program for people such as Mr. Buffet for the past fifteen years. Americans can write a check or donate property to the government to reduce the national debt. Doing so, would free up other tax money to serve the country's needs. If he does not want to do that, I am sure some state government would eagerly accept his excess money and dedicate it to fixing some kind of worthy infrastructure project in their state, maybe even naming a bridge or road after him.

The bottom line is until he writes a check and turns over that money he has been undertaxed by, then I would prefer he keep his empty words to himself since that is all it is empty words. In addition, these grandstanding, empty words play into the class warfare political strategy that President Obama has engaged in over the first several years of his Presidency. Since Buffet is a supposed fan of Obama, it is no surprise that he is following the rich vs. not rich divisive rhetoric of the political class.

Obama is currently in full campaign mode,15 months ahead of the election and you can see his strategy of demonizing the rich in order to get some votes in November, 2012. It is behavior we have identified and found despicable many times in this blog. This rhetoric divides American without addressing the root causes of our economic problems, i.e. the Federal government, as operated by the political class, spends too much money. Taxing the rich more, as we will see below, will have absolutely minimal impact on the national debt and deficit spending crises.

The fallacy of this divisive political strategy is that Obama does not want you to know the truth about the taxing and spending situation in this country. Let's do some math, starting with Warren Buffet's tax situation. According to the interview article I saw, Mr. Buffet stated that he paid almost $7 million in taxes last year. Let's assume we doubled his tax rate and he paid an additional $7 million in Federal income taxes:

• If Mr. Buffet paid twice as much in taxes, he would account for about  .0004% of the Federal government's 2011 budget deficit.
• If Mr. Buffet paid twice as much in taxes, he would account for about .0002% of the Federal government's 2011 total budget.
• If we we took the richest 400 Americans, as identified by Forbes magazine every year, all of whom are billionaires in net worth, and taxed them all an additional $7 million, they would account for about .17% of the Federal government's 2011 budget deficit.

Bottom line: even if we doubled Mr. Buffet's tax liability and increased the liability of the richest 400 Americans by the same amount, $7 million, their increased taxation would be miniscule relative to both the Federal government's budget deficit and total budget. Their taxation would have minimal impact on the Federal government's financials and would do next to nothing to fix our country's spending problems.

Let's get even crazier. Rather than just doubling Mr. Buffet's tax liability, let's confiscate every bit of his wealth, (homes, cars, investments, cash, etc.) and use his $45 billion to run the Federal government. What impact would that have on the Federal government's spending and budget situation:

• His $48 billion would reduce the 2011 budget deficit by less than 3%. And the bad news is that you would only get that 3% reduction once since it would be a one time confiscation.
• His $48 billion would cover about 1.1% of the Federal government's 2011 operating budget. This would also be only a one time, one year hit since once you confiscate his wealth, it would not be available in subsequent years.
• His $48 billion would cover less than 10 days of the Federal government's 2011 deficit spending.
• His $48 billion would cover about .3% of the country's current national debt.
• His $48 billion would cover less than .2% of the expected national debt that the Obama budget plans expect to run up over the next ten years in addition to the current national debt.

Thus, even if the Federal government stole everything Mr. Buffet owned, their haul would not come close to fixing our debt problems, both long term and short term. 

But regardless of how minimal the impact this increase in taxation would be, it serves the Obama political strategy to a tee. Since there are many more poor and middle class voters than billionaire voters, by demonizing the billionaires, the President thinks the country is too stupid to realize that 1) taxing billionaires more will have virtually no impact on our debt problems and 2) the debt and spending problems that his Presidency has incurred will eventually impact every single taxpayer in this country since there are not enough rich Americans to cover his mismanagement.

The sad thing about this political strategy is that a non-politician, Mr. Buffet, is aiding and abetting the divisiveness. It validates Obama's political strategy and gives him some degree of credibility of not only pressing for higher taxes on billionaires, but also increasing taxes on non-billionaire (and non-millionaire) taxpayers, all without solving the root causes of our debt problems, too much government spending and waste.

So, Mr. Buffet, please do one of two things. First, write the check for all those taxes you claim you deserved to pay and prove you are more than just words. Or, second, if you are not man enough to step up and prove your convictions from a monetary perspective, then please be quiet and do not help Obama divide the country like the President usually does.



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