Taxes & Buffett
“We’re going to need more money. Why not get it from me instead of the person whose going to serve me lunch.” —Warren Buffett
Warren Buffett is an uber investor, one of the very best in this world. He’s the chairman and CEO of conglomerate Berkshire Hathaway and is worth upwards of $45 billion dollars. He’s currently the third richest person on the planet. When he talks, people listen.
And lately, Warren’s been talking about taxes. Here’s the deal. Our deficit is growing, the Fed is going to have to control spending, and the government isn’t bringing in enough tax revenue to pay the bills. It’s generally accepted that we need to raise tax revenue, but we don’t want to hurt our recovering economy to do it. Buffett’s got a plan.
Tax Shortfall
The fact is tax revenue accounts for 15.5% of GDP (gross domestic product), which is the lowest rate its’ been over the past twenty years. That means at a time when we need more money, we’re getting less. Not good.
That number needs to be around 20% (which is closer to a historical norm) and where it was 10 years ago. While it may not sound like much of a jump, an increase of that magnitude would account for hundreds of billions of dollars. Simply put, we need to get that money.
Buffett’s Thoughts
Despite being one of the richest men in the world, Buffett has the lowest tax rate in his Omaha office and that’s without a tax shelter. How? By simply following the law and filling out a form. That needs to change.
Some feel we should raise taxes on the majority of the population, aka the middle class. Others think raising taxes on corporations is the answer. Buffett believes the government should raise taxes on the ultra rich, the top 2% of the population. Basically, Warren Buffett is recommending the government raise his taxes.
Counterpoint
Some would argue. If you raise taxes on the rich it could adversely affect the prosperity of the economy. How? By limiting the amount of cash this part of the population pumps into GDP.
But the money has to come from somewhere. If you’re not going to tax struggling corporations and you’re not going to tax the rich, then you are going to have to tax the majority of Americans. Buffett says that would be a major mistake.
The Majority Rules
The middle class is the largest part of our population and contributes the most tax to the government. It also spends the most cash, which positively impacts GDP and the economy. So essentially, the middle class is the engine that drives our nation.
So the middle class needs to be protected when things get bumpy. Why? So it can continue to pump fuel into the nation’s economic engine. And that’s why Buffett is voting for tax cuts for the middle class in addition to raising taxes on the upper class. For most of us, that would be a welcome move.
Self Support
By raising taxes on the rich (those who can afford it) and lowering taxes on the middle class (who are the drivers of the economy), we’d be accomplishing two very important goals. We’d increase tax revenue and hopefully allow the economy to continue to recover. Heck, with enough time, Buffett thinks our economy will once again be able to sustain itself without any help from the Fed.
And getting the economy to support itself is important, since stimulus spending needs to end.
