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| Warren Buffett |
This the third part of a four part series on Warren Buffett's op-ed piece earlier this week in the Wall Street Journal. Buffett instructs Congress: “Job one for the 12 [Congressional leaders] is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here.” Amazingly, Buffett offers this broad generalization as a “solution” without offering any specific policy changes regarding how these government “promises” should be revoked. And in doing so, Buffett eerily dodges the specifics like almost every politician anyone has ever voted for at the national level in the last eight decades. Once Warren Buffett skips all specifics of undoing federal government promises that cannot possibly be kept, he seems compelled to stand aside so our government can be allowed to continue to get bigger and fatter. Here is the prose: “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.”
In other words, Buffett suggests we leave as is, an incentive structure wherein 51% of all American households have no skin in the game but full entitlement to benefits. He also offers no suggestions for social security, implying that funds designated for retirement should continue to go directly into the government coffers instead of a segregated retirement account.Buffett continues: “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.” Is it a coincidence that Buffett can be expected to continue to keep most of his personal capital gains unrealized and therefore not taxable? Additionally, Buffett has clearly left the federal government off his favorite charity list. The billions of dollars worth of Berkshire stock he now owns, that has never been taxed for the gains (twice), will eventually go to a tax-exempt foundation. Ironically, Buffett calls for the federal government to be the compulsory favorite charity for everyone who may decide to record capital gains on their holdings or pass them on to loved ones.
Buffett finishes his piece as follows: “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.” Buffett’s unwillingness to coddle would be more impressive if he refused to coddle a big, fat, and bloated federal government. Buffett has low expectations from government managers in a way that no Berkshire manager could possibly imagine.
On the surface this piece is puzzling. Why would Buffett argue for the continuation of incentive structures that are clearly failing while neglecting to provide any specifics on the $64 trillion question of how to unwind promises that will be impossible to keep? Tommorow in the fourth and final part of this series we will try to explain the motivations of Buffett who is now eighty years old.
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