WSJ Rips Apart Warren Buffett's Call for Higher Taxes on the Rich

A WSJ editorial:

Barney Kilgore, the man who made the Wall Street Journal into a national publication, was once asked why so many rich people favored higher taxes. That's easy, he replied. They already have their money.

That insight is worth recalling amid the latest political duet from President Obama and Warren Buffett demanding higher taxes on "millionaires and billionaires." Mr. Buffett is repeating his now familiar argument this week, coinciding with Mr. Obama's Midwestern road trip on the economy. Since the media are treating Mr. Buffett as a tax oracle, let's take a closer look at some of the billionaire's intellectual tax dodges.

• The double tax oversight. The Berkshire Hathaway magnate makes much of the fact that he paid only 17.4% of his income in taxes, which he considers unfair when salaried workers often pay more. But Mr. Buffett makes most of his income from his investments, in particular from dividends and capital gains that are taxed at a rate of 15%.

What he doesn't say is that much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%

This onerous tax on capital is a U.S. competitive disadvantage in the global economy, which is why Congress agreed in 2003 to cut the rates on dividends and capital gains. Even as the rest of the world is cutting tax rates on corporate income, Mr. Buffett wants to raise U.S. rates in a way that would make America less attractive for investment. Under a sensible tax reform, the feds would impose either a corporate tax or a dividend and capital gains tax, but not both.

• The middle-class bait-and-switch. Like Mr. Obama, Mr. Buffett speaks about raising taxes only on the rich. But somehow he ignores that the President's tax increase starts at $200,000 for individuals and $250,000 for couples. Mr. Obama ought to call them "thousandaires," but that probably doesn't poll as well.

The President needs to levy his tax increase at such a lower income level because that's where the money is. In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.
But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama's plan aren't millionaires, and 99.99% aren't billionaires.

Mr. Buffett says it's only "fair" to raise his taxes, but he's lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren't rich and may earn $250,000 for only a few years of their working lives. How is that fair?

Read the rest here.