In a Nov. 25 New York Times Op-Ed, investor Warren Buffett lectured on his favorite theme: tax reform. Buffett's position is that the rich need to pay higher taxes.
"We need Congress, right now, to enact a minimum tax on high incomes," he wrote. "I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy."
While Buffett's position seems noble at first blush, it quickly becomes apparent, according to Greg Mankiw, an economics professor at Harvard University, that Buffett never mentions "doing anything to eliminate the tax-avoidance strategies that he uses most aggressively."
According to Mankiw these include:
• Company Berkshire Hathaway, of which Buffett is the CEO, never pays a dividend. By not paying dividends, Buffett saves his investors (including himself) from having to immediately pay income tax on this income.
• Berkshire only trades long-term, which means that short-term capital gains, which are taxed at income-tax rates, don’t affect him.
• He’s giving most of his money away to charity.He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.
• His children won’t pay income taxes on any assets that are bequeathed to them, so an income-tax hike doesn’t affect them.
"If we’re going to listen to him because of who he is, it’s not preposterous to note how little of an effect rule changes would have on him," commented economic blogger Joe Weisenthal.
This isn't the first time commentators have suggested that Buffett's position on tax reform seems a big disingenuous. Tim Carney of the Washington Examiner has argued that Buffett actually stands to gain from the tax-reform policies he advocates:
"Buffett regularly lobbies for higher estate taxes," Carney wrote. "He also has repeatedly bought up family businesses forced to sell because the heirs’ death-tax bill exceeded the business’s liquid assets. He owns life insurance companies that rely on the death tax in order to sell their estate-planning businesses."