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Warren Buffett’s 'tax the rich' idea has no legs

Few multi-billionaires have such universal appeal as Warren Buffett. The Sage of Omaha, famed for driving an old car, living in the same house he bought in the late 1950s and drinking cheery coke, is the acceptable face of a billionaire, if there has ever been one.

Few multi-billionaires have such universal appeal as Warren Buffett. The Sage of Omaha, famed for driving an old car, living in the same house he bought in the late 1950s and drinking cheery coke, is the acceptable face of a billionaire, if there has ever been one.

And true to form, Buffett, who has already pledged all his money to charitable causes when he dies, has come up with an idea that will further endear him to the public – it’s called taxing the rich more.

In an article written for The New York Times, Buffett says the rich don’t pay enough taxes. His argument is a forceful one. “While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” he says.

Buffett goes on to suggest various ways the rich should pay more, including raising rates on taxable income in excess of $1 million to include dividends and capital gains – and an even higher tax rate for those making $10 million or more.

Few, except of course the multi-millionaires who make this type of money - estimated by the Internal Revenue Service as being less than 250,000 individuals in the US - would disagree with Buffett’s proposal.

The trouble is that most governments seem to lack the will to tax the rich more than they are doing already. Some even argue that taxes are already too high for the rich – and they aren’t always right-wing libertarians. Look at President Obama’s comprise on estate tax last year as example of the lack of political will to tax the rich.

And even when governments attempt to tax the rich more, inevitably new taxes fall on the affluent, rather than the very rich. The 50% highest tax rate on incomes of £150,000 (€177,600) and above in the UK, introduced at a time when public fury was at it highest towards bankers, undoubtedly hits some highearners. But those earning this amount of money, or even £100,000 more, aren’t exactly the superyacht and private jet crowd that fit the popular perception of the rich.

Even so, the UK government is likely to drop the rate back to 40% next year given the fear that it is undermining enterprise and squeezing entrepreneurs. It might be cut just when the debate about an underclass in the UK is at its most fierce following the worst rioting in England for decades – so much for taxing the rich in the UK.

Granted, the US authorities might have more of a will to tax the rich than countries like the UK. On the whole, the rich in the US don’t threaten to leave the country when higher taxes are introduced. Even if they do, the IRS still taxes them on their worldwide income – as long as they hold American citizenship.

Not so in the UK, or for that matter many other countries in Europe, where tax arbitrage is made much easier by differing tax rates throughout much of the European Union and Switzerland. Also, the free movement allowed between countries if you’re a EU citizen makes moving around easier. European tax authorities also don’t follow their citizens around the world, or at least not for the rest of their lives like the IRS does.

Taxing the very rich also has another challenge. Increasingly, the ranks of the very rich are being fuelled by individuals and families from emerging markets, where often tax rates are very low, and/or easy to circumnavigate.

The mega rich from these countries have been buying residential property in places like London, Paris, the south of France and Switzerland for the past few decades, swelling property prices in the prime areas of these cities or countries.

They make sure they are only in these houses, villas or estates for a few months a year to ensure they avoid paying taxes in any of these jurisdictions. When you have so many houses spotted around the world and a super yacht there is little inconvenience to flip between countries so to avoid resident taxes.

These billionaires – and their numbers will swell as emerging markets get richer – have effectively become super rich nomads to tax authorities, impossible to get any of them to pay income, capital gains, or estate tax.

Then there is a question of the amount of revenue actually raised from taxing the very rich – some argue that it is negligible in making little difference to the lowering huge government deficits in much of Europe or the US.

And so the list of the difficulties in taxing the rich goes on…

Buffett might like to consider a few of these factors when he next says something on the subject of taxing the rich.

Comments

Congress may have opened a vein with $2.4 trillion in spending cuts. However, it called for no tax hikes, in spite of the truth that many consider additional taxes necessary. That's since the tremendous voting constituency has “last-place aversion,” according to The Economist magazine. Paying the required amount of tax for poor and middle class is important, unlike for the rich who don't pay enough, that makes them in trouble.

Thank you for posting this article, it describe more the issue of taxes and how Buffet view about it. Buffett of Berkshire Hathaway has cash to spend. Along with billionaires like Microsoft's Bill Gates, Buffett has sounded what some would characterize as the disingenuous call for the rich to join in a “shared sacrifice” and pay increased taxes to help close the United States budget deficit. Buffett proposes that the cash has to come from somewhere and that the very wealthy can afford it, but numerous naysayers of the concept claim that over-taxing the rich would be detrimental to the economy. The proof is here: When Warren Buffett says tax me, do people listen?

Many thanks for your comments. We are going to be following this issue with interest. We believe the only country in the world that can really get to grips with taxing the very rich is the US, given that it is the only country that taxes its citizens on their worldwide income.

Berkshire Hathaway Chairman Warren Buffett is among the richest men on the planet. Like Gates and a small group of other U.S. billionaires, Buffett is calling for the prosperous to pay more taxes to help close the national budget gap. Buffett's argument is that the top earners can afford more than a 15- to 17-percent tax rate, but naysayers of his concept fear the problems increased taxes would cause within the United States economy. Source for this article: When Warren Buffett says tax me, do people listen?. Just click the link for the details. This has been the most talked about debatable issue lately that has something to do with mounting the national debt, and a popular sentiment on how to fix it is to begin taxing the rich at a higher rate. A majority of Americans support that idea, according to various polls. Politico.com says most polls reveal that 50 to 70 percent of respondents usually are in favor of raising taxes on the wealthy. However, the wealthy make up a tiny part of the American populace. Therefore, levying greater taxes on the wealthy is not going to solve the nation’s problems. Now, generally speaking, amidst the remonstrations, do you think this will alleviate the economic condition? Will it decline the length of time for the government to pay off the debt? If the tax of the wealthy accrues will it benefit everybody?

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