Warren Buffett and the Corrupting of the American Soul

Posted: Dec 02, 2012 12:01 AM
Warren Buffett and the Corrupting of the American Soul
“Bottom line…would raising taxes on the wealthiest Americans have a chilling effect on hiring?”

It was Matt Lauer’s final interview question for his guest, on last Tuesday’s episode of NBC-TV’s “Today” show.

“No,” the guest adamantly replied. “No… and I think it would have a great effect in terms of the morale of the middle class..”

The guest was famed investor Warren Buffett, CEO of the Berkshire Hathaway holding company and a personal friend of President Obama (and by the way, did you know that Obama calls him, and not the other way around? Mr. Buffett would want you to know). He was spouting the usual “it’s time to raise taxes on us rich folks” rhetoric for which he’s become famous.

But Buffett’s closing comments were a bit different this time. Higher taxes on the rich will provide a “morale boost” for those of us in the middle class? How is that so? Why would I, a mere middle class guy, be made to feel better simply because my government is confiscating greater portions of somebody else’s money?

Buffett’s remarks during the NBC TV interview, while in-step with prevailing political sensibilities, were nonetheless mostly illogical. Earlier in the interview Lauer brought up a recent quote from Honeywell CEO David Cote who had noted on another national TV program that he (Cote), and others like him, were feeling a lack of confidence in the political process, so much so that the uncertainty was making them keep their money on the sidelines and preventing them from making additional investments and hiring new workers.

“Well,” Buffett responded, “At Berkshire Hathaway, we're investing 9 billion in plant equipment, that’s a record, breaking last year's record.” That was an interesting response, and it was certainly a nice “plug” Mr. Buffett offered for his own company.

It was also a very artful “dodge” from the facts, and rather irrelevant to the discussion. Cote has articulated some grave concerns about a lack of leadership at the White House, and in Congress, and has noted how this lack of leadership has created serious, stifling uncertainty in the business market. So has Cisco CEO John Chambers, Wynn Resorts CEO Steve Wynn, and Intel CEO Paul Otellini (who, ironically, serves on President Obama’s Council on Jobs and Competitiveness). Buffett would prefer to ignore this (it’s always uncertain” he told Matt Lauer).

Buffett also reiterated in the interview that people like him have not been paying their “fair share” of taxes for all these many years. This is where his illogic hits a crescendo. If Mr. Buffett (or anybody else) isn’t paying enough in taxes, then he’s only got himself to blame. He could easily choose to make an extra contribution to the I.R.S. He could also instruct his staff of lawyers and accountants who represent him to the I.R.S., to stop calculating all the legal, allowable tax deductions that are available to him. All of these methods, and others, would allow Mr. Buffett to pay more in taxes – if that’s really what he wants.

But then Buffett had to go and perpetuate the same myth that he and the President have been perpetuating for over two years, when he alleged (once again) that his secretary pays more in taxes than he does. This is not only a myth, it is a lie. Buffett, and wealthy Americans like him, don’t draw “income” like most working Americans do; they get paid with investment dividends. Dividend earnings are created when somebody takes money that they have already earned, and they invest that money. That it is to say, dividend earnings are produced with money that has already been taxed as income, and when dividend earnings are taxed, the original investment capital is, in essence, being taxed for the second time.

This is why our government taxes dividends at a lower rate than it taxes income. It is to create an incentive for people to put their capital at risk, and invest in business enterprises (rather than merely holding on to that money and enjoying it in less risky ways). When Buffett compares his secretary’s income tax to his own dividend tax, he’s comparing apples and oranges, and 18% of Buffett’s dividend earnings no doubt amounts to a lot more money than 30% of his secretary’s salary. Dividends and income are treated very differently, and for good reason – but his comparisons make for amusing soundbytes.

As for Buuffett’s assertion about an alleged “morale boost” – this, also, makes for amusing soundbytes and headlines, and allows Buffett to provide some political cover for the President (you know, the President who calls him). Yet the real disgrace is if he is right about this.

Are Americans really so petty and covetous that we are comforted when “rich” people have their money taken away from them? Or do sufficient numbers of us still understand America to be a meritocracy – a society where we all achieve in different measures, yet we are all blessed with the freedom to try and achieve all that we can?