What is altruism? Warren Buffett recently proposed a surtax on the very wealthiest Americans, including himself to help reduce the federal deficit. (This is a mild version of Obama’s perfectly reasonable proposal to tax family incomes above $250,000, i.e., fewer than 2% of families.) Buffett is being altruistic—the tax will reduce his net income. I always thought altruism was desirable, yet I’ve seen Buffett lampooned in the press.
I suppose one can argue that he’s really doing this to preserve the value of Berkshire Hathaway stock. (The same argument might apply when I donate blood—perhaps I do it because it makes me feel good, not to help others.) But: it’s a pretty sorry state of the world when someone offers to reduce his circumstances in order to help his country and is mocked.
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While I have great respect for Buffet’s personal generosity and business accumen, his involvement in politics in the last few years is a bit uncomfortable.
I think it’s the implicit assumption that because he’s super rich and super successful we should listen to all of his ideas, political, economic, humanitarian, et al.
As a free market, laissez-faire Capitalist, his mixture of the three doesn’t sit right. I get the distinct impression that, having made his billions, he’s not completely realistic in his assessment of the economic plight of those standing on the other side of the wall. Who haven’t been wildly successful.
Personal altruism is a fantastic and admirable. But mixing that with the politics of progressive taxation and wealth transfer through the tax code? It conjures up visions of Woodrow Wilson’s brand of pseudo-religious, socialist leaning ideals. Which is to say, I get freaked out.
Just my two cents.
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I think Warren Buffett is being bashed by people who think the Federal Government has a spending problem rather than a revenue problem. Why focus on the wrong problem?
The other aspect of the revenue problem is what is fair. There’s (very little or) no discussion of what the proper tax rates should be – everyone states as facts that the tax rates are for rich people are too low.
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I like the first point, Mike.
If one looks at any plot over time of inflation-adjusted revenue vs. spending (of any variation of those…as a % of GDP, absolute, etc) it’s hard to make the argument that revenues are the primary cause of debt & deficit.
Obviously not an unbiased source, but:
http://www.heritage.org/budgetchartbook/growth-federal-spending
http://www.heritage.org/budgetchartbook/runaway-spending-tax-revenue
Thanks for attempting to add some rigor to the discussion. And yeah, the Heritage Foundation is an iffy source. I’m not aware that they’re saying anything that’s inaccurate. But it’s what they refrain from saying that is really revealing.
Sure enough, real US federal spending has increased tremendously since 1970. Of course, the US population increased by 50% during this same period. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.
The bulk of the US budget is spent on Social Security, Medicare and Medicaid, programs that will have increasing outlays as the nation ages. In 1970 the nation had 21 million people aged 65+; in 2010 that number had reached 40 million. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.
And a lot of government spending is counter-cyclical: that is, we spend more to help people when more people need help. Right now we’re in the middle of the biggest economic collapse since the Great Depression. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.
In short, the Heritage Foundation doesn’t seem very forthcoming about identifying the variables that you might expect to drive the demand for government services. Nor, as it turns out, are they very forthcoming about identifying the variables that might drive the supply of those services.
What DOES fit into the Heritage Foundation analysis? A comparison of federal spending to median household income. And sure enough, the comparison is stark. Median household income hasn’t grown much since 1970.
But what makes median household income a relevant basis of comparison? More generally, when determining how much government a nation can afford, does it make sense to look at measurements of median income, or at measurements of total income? Because once you look at measurements of total income, you realize that real GNP as tripled since 1970. We’re the richest nation in history!
But wait – how can it be possible that real GNP has tripled, when median household income has barely grown? That seems impossible – until you realize that over this period the rich have grown RICHER THAN RONALD REAGAN’s WILDEST DREAMS. As Martin Wolf reported last July in the Financial Times, 58% of all the real income growth since 1976 has gone to the top 1% of households. In the US we’ve managed to conceal this disparity between rich and poor by permitting people to spend down the equity in their homes. But we’ve kind of hit the limit on that strategy.
And these top 1% of US households are the ones whimpering about Buffet’s proposed tax increase.
I acknowledge that taxation impedes incentives. So how’s this for a proposal: Let’s structure our tax code such that the richest 1-2% continue to receive the same amount, in real per capital terms, that they received under Ronald Reagan. After all, if that amount of income was enough incentive to be productive in the 1980s, why wouldn’t it be enough incentive today?
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I’ll stop with your second paragraph. The fact that the population has grown by 50% does nothing to discredit their graph that shows government spending has increased an adjusted 300%.
If the population had tripled you might have had an argument.
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“Medicare and Medicaid, programs that will have increasing outlays as the nation ages. In 1970 the nation had 21 million people aged 65+; in 2010 that number had reached 40 million.”
And yet the people who want to keep increasing government spending on these programs are the same ones who keep insisting that people should be encouraged – or even forced, through mandatory retirement – to retire & stop contributing to the economy at age 65, if not earlier, even though people (at least those of us who try to maintain our health) are living longer, healthier lives than ever before.
I think Mr. Hamermesh should donate a million dollars to charity this year. Does that make me altruistic too?
No? Maybe that’s because it isn’t considered charity when you do it with other peoples money using the police powers of the Government. The 2% argument is specious. Fair treatment by the tax code isn’t limited to the majority.
As for the whole donating blood thing. That’s fine if you want to do that, but to argue that everyone should be required to donate blood or be fined by the Government is more analogous to what Buffet is suggesting. Of course, it would be less offensive if you only forced Native Americans to donate blood since there are so few of them out there and they are not you.
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Saying Mr. Hamermesh should donate a million dollars to charity this year is not altruistic. Saying, that you, Mr. Hamermesh, and everyone that fits into the class you both fit into should donate a million dollars to charity is. Altruism starts with personal sacrifice.
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Charity at gunpoint is not altruism, though it is personal sacrifice.
It is important to note that there is a significant segment of the American media who loves to bash anyone if it gets them viewers/readers.
There are some legitimate reasons to criticize Mr. Buffett, however. Firstly, taxing those whose family incomes are above $250,000 more will do little to fill the massive budget deficit we have. Mr. Buffett is proposing putting a Band-Aid on a grievous wound – its effects will be nearly entirely symbolic. Secondly, a very large percentage of business activity and employment in the United States is with firms that could be categorized as small and medium-sized companies. Most of these firms are not incorporated, but instead are closely held, which in most cases means that they are reported on the owner’s personal income tax statement. Raising taxes in the way Mr. Buffett proposes will have a chilling effect on business expansion and new hires right at the time the economy needs these jobs and this investment the most. Thirdly, Mr. Buffett seems to be talking out of both sides of his mouth. He complains that he does not pay enough in personal taxes, but he chooses to donate his personal wealth to the Gates Foundation rather than the US government – money that he contends that he should have paid at least a portion of in taxes. I’ve seen Mr. Buffett in person, and he is intelligent, quick-witted and charming, but I cannot ignore his long-standing hypocrisy. Not to channel Ronald Reagan too much, but we are not in trouble because our government taxes too little, we are in trouble because our government spends too much.
That said, I applaud Mr. Buffet for his decision to donate much of his wealth, and I think he has made an excellent choice of a recipient in the Gates Foundation. His wealth will do a great deal of good. But what I think Mr. Buffett and many others discount is that his personal wealth has already done a great deal of good. Mr. Buffett has been doing the job of Adam Smith’s Invisible Hand for the duration of his storied career. His investments have saved and grown companies which have put hundreds to work, created new and innovative goods and services that have benefited humankind and have helped pay for hundreds of thousands of retirements of those who directly or indirectly invested in Berkshire Hathaway. We value the money that he is giving through the Gates Foundation that will help to cure malaria in Africa, develop cures for AIDS, and improve education, and well we should. But in the end it might turn out that the greatest good he accomplished was in serving the interests of himself and the shareholders of Berkshire Hathaway.
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Buffett is being lambasted appropriately for several reasons. For starters, we citizens reject the premise that current taxation is inadequate. Obama has increased government spending by 30% per year. Why should taxes be raised and spending not be lowered? Second, raising taxes on millionaires and billionaires is very different from raising taxes those making more than $250k. Even if marginal tax rates went up to 90%, Buffett would still be a billionaire. America is about enabling people to work hard and save for themselves – giving everyone a chance to become wealthy/successful. Once again, you adhere to the false premise that the fruits of our labor should go to other people simply because you say so. And if Buffett wants his taxes raised, tell him to write an extra check come April, but he should not volunteer anyone else to pay more. That’s un-American. Which brings me to my last point, government by its very essence confiscates (via taxation). Who has the right to say in any given situation how money should be spent? Other than people that own the money? Taxation is involuntary and as such those who already have wealth will see to it that they preserve any and all possible tax loopholes. For instance, Mr. Buffett has long ago figured out how to gain a superior tax structure for his business/wealth by paying himself very little and keeping his wealth locked-up inside Berkshire. When income tax rates go up, it will hit the savers hard – people who make in excess of $250k – but not the people who are truly wealthy. (For more discussion on income fallacies, see Thomas Sowell). Your article reveals how little you understand the reality of both Mr. Buffett’s situation as well as that of the average American. If you really believe in a particular social service, right your own check and lobby not Congress, but your fellow citizens to donate to a cause you believe is worthy. If it truly has merit, then your cause will find donors – America has many generous and giving citizens – another thing that tax & spend blow-hards like you seem to overlook.
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You live in a country where the richest 400 people own the same amount of wealth and possessions as the poorest 150 million (!). This is unhealthy, unsustainable and if in the next 2 years the world is going to drop the dollar as the world’s reserve currency you are all gonna be in for a big surprise. WB and his JPM, GMS and B0A friends are going to crash you all into mayhem and you thank them for it, it’s unbelievable and this should be the real “hidden side” that this website should talk about.
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Hmmm, 400 vs 150 million. I wonder who would win in a fight. I guess if we keep going down this path we’ll soon find out. The wealthy in this country that they live at the pleasure of those at the bottom of the pyramid. A year ago the major Arab autocrats felt safe in their power, now they are all fearing for their necks. Enjoy your gilded life while you can because at some point the branch will snap back and you’ll see what a real socialist president looks like.
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Oh come off it.
This is purely petty class envy. This is not a zero sum game. You are not poor (or middle class, or etc) because Warren Buffet is rich.
You probably owe any livelihood you have to some *greeeeeedy* rich guy who was selfish enough to start a company and hire you.
80% of millionaires in this country are first generation rich. They bear no resemblance to Arab autocrats. Especially in a relatively free market economy like we enjoy.
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I think the reasons people are skeptical are many-fold. (Disclaimer: I’ve been a huge Buffett fan in the past.)
Firstly, Buffett’s (legal) tax avoidance across the years is legendary. He has a reasonable claim to be the number one tax expert in the country. He had no difficulty growing his gains tax-free inside investment vehicles and through unrealized gains when personal income tax rates on the wealthy were much higher. Indeed, Buffett owes an enormous share of his wealth to successful tax avoidance over many years. This continues to this day. Even as his wealth grows by the billions, his ‘realized income’ remains just a few percent of this.
Secondly, everyone who has ever done their own taxes knows there is a box to use to send in more money to the IRS if you want but Warren Buffett has declined to do this for many years.
Finally, there is an element of self-interest, too. The one kind of insidious tax that Buffett cannot personally avoid is inflation which would eat away at the real value of his assets. If no solution is reached, this is how the budget would find ‘balance.’ If instead, a tax solution is reached, the inflation outcome that Buffett so dislikes would be avoided.
In Buffett’s defense, he is an amazingly charitable guy and has been very generous with knowledge if not tax payments over the years.
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Let me preface this with “I am a fan of Mr. Buffett”. That being said I had the opportunity to ask him a question when he made a surprise visit to my Alma Mater Weber State University, during the Bush/Clinton campaign season. I asked him something about presidential politics and its relation to the economy. He replied the more money he made the less he worried about politics. This was an interesting observation from a multi-billionaire since I had recently heard the opposite from a multi-millionaire. Seems time and age have redirected some of his concerns.
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Now that Buffett has invested in BofA, is he going to refuse a bailout if it is needed to protect his investment? I think we all know the answer to that one. He is being hypocritical.