Why Warren Buffett is Wrong on Taxes

Former chairman and CEO of American Express, Harvey Golub, writes on why Warren Buffett and Obama are wrong when arguing for higher taxes on the rich.

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

Golub highlights statistics that the top 3% of taxpayers pay nearly 50% of taxes.  He also cites the inefficient collection of taxes - namely due to tax breaks and loopholes given to all sorts of special interests - and inefficient expenditure of taxes - on wasteful and unnecessary programs - to drive his message home.  Golub concludes "Here's my message: Before you 'ask' for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money."


But while Golub's argument is fair, there is a more fundamental issue in his essay.  In refuting calls by some of America's wealthiest, including Buffett, for higher tax rates on the rich, he writes:

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

The issue here is one of coercion and choice.  Buffett might be right when he calls for the closing of loopholes that give special treatment to certain forms of income or certain individuals, but that does not translate into justification for increased tax rates.  If Buffett feels he owes something to the community, he is more than free to write a check to any institution he feels deserving - including the US Treasury.  However, to argue that tax increases on certain individuals are necessary, because one feels like he is paying too little, distorts the relationship between government and the individual in a dangerous manner.

Income is naturally the property of the individual who earned it.  The government only has the right to take from an individual in order to provide the appropriate services of the state.  In other words, government should minimize its burdens on individuals and should tax only to meet its essential and proper functions (what these functions are is a separate discussion but would include many tasks that cannot be provided by the private market, for instance, defense, security, certain infrastructure, establishing rules and laws, and other pure social goods).  Taxes are thus a pooling of individual property to provide for certain aspects of the common good.  In this manner, taxes could be perceived as establishing or investing in an institution (the government) that provides needed services that would otherwise be unavailable.  Accordingly, all should benefit from this system.

Buffett's and Obama's argument turn this conceptualization on its head, arguing that the appropriate level of taxes is rooted not in the need to pay for essential functions but in an arbitrary determination of what an individual should possess.  Under this understanding, income (or wealth) is not the natural property of the individual, but is awarded to them based on their need.  Any amount that surpasses this arbitrary definition of need does not rightly belong to the individual and must, to be fair, taken away.  Taxes are thus used to 'level the playing field'.  The individual, whether rich or poor, now lives at the goodwill of the state, allowed to possess only due to the graces of leviathan.  In fact, taken to the extreme this argument does not even require the government to provide anything.  If taxes are justified by taking 'excess' from those who have it, the government has achieved its goal of taxation (this is not to say the government does not have other goals) simply by taking the money.

Taxation is a tool needed for the government to achieve its proper functions.  It is not a goal unto itself.  To assume otherwise is to break down the very fabric of a capitalist, free-market, liberal society and sets dangerous precedents.  It is certainly appropriate to debate how tax burdens should be carried by different segments of society, but it is far too dangerous to allow such discussions to distort the purpose of taxation.  Taxes are a government's paycheck or its alms - not a tool for social engineering.

Obama on the Attack and the Destruction of Healthcare

Obama’s artifice and politically motivated smears in his recent comments regarding healthcare are despicable. The President is not only putting undue pressure on an already delicate issue, but using scare tactics for political expediency. His attempts to cram through ‘reform’ and socialize America’s healthcare system are terrifying to say the least.

In remarks given Monday, he launched an all out partisan attack on Republicans. He preyed on emotional fears of a failing healthcare system and attempted to portray the respectably cautious Republicans as pawns of vested interest and the status quo. Obama continued his misguidance on Tuesday, again attempting to portray Republicans as the bad guys.

This is not only unfair, but patently disingenuous. As Obama points out, everyone acknowledges the system is in need of overhaul. However, the current Democrat-led plans are disastrous. Republicans, such as Bobby Jindal, are proposing alternative and better solutions which the Democrats wish to ignore.

The bottom line is that, as discussed here before, the public option is an utter sham. While Obama’s claim that “[i]f you like your current plan, you will be able to keep it. Let me repeat that: If you like your plan, you'll be able to keep it,” might be technically true, it glosses over the economics of the public option. Because a public option ultimately rests on the shoulders of the taxpayers, it can (and will) operate in a grossly inefficient fashion.

Any shortfall in profitability will be picked up by the taxpayer. This will allow the public option to avoid cost reduction. Managers of the public plan will be able to simultaneously undercut private insurers and avoid having to reduce costs. If America is concerned about inefficiencies in the private sector, just wait until the government gets into the business. Obama, with an unequivocal Freudian slip, admitted this: “The reforms we seek would bring greater competition, choice, savings, and inefficiencies [sic] to our health care system…”

It is unfortunate that the Democrats in Congress backed by the increasingly disingenuous Obama feel the need to cram a broken fix upon a broken system. It is even more frightening that they are attempting to cloud the scene with false economics and political sleights-of-hand. What we need is a well thought out, economically efficient plan, that corrects the flaws in the current system. Hopefully, America will wake up and halt the pending utter destruction of our healthcare system before it is too late.