Warren Buffet Editorial "Stop Coddling the Super-Rich"

Warren Buffet wrote an editorial for the Sunday New York Times.  I agree with a lot of it.  Progressive talk radio (the two shows I listened to yesterday) was all thrilled with it as a repudiation of Republican policies.  And, in limited ways, it is.

As background, and painting in overly broad strokes, Democrats have called for repealing the Bush tax cuts for the rich, those making more than $250,000 a year.  Republicans point out that many of those taxpayers are running small businesses, (the Wall Street Journal found that about half of that tax income came from small businesses) and increasing their taxes would hurt job creation.  I agree that further burdens on small business would be a mistake in this weak economy.  To me, the obvious fix is to write the tax laws so that the increased taxes fall only on rich individuals, not those running small businesses.  To my knowledge, nobody in power has proposed any such thing, and maybe it would be difficult to write such a law defining exactly what is a "small business" without loopholes.

As an alternative, I like Buffett's proposals.  They should please Democrats by raising the tax burden on the rich, should please Republicans by lessening the impact on small businesses, and they should please everybody by raising tax income to cut the deficit.

Many of the "mega-rich" make their money by investments, and the long term capital gains tax rate is a special low rate of 15%.  Perhaps this rate should be raised.  But there are arguments that we should encourage long-term investments.

By contrast, short-term capital gains are, in general, taxed as normal income, up to ~35%.  But there is a carried interest loophole for investment bankers that allows them to treat much of this short term gain as long term.  Closing this loophole would raise 4 billion a year.

Now, the UK has a similar lower rate.  Not sure if there is any purpose to it.  Barring some explanation of why it is needed, it should be repealed.  Buffett argues for their repeal, and I think he would know if there were any good reason for the special low rate to exist.  Republicans blocked this reform during the recent debt crisis.

Now, 4 billion a year is a nice start, but it ain't much in the grand scheme of our deficit.  So Buffett adds proposals for two new tax levels, at 1 million and 10 million.  Sounds good, and at these higher income levels they would be less likely to adversely affect any small businesses.  He is not very specific about the new levels.  I saw one estimate that this could cut the deficit by 3%.  Still not much, but it's something.

Before Democrats crow over their vindication from Buffett, they should read the entire editorial.  (emphasis mine)

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. 

Even I know that 3% is a small reduction in the deficit, and Buffett is far smarter than me.  He clearly states that cutting entitlements is essential.