Thoughts on Taxes While in Omaha

Humans exhibit a sense of fairness as young as 6 months of age. We're hard-wired to resent displays of obvious unfairness.

Some adults have managed to drown out that inner voice of fairness, however. Warren Buffett's recent op-ed calling for higher rates of taxation on the super-rich, like himself, met with derision from the likes of Fox News (as so well lampooned by the Daily Show, shown in two parts). But it also was criticized by economists like Jeffrey Miron on MPR's Midmorning, who defended the fact that billionaire Buffett pays a much lower tax rate than his secretary.

Now I must remind myself that Miron is not only from Harvard but also part of the Cato Institute (the libertarian think tank originally funded by the Koch Brothers). What would a more reasonable economist, such as Ed Lotterman, have to say? Alas, since Lotterman hasn't written a response to Buffett yet, I'll have to go it alone.

The vast majority of taxes paid by Omaha's favorite son Buffett are capital gains taxes, rather than income tax on earned income. Because it's investment income, it's taxed at a lower rate. One of Miron's arguments against Buffett is that capital gains have already been taxed on the corporations as corporate taxes (at 35 percent), and so to add anything over 15% would be taxing more than 50% -- a rate that people generally agree is unfair.

Well, yeah, on the face of it, taxing more than half of someone's income seems unfair. But this cobbled-together 50 percent isn't paid by the same person -- part is paid by the corporation and part by the stock owner. Leaving aside the fact that so many large companies seem to get away without paying the 35 percent tax rate in the first place, it's still important to question whether the two separate payments actually count as a single 50 percent payment.

It's kind of like the problem I see with arguments against the estate tax: the Right and libertarians argue it's double taxation, because the dead person already paid income taxes on it. Well, so what, the person inheriting it as income didn't pay income taxes on it, right? If it had been gifted to the heir when the giver was alive, it would have been unearned income and taxed as such.

And what do most stock owners' investments contribute, anyway? Miron said we, as a society, don't want to discourage the rich from investing their money because we need it to be invested. But there are very different kinds of investments, some more valuable to society than others. Economist Richard Florida derides stock and commodity speculators as "traders," as opposed to "builders" who take actual risks to innovate or create something hew.

Marjorie Kelly showed in The Divine Right of Capital how most of the money traded around in the stock market is unproductive, a parasitic waste. Once a stock has been issued, the aftermarket of trading the stocks at sometimes speculative prices only distorts corporate behavior and saps money that could be invested to more useful ends.

As a commenter named Wayne Basta wrote on whatever.com in response to Buffett's article:

People become rich (if they aren’t born that way) because of drive and motivation (with a certain element of luck). Taxing them more is just like cranking up the difficulty level in a video game. It’s clear they’ve mastered making money at the easy level. Now it’s time to take it to Normal Mode. People will still play the game. They are Achievers and this just makes it more of a challenge. Someone who is rich in an environment with no regulation and no taxes doesn’t have much to brag about. But someone who is rich when there is a 90% tax rate and firm stipulations that they pay their workers well, now that is someone to admire.

See, once in a while it is worth it to read the comments.