The chattering class is agape over an op-ed in The New York Times on August 14, written by a billionaire, for billionaires, and about billionaires. The op-ed was penned by investment legend Warren Buffett, chairman of Berkshire Hathaway, and one of the richest individuals on the planet. Buffett is said to be worth about $47 billion, virtually all of it already beyond the reach of the tax man.
In the op-ed, Buffett calls for higher taxes from the rich, to ostensibly bridge the massive U.S. debt gap, which stands at $14.3 trillion this month. But that’s one bridge that could stand too far – even if Uncle Sam went sifting through the Bottega Veneta wallets of every millionaire in the country.
More on that in a moment, but according to the U.S. debt clock, the gap between surplus and debt is widening – and then some. The estimated population of the U.S. is 311,130,956, meaning each citizen’s share of that debt is $46,932.73.
But the U.S. Debt Clock also says that the U.S. national debt is rising, on average, by $3.95 billion per day since September 28, 2007. If Buffett were to offer his estimated $47 billion to the I.R.S. (which he, or any citizen who wants to contribute money to the government can do here), the federal government would use the Buffett fortune up in about 12 days.
Buffet proposes a tax reform plan to tackle that problem. Specifically, he would:
- Keep income taxes unchanged for 99.7% of taxpayers, i.e., everyone but the super-rich.
- Keep the current 2% reduction in the employee payroll tax.
- Raise tax rates for individuals with more than $1 million in annual income (Buffett doesn’t disclose the new rate).
- Raise taxes for the uber-wealthy – those making more than $10 million per year
Predictably, the response to the Buffett piece is split down ideological aisles, with left-of-center Americans in full-throated support of the Buffett plan and right-of-center Americans in stiff opposition.
But down to brass tacks, the tax issue isn’t about red states or blue states – it’s about the only color Wall Street really cares about – green. What investors, analysts, traders, and accountants want to know is this: Would the Buffet plan actually work? Would it raise enough taxes to shrink the debt, stabilize the economy, and get Americans confident about their country’s financial future again?
The Wall Street Journal is out with a helpful review of the Buffett tax plan this morning — and its answer is “yes” and “no”. Taxing the estimated 236,883 U.S. millionaires would raise about $500 to $600 billion in additional tax revenues over the next 10 years (The Journal uses numbers from the pro-tax Patriotic Millionaires Group for its estimates).
“That sounds like a lot,” The Journal notes. “But only $100 billion of that is projected savings from lower government debt costs. So the tax would actually raise $40 billion to $50 billion a year: equal to about 3% of the annual federal deficit”.
As The Journal notes, $50 billion a year is at least ‘something”, especially if an added tax on Americans earning over $10 billion were added to the mix. But left unsaid is the remaining 95% or so remaining in the U.S. deficit. Where that money comes from, Buffett isn’t willing to say (and in the Oracle of Omaha’s defense, nobody else seems to have a clue, either).
So even if taxes were raised on the wealthiest Americans, it’s highly likely that the amount would barely put a dent in the nation’s debt picture – akin to sending the best pitcher in this week’s Little League World Series up to St. Louis tonight to face Albert Pujols, Matt Holliday, and the rest of the Cardinal’s line-up.
That feisty Little Leaguer might get the odd ground-out, but the scoreboard will still be racking up big numbers all night.