Buffett's right, but he misses the point

 by Roland Hulme

  

Buffet: "I've been coddled enough."

Warren Buffett says it's time for the rich to pay more tax. But is that a diversion from a more serious issue?

Warren Buffett, who is arguably the smartest businessman alive, caused a stir this week by writing an op-ed for the New York Times in which he urged America to stop "coddling the super-rich."

In all honesty, it wasn't really news. Buffett's been saying the same thing for years; ever since he pointed out in an annual letter to Berkshire Hathaway investors that he, then the richest man in the world, paid half the tax rate of his secretary.

The NYT op-ed was only different in that it framed the grossly unfair tax code against America's current economic crisis; and how stopping the absurd tax perks for the super-rich would help close the gap without raising taxes for the struggling middle and working class.

Now, I agree with Buffett that it's time for the rich to pay their fair share. Screw the ridiculous Reaganomics rhetoric, proven time and time again not to work. There is simply no logic in allowing those who make money by investing money to get away with paying half the tax rate of those who actually work their asses off for it.

But Buffett's magnanimous monologue ignores the real issue – the one the Tea Party have been ranting about. We shouldn't be thinking of ways to raise the tax rate to meet our increased spending. In fact, we should be doing the opposite.

Just look at the maths. It's an inarguable fact that every American not earning billions in dividends pays roughly the same gross tax rate – 40%. Whether you're on minimum wage or pulling in a million a year, payroll, state and sales tax add up to 40% or thereabouts.

Yet even with every American contributing almost half their income to the government, it's still not enough. Currently, 43 cents from every dollar the government spends is borrowed money – the equivalent of somebody earning $100,000 a year spending $143,000 and sticking the difference on his increasingly strained credit card (raising the debt ceiling was the equivalent of asking for a credit extension.)

What Warren Buffett ignored was the fact that if raising taxes was the answer to meeting America's financial obligations, it would mean the average American citizen would need to pay almost 70% of their income in taxes. That, my friends, is almost an unsustainable as continuing to whack half the federal budget onto a credit card each year.

So I agree with Buffett that it's time for the super-rich to pay their share – after all, investors and speculators aren't job creators, they don't contribute to the economy and, in reality, all they do is get rich by trading pieces of paper with hypothetical dollar values attached to them.

But changes to the tax code need to be met by aggressive, focused spending cuts – otherwise any relief from America's debt burden a super-rich tax hike will bring will be short-lived; quickly eaten up by the bottomless maw of an ever-expanding government monster.