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Why Taxing the Rich Is Good for America

Warren BuffettLast week, Warren Buffett wrote an incredible opinion piece in The New York Times asking the federal government to raise taxes on the wealthiest Americans, himself included. "My friends and I have been coddled long enough by a billionaire-friendly Congress," he argued. "It's time for our government to get serious about shared sacrifice."

Buffett's editorial sent economists and politicians into a frenzy as they debated the merits and implications of his request. Underlying the chatter is an important question: Does our country benefit, financially, from taxing our wealthiest citizens?

According to Bruce Bartlett, who's held senior policy roles in both Ronald Reagan's and George H. W. Bush's administrations, as well as on the staffs of Reps. Ron Paul and Jack Kemp, "in 2008, those in the top 1 percent of the income distribution, with incomes over $380,000, had an effective tax rate of 23.3 percent. In 1986, a year when the real gross domestic product grew a healthy 3.5 percent, their effective tax rate was 33.1 percent. It has been much lower every year since."

Bartlett, who culled Internal Revenue Service data for his analysis, which appears this week in his New York Times column, goes on to say: "If this group were still paying 33.1 percent, federal revenue would have been more than $166 billion higher in 2008 alone. That would be enough to reduce the budget deficit by about 10 percent this year. If the top 1 percent of taxpayers had continued to pay the same effective tax rate they paid in 1986 every year from 1987 to 2008, the federal debt today would be $1.7 trillion lower."

While Bartlett acknowledges the assumptions implicit in his calculations, the bottom line is clear. America has lost boatloads of money thanks to our willingness to cut taxes on those who can most easily afford to pay them. This despite our country's history of successfully taxing the rich. Under Reagan, for example, the richest 1% of Americans paid one-third of their income to the federal government.

Between High European Taxes and Low U.S. Rates, a Happy Medium


Those who argue against higher taxes often fear that an increase will slow economic growth. But history dispels that myth. As William G. Gale, an expert on tax policy at the nonpartisan Brookings Institution, wrote on CNN.com, "Even the massive tax increases during and after World War II -- amounting to a permanent rise of 10% to 15% of gross domestic product -- and the much smaller tax increases in 1990 and 1993 did no discernible damage to U.S. economic growth."
The debate over whether and how much to tax the rich isn't new. But it's extremely important in the current economy. The debt ceiling deal reached earlier this month includes spending cuts, but does nothing to increase revenues. Additionally, the spending cuts come primarily from programs that support low- and middle-income households. The richest Americans? They're virtually exempt from chipping in to resolve the nation's budget problems.

Which is why Buffett is publicly asking to pay more in taxes -- and why he's right. After all, "households in the top 1% of the distribution can afford to contribute," argues Gale. "They have done enormously well during the past 30-plus years. In 1979, their income accounted for 10% of total income. According to the most recent data (from 2008), their share of total household income more than doubled to 21%. In contrast, real income for middle-class workers has remained roughly constant over the same time frame."

In his opinion piece, Gale outlines a variety of options for raising taxes. In all cases, he's advocating for moderation. "None of this means that the U.S. needs to move to European taxation levels," he writes. "But between the depleted tax revenues we raise now -- the lowest share of the economy in six decades -- and the high taxes experienced in European countries, there is plenty of room to raise revenues in an economically sound manner to support a reasonable level of government."

Or, to put it more bluntly, our country is in the throes of a debt crisis. We're delusional to think that we can continue with the current tax rates. So let's stop asking whether or not we should raise taxes on the rich and instead turn our attention to how we can most effectively do so.
Loren Berlin is a reporter with the AOL Huffington Post Media Group. She can be reached at loren.berlin@teamaol.com, on Twitter at @LorenBerlin, and on Facebook.

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Zero 1

How about instead of taxing the rich, the government just uses our tax money for us instead of themselves. Wait that makes too much sense.

April 13 2012 at 4:18 PM Report abuse rate up rate down Reply
Shirley Henry Wray

Interesting article for those who believe taxing the "1%" more is an idea original to the Democrats.

December 17 2011 at 1:19 PM Report abuse rate up rate down Reply
jebarb39

Mr. Buffet you must not know how many people in the US that does not pay taxes. You may call it the under world
economy. They are living in big beautiful homes and driving big beautiful expensive cars. I am not talking about one
or two people, I am talking about hundreds and thousands of people. Do you see something wrong with this picture?
Whats wrong with a cost of living audit? A rich Democrat response "not my job man". The rich Democrats thinks his
job is to spend, theres a lot of middle class working slobs. I was a Democrat until I realized all the lies.
Wake up people, what they can not dig up they make up.

August 31 2011 at 5:00 PM Report abuse rate up rate down Reply
Hoss

Sure Buffet does not mind paying higher taxes. He is a business man...But look, if you raise his taxes 20%.... He ownes Justin Boots you know. Then will he still sell his $100 boots for $100. No, he will sell them now for $120...He is another rich Democrat. Tax me and I will some way get buy he says...Bull Crap....Anything for the Party...I say Mr Buffet send the Feds a check for 5 billion and shut up...

August 29 2011 at 9:09 PM Report abuse rate up rate down Reply
Jim Hollister

A good start to redress the imbalance of sacrifice between revenues & spending cuts would be to repeal the special treatment of dividend income & increase the capital gains tax cap from 15% to (say) 25%. But a target to be achieved over several years should be to totally repeal the Bush tax cuts, keeping in mind that the economy was strong & the Fed budget in balance prior to their enactment.

August 29 2011 at 10:30 AM Report abuse rate up rate down Reply
earthlovenews

Look, Warren Buffet was smart enough to become as rich as he is. I adore him. I don't care how much he has. I do love that he honestly doesn't want tax breaks because he doesn't need them.

We should tax the rich and not tax anybody making minimum wage. It's despicable how greedy we are.

If being a good soul who gives away money will buy your way into heaven, then I'll be there wishing him well.


And Adelston Buffet is doing it, but you can't just send money to the government. They wouldn't know how to handle it or how to process it.

Besides, he's trying to get OTHER people to consider this so maybe Congress will mandate it.

and JP Morgan is still around. Don't see them writing any checks. Did see the nazis on wall street walk away knowing they bankrupted us though.

August 28 2011 at 5:32 PM Report abuse rate up rate down Reply
adelston2

SO, STOP TALKING ABOUT IT AND JUST DO IT....OR MABEY WE SHOULD JUST TALK ABOUT IT FOR ANOTHER 2 YRS ......AND NOT DO IT.................FACT OF THE MATTER IS THESE BILLIONAIRE CITIZENS CAN JUST WRITE A CHECK TO THE GOVERNMENT ANYTIME THEY ARE READY.......JP MORGAN DID BACK DURING THE LAST DEPRESSION AND SAVED THE COUNTRY...BUT I DOUBT TODAYS BREED OF BILLIONAIRE WILL GIVE BACK ANYTHING EXCEPT CHEAP LIP SERVICE TO THE PRESS.....THEY DON'T MAKE EM LIKE JP MORGAN ANYMORE....HE DIDN'T WAIT FOR TAXES TO BE RAISED...HE JUST GOT OUT HIS CHECKBOOK AND STARTED WRITING CHECKS.......AND THATS WHAT PULLED THE US OUT OF THE DEPRESSION....HE PAYED BACK ALL THE MONEY HE HAD STOLEN FROM BEFORE......

August 28 2011 at 3:49 PM Report abuse rate up rate down Reply
Onihikage

While I don't agree with everything Ron Paul would like to do, I do know that he can't be bought by the REAL owners of this country, the wealthy business owners in the top 0.5% of our population, and that wouldn't be such a big deal if it weren't for the good ideas that he does have.

20 years ago, George Carlin said, "The politicians are there to give you the idea that you have freedom of choice. You don't. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, they've long since bought and paid for the senate, the congress, the state houses, the city halls, they've got the judges in their back pockets, and they own all the big media companies so they control just about all the news and information you get to hear. [...] They spend billions of dollars lobbying to get what they want. Well, we know what they want, they want more for themselves and less for everybody else." He saw that 20 years ago, and the only thing that's changed is that the real owners have gotten greedier and bolder.

Our only chance of stopping them is to change the system so they can't take advantage of it anymore, and that's what Ron Paul wants to do. We have to force them to innovate to make money off of us - you know, like the old days when all you needed to get rich was a good idea and someone with a head for business. Ron Paul is the only one capable of doing that. He's the only one who can kick the head off the oligarchy and return us to a true Republic. He's the only one who can dramatically cut the government's spending instead of roll over for the corporations.

The real owners need us fighting each other over anything possible so that we don't pay attention to the guys behind the curtain. The rich, through ownership of the media, can incite strong emotions in the poor and keep them fighting over things that don't matter while they run off with all the freakin' money. If we stop fighting and realize what we need to do for our country, we can stop them from destroying us. But only if.

Ron Paul won't let the rich destroy this great nation. Even if we don't like some of his policies, we need him to be president, at least for one term so he can kick them off their high chair and balance the budget, as Washington Politics have failed to recognize the need to do either, because they think they can PRINT all the money they need and not suffer consequences. Enough is enough.

Vote Ron Paul in 2012, and tell everyone you know what's really going on, and who can stop it.

August 27 2011 at 1:57 AM Report abuse rate up rate down Reply
GOD

Buffett's old and dying and looking to do with heaven what he has done all his life--------buy his way in.

August 26 2011 at 4:43 PM Report abuse rate up rate down Reply
marjoriedevine

To NOTAWACKJOB: If taxing the rich drives the rich out of America, I say let the greedy b@#$%^&s go. In their wake they leave hungry children, environmental degradation, and an economically challenged future for all, not just in this country, but across the globe. And if you like, I'll help them pack and hold the door. Bon Voyage.

August 26 2011 at 12:28 PM Report abuse rate up rate down Reply