It is with great reluctance that we must disagree with Warren Buffett, a man we admire and whose opinions we respect. But, one of the things we like about him is that he admits that he is not infallible.
He recently said that wealthy people like him should pay higher taxes. A group of the European “super-rich” said the same thing.
The obvious response is to say that, if they feel they are not paying enough, no one is stopping them making a voluntary contribution to the state. There is a precedent: the British Conservative MP, and later Prime Minister, Stanley Baldwin once donated a considerable portion of his own wealth to reduce the national debt in the hope that others would follow his example. Few did. There is no record of a similar gesture in the nine decades since then.
A more considered response is to acknowledge that Buffett made at least one good point: it is indeed absurd that our complex tax systems allow the “super-rich” to pay lower marginal rates than middle- or lower-earners. The solution, however, is not higher taxes on the rich but a flat rate tax system, ideally one integrated with the benefits system.
It must also be acknowledged that, although many “champagne socialists” are hypocritical in calling for higher taxes while paying as little as they can, no one can accuse Mr Buffett of such hypocrisy, because he is a great philanthropist.
Indeed, the correct response to Buffett is to appeal to his patriotism: “Mr Buffett, who is more likely to invest your money efficiently, you, with your track record of sensible investment over decades which earned that money in the first place, or the spendthrift US government, which is so incompetent with money that it just lost its credit rating?”
If America is to recover, it must invest in viable businesses. Private sector investment is almost invariably more efficient than public. The pool of surplus wealth held by the “super-rich” is therefore a more effective engine of recovery than the government. Some of this wealth may be wasted through personal extravagance, but very few wealthy individuals waste as much of their own money as our governments waste of ours.
For this reason – as well as for the incentive to generate more wealth – a group of British economists are right to suggest that a cut in higher rate tax would benefit the economy. That said, an even more efficient way of boosting productivity would be to cut taxes that increase the costs of doing business, such as payroll taxes and business property taxes, rather than taxes on the profits of business. President Obama is therefore right to emphasise cutting payroll taxes as the best short cut to new jobs – subject, of course, to the reminder that the debt crisis is still with us.