The most respected investor and capitalist on the planet, Warren Buffett, took to the pages of the New York Times this morning to bust a myth that has dominated political discourse in recent months:
The idea that raising taxes on super-rich people would hurt the economy.
Buffett observes that his own personal taxes as a percent of his income have plummeted in the past decade, to all-time lows. He observes, as he has before, that he pays a much lower tax rate than his secretary. He calls out the absurdity of hedge-fund managers and other professional investors playing "long-term capital gains" rates on short-term trading profits.
And then he takes aim at the biggest rationale for preserving these astonishing tax breaks: The claim that, if taxes on deca-millionaire and billionaires were increased, these super-rich Americans would stop investing, thus clobbering the economy and hurting job growth:
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.
I didn't refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation.
When presented with these facts, those who argue against tax increases on the super-rich--or, even more absurdly, for more tax cuts--often point to President Ronald Reagan, observing that he cut taxes for the wealthy, helping usher in a long economic boom.
This ignores the point that Reagan also raised taxes. And more importantly, it ignores how high tax rates on super-rich people were when Reagan cut them: In 1980, the top bracket was a startling 70%. It also ignores how Bill Clinton raised taxes and then took the US from the perpetual deficits of the Reagan years to a surplus. It ignores how George Bush cut taxes, plunged the budget back into a deficit, encouraged the wild borrowing spree that inflated the housing bubble, and then oversaw the worst recession since the Depression. It ignores how the US prospered all through the 1950s and 1960s, when marginal tax rates were super-high. And so on.
In short, it ignores almost all the economic data we have. And it appears to be based on a rigid ideology, rather than common sense.
Buffett, by the way, isn't proposing a blanket increase on today's entire top tax bracket, those making over $379,150, many of whom protest against the idea that they are "rich." Buffett is suggesting the implementation of two new brackets--one for taxpayers making over $1 million, of whom there are 237,000 in the country, and one for taxpayers making over $10 million, of whom there are only 8,000.
In other words, Buffett's tax-increase-on-the-super-rich would affect 1 in 1,253 Americans, less than 1/10th of 1% of the population.
Do you really think that would clobber the economy?
SEE ALSO: THE HISTORY OF TAX RATES: Here's How Low Today's Really Are