Freedom Line Blog

Want to avoid future “fiscal cliffs”?  Eric Singer, portfolio manager of the Congressional Effect Fund, argues for three reforms.  First, adopt Economist Thomas Sowell’s idea to pay Members of Congress at least $1 million a year, but make the pay subject to all the rules and tax rates experienced by every other taxpayer.  Second, pass Warren Buffett’s proposed constitutional amendment to ban from reelection any current member who presides over a budget deficit.  Third, require members to forfeit any pay increases when there is a budget deficit.  According to Singer, the result would be timely, serious budgets.

Why this approach?

Kudos to Adam J. White at The Weekly Standard for hoisting Warren Buffett on his own petard. Buffett is out with a new New York Times op-ed agitating for — what else — higher taxes. His condescending opening reads as follows:

Suppose that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

An addendum: only in Grover Norquist’s imagination and Warren Buffett’s biography. White catches him thusly:

Early in his career, Buffett invested heavily—almost one third of his early fund’s capital—in Sanborn Map, a company that mapped utility lines and such. But he soon grew frustrated with the company’s leadership, which “operated more like a club than a business,” and which refused to return greater dividends to investors. So Buffett amassed more and more stock, and with control of the company finally in hand he pressed the board of directors to split the company in two (one for the mapping business, and one to hold the company’s other outsized investments).

Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As [Buffett biographer Alice] Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences—”let’s just swallow the tax,” he suggested.

To which Buffett replied (as he recounted to Schroeder):

And I said, ‘Wait a minute. Let’s — “Let’s” is a contraction. It means “let us.” But who is this us?  If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.’

Buffett was willing to walk away from a deal because the taxes would have taken too much of a bite out of it. Fortunately for him, the board gave in and allowed him to structure the deal that he liked, saving him from his own Norquistian response.

So is Warren Buffett an irrational businessman or an irrational policy analyst? All the evidence points in one direction.

Warren Buffett has enjoyed a fair bit of celebrity over the last few weeks, acting as the iconic symbol of President Obama’s proposal for tax hikes by ubiquitously making it known that he hasn’t been debited enough by the feds. Buffett’s rhetorical trope of choice is to invoke the fact that he pays lower taxes than his secretary. That’s because most of Buffett’s income comes in the form of capital gains from his investment empire, which are taxed at 15 percent, not earned income like his assistant’s paycheck, which is likely taxed at a federal rate of either 25 percent or 28 percent, depending on whether her annual salary is above $83,600.

This sounds unjust at first blush — until you consider the fact that the capital gains tax is essentially double-dipping. That is, the money you have to invest is what’s left over after your earned income is taxed. In other words, the investment money on which Buffett is paying the cap gains tax was already skimmed by Washington when he earned it in the first place. If his assistant was investing, she’d be paying the same rate as Buffett. As pointed out by S.A. Miller in the New York Post:

Buffett actually was taxed twice on his investment income.

First, Buffett had to make the money he invested. Those earnings were taxed as corporate income, at about a 35-percent rate.

Then, Uncle Sam took another cut when Buffett invested the money and earned a profit. That’s when Buffett paid the 15 percent capital-gains tax rate.

All told, after combining corporate taxes and capital gains taxes, Buffett forked over about 45 percent of his earnings.

We’ll put Buffett in the same category as Albert Einstein and Noam Chomsky: experts in their field who should have never been given automatic credibility when it comes to politics.

We’ve long known that Pat Sajak counts himself a resident of the political right. Now, thanks to this new video from Chuck Woolery, it looks like we may be able to go so far as to carve out a game show host exception to the otherwise ironclad rule of Hollywood leftism. No word yet on Alex Trebek, but don’t hold your breath … he’s Canadian.