Mr. Buffett, Taxes, and Investment

A couple weeks ago Warren Buffett wrote an op-ed piece advocating higher taxes. Predictably, the headline was inflammatory. Predictably, both Democrats and Republicans latched onto the article as an excuse to bash each other, as did the New York Times and the Wall Street Journal.

The heart of the matter is fairness. Mr. Buffett does not think it fair that his marginal tax rate should be 15%, while his secretary’s is 35%. (I noticed that his secretary must be very well paid, since only taxable income above $380,000 is taxed at this rate.) Mr. Buffett’s income is primarily comprised of dividends and capital gains, which are taxed at 15%–although those companies presumably paid corporate taxes on their income, first.

Buffett didn’t demagogue his piece; he gave a fair analysis of the issues. Long-term capital gains have enjoyed favorable tax treatment in the US, off-and-on, since 1921. It’s an active debate among economists whether reduced taxes on capital have encouraged investment over the years, but as a rule of thumb the more you tax something, the less you get.

Our economy is comprised of 70% consumer spending, 20% government spending, and 10% investment. It’s struggling to grow at a real rate greater than 2% right now. Increasing investment spending could expand the economy, improve productivity and put people to work. This is the idea behind the Administration’s proposed “infrastructure bank.”

It doesn’t make sense to increase taxes on something we want more of. Forget about coddling the rich; we need to get the economy moving. Rational tax policy can help.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350 • •

Leave a Reply

Your email address will not be published. Required fields are marked *