Warren Buffett, the Oracle of Omaha, reiterated his view on a so-called “millionaires tax” in an op-ed piece in the New York Times on Sunday. If you’d like to read about what a billionaire thinks about what millionaires should do, it’s an interesting read.
Here’s a quick summary of his views:
First, in the not so distant past, marginal tax rates for upper income households and tax rates on capital gains and dividends were quite high and – guess what – the wealthy weren’t throwing their money under a mattress, they were investing. Second, the rich should pay their fair share in taxes. Buffett suggests that households with incomes above US$500,000 (not the US$250,000 that Obama has proposed) to return to the pre-Bush era tax rates. And he reiterated his “Buffet Rule,” which calls on Congress to develop a minimum tax for millionaires: 30% for income between US$1 million and US$10 million, and 35% for incomes over US$10 million. Finally, he is, of course, pushing for debt sustainability – moving revenues to 18.5% to GDP and spending to 21% of GDP. Buffet cites that the United States currently takes in 15.5% of GDP in revenue and spending is about 22.4% of GDP.
Another election cycle is over, though with over US$6 billion spent on the various campaigns across the country, the political landscape looks practically the same today as it did yesterday. This, I fear, may be the outcome the U.S. economy could most ill afford at this time. While President Obama’s reelection delivers clarity on a few issues important to the economy, the partisan status quo that remains in Congress likely raises the risk of recession.
First, the clarity. With Romney out of the equation, President Obama’s signature health care reform is probably cemented in place. You can debate the economic impacts of the legislation, but at least businesses and individuals will know that it’s here to stay and can begin forming up plans to adjust to the new health care regime. Next, Fed chairman Ben Bernanke still has a job…if he wants it. Governor Romney had pledged to remove Bernanke from his post when his second term expires in 2014. This probably ensures that Bernanke’s easy-money policies will continue, even if he declines a third term.
The so-called “fiscal cliff” isn’t technically supposed to hit until 2013, when a mixture of tax increases and spending cuts could potentially go into effect. However, participants in the U.S. economy seem to be of two minds about whether the fiscal cliff is going to happen, or is maybe already here. Businesses seem to be acting like the economy already has one foot in the abyss – we’ll call this the pessimistic case. American consumers, on the other hand, seem to be operating under the assumption that all the partisan issues will get fixed before we reach the edge – we’ll call this the optimistic case.
Based on all the heated partisan talk of the so-called “fiscal cliff,” you could be forgiven for thinking that this precipice of tax-hike-and-spending-cut doom was a five mile drop straight to the bread lines for the majority of American taxpayers and businesses. Ezra Klein and his staff over at Wonkblog (check out posts from Ezra Klein and Suzy Khimm for details) have done a good job of getting across the alternate (and maybe more realistic) idea of a “fiscal slope.” If you’re feeling really nerdy, check out the original paper Ezra and Co. cited from the Center on Budget and Policy Priorities. The basic idea is that the U.S. economy won’t drop into free fall come January or February of 2013. The expiration of the Bush era tax cuts won’t start having an effect until people file their 2013 taxes – sometime between January and April of 2014. The spending cuts don’t all come at once either. They’re spaced gradually over 2013 and the following years. So, not a sheer economic drop – more like a 45-degree hillside. It’d still be bad and the U.S. economy would probably wind up in recession, but it’s not falling into an abyss at 1,000 miles an hour.