Warren Buffett column may lead with tax hikes, but he wants spending cuts

Billionaire Warren Buffett has written a column this week that has generated a lot of attention. (read) Buffett calls for a 30 percent minimum tax on the wealthy, of taxable income between 1$ million and $10 million). News like that is catnip for many liberals, who possess resentment toward the wealthy. But the most important part of Buffett’s column is tucked away near the end, and it’s a proposal that many liberals — while they’re applauding the 30 percent minimum tax — will disagree with.

In the column, Buffett writes, “Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.” … Now that’s sound advice. Buffett is smart enough to realize that higher taxes on the rich will do little to stem the debt. There simply isn’t enough wealth to tax to make a substantial dent in debt, which will surpass $20 trillion when President Obama leaves office.  (and that’s the White House’s own projections) As Buffett mentions in his colum, currently we’re bringing in revenues of of 15.5 percent of GDP and spending 22.4 percent of GDP. That spells unsustainable deficits and debt.

But that 21 percent to 18.5 percent ratio is not something that a huge swath of Obama supporters want to hear. Egged on by their most prominent advocate, New York Times columnist Paul Krugman, they want to increase spending far beyond the current 22.4 percent. An advocate, Matt Miller, who works for the liberal think tank the Center for American Progress, understands Buffett’s threat to these big-spending priorities. In a Washington Post column (read) he argues that spending as a percentage of GDP should rise to about 28 percent. Miller argues that the increase in the elderly and decaying infrastructure demand trillions of dollars in entitlement spending increases and new stimulus spending. He also proposes that workers receive huge wage subsidies far higher than the current earned-income tax credit.

What Miller seems to want is a welfare state, where a majority of the population pays no income tax and enjoys a short-term boom in infrastructure and long-term security financed by the wealthy. In order to even try to sustain this folly, there would later need to be substantial non-income taxes, such as 25 percent or higher consumption tax, and substantial reductions in Medicare and Social Security. If one wishes to see the end result, look at Greece, and multiply it. We will already have a total debt-to-GDP ratio that easily exceeds 100 percent by 2017. We can’t keep adding to that and there’s not enough of the rich to pay it off.

Buffett’s column should be embraced by Republicans. A long-term 21 percent spending to 18.5 percent GDP ratio will, as he writes, “require major concessions by both Republicans and Democrats.” But, as he also notes, it will keep our rising debt under control and work to preserve the standard of living that our entitlement programs and economy are supposed to provide for Americans.

And, just as importantly, it will stop the hyper-Keynesians from running our economy into the ground.

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15 Responses to Warren Buffett column may lead with tax hikes, but he wants spending cuts

  1. Dovie says:

    I believe everybody who is not a Norquist pledge signer (crazy Tea Party Republican) has always believed in both tax increases and spending cuts. TP’s don’t want the deficit to come down because they think they can use it to gain complete control of both houses of Congress, the Supreme Court, and the White House. It is called a self-aggrandizing power trip.

  2. Marc says:

    Don’t forget those that create jobs. ( it is not just the tea partiers
    That are intelligent)
    Those that create jobs understand debt needs to be cut 1st. The economy is not healthy and getting sicker actually. Raising taxes on job creators
    Kills more jobs. ( especially when the huge tax hikes are coming for small businesses already next year in the form of Obama care)
    If we kill jobs we kill the ability to create more tax revenue the fair and balanced way.(producing more goods, paying more people, so those people have more money to spend an be taxed on their spending)
    Our GDP is ridiculously low because HCR. ( and what we now know is coming in the form of tax increases)
    Add another tax hike to the “wealthy” and we have another recession.
    Most of Those ” tea party crazies” we’re responsible for building this country to its status of the most powerful nation on earth with the highest standard of living. ( look at the ave age band of a tea partier)

  3. Lil says:

    “Most of Those ” tea party crazies” we’re responsible for building this country to its status of the most powerful nation on earth with the highest standard of living. ( look at the ave age band of a tea partier)”

    Wait… you’re talking about Boomers, who prospered as a RESULT of their parent’s generation who built up our nation? Tea Partiers are spoiled brats who believe that hard work will lead to a good job, good life, etc., which is complete BS for today’s college grads. The only reason their “hard work” led to prosperity was because somebody else actually gave them the chance to work hard and prosper. Our generation doesn’t have those opportunities!

    • Dovie says:

      I don’t really understand your comment, except it seems to make this a generational issue. No one is going to retire as early or get nearly as many benefits as the “greatest generation”. Many got two for one because women didn’t work outside the home – half that generation never paid a dime into SS. BOTH my husband and I were in the army, we both went to college, and we’ve both worked at professional jobs ever since.

      I have read that the most common job for the greatest was farmer. It is now salesman. It’s psychologically more satisfying to get up and work for yourself than to try to sell POC all day for a wage.

      It’s not the lazy boomers or the immigrants or the liberals or the Keynsians or anybody else. We have a consumer based economy and the distribution of wealth is way out of whack, as someone points out.

      At any rate, if you are equating Tea Party with Greatest Generation with the People Who Did It On Their Own, the facts are against you. Pursuing that argument is another loser.

  4. rls says:

    doug — our economy would be a lot stronger if we could reverse the growing income disparity between the wealthy and everyone else — a healthy, productive middle class would go a long way toward strengthening the country’s economic outlook —
    — of course, that would take things like strong unions, less outsourcing of jobs and necessarily reduced stock profits for much of corporate america —
    — but corporate america can support the middle class in one of two ways: they can either pay their profits into a bottomless welfare state or they can pay their profits into supporting jobs for a healthy middle class — they WILL wind up doing one or the other, because without some kind of stable middle class, america will fall apart —
    — which corporate america alternative do YOU think would be more productive? –

    • Doug Gibson says:

      California possesses every liberal idea that makes you swoon, Rick, and look at it. http://www.ocregister.com/opinion/state-378918-california-tax.html

      As for unions, Utah just lost several hundred Hostess jobs because that company, $600M in debt, dealt with a maze of union rules that included mandates that pastries and bread couldn’t be delivered in the same trucks. Much of Hostess will eventually survive, though, in right-to-work states, so there’s still hope for our state here.

      • rls says:

        doug — so is there an income disparity problem in the u.s., and if so how would YOU fix it — or do you think it should be fixed? — seems to me the middle class is losing ground, and without a strong middle class, there can’t be a strong america –

        • Doug Gibson says:

          Rick, I’m all for BOTH Buffett proposals, the catnip tax hike and the important part, which is the 21 to 18.5 to GDP ratios.

          • rls says:

            doug — “catnip” tax hike?? — we aren’t going to get to 18.5 and 22 without a tax hike (and not without spending cuts as well) — how about “necessary but not quite sufficient, but nonetheless fair and balanced” tax hike?

  5. ScottH says:

    It seems that pretty much everyone agrees that the proposed tax increases will raise comparatively little revenue (if any). Thus, the obsession with these tax increases is difficult to comprehend. Decreasing the breadth of the tax base will not lead to a healthy economy. Check out California, for example.

    Our politicians have shown that they know how to raise taxes. They do it regularly in the form of regulations and fees. What our politicians from both parties have proven absolutely incapable of actually doing is decreasing spending or cutting the size and scope of government.

    Here’s a plan. Yeah, I know it will seem wacky beyond belief to some people. But let’s see the politicians cut spending in real life. I’m not talking about the worn out tactic of raising taxes now in exchange for ethereal future spending cuts that never materialize. Cut spending first. And do it for more than just a year or two. Actually diminish government waste, fraud, bad regulations, and crony capitalism. Show that the government can behave in a financially responsible manner. Then maybe it might be agreeable to trust them with more tax revenue.

    Until that happens, giving the government more power and money is like giving your car keys to a drunk, regardless of what Warren Buffet says.

  6. Lasvegasrichard says:

    ‘ Liberals possess resentment towards the wealthy ‘ ??? That’s got to be one of the biggest crocks of you know what I’ve ever heard . And the fallacy of job creators due to wealth . The only thing that creates jobs is demand . Cut taxes for MGM , and Las Vegas Sands , and Harrahs , and they won’t hire one single person without demand . The economy thrives when the bottom end of the scale functions , not the top .

  7. Pingback: Warren Buffett: How He Would Fix The Fiscal Cliff (BRK.A, AAPL, GE) – ETF Daily News (blog) | BeingWarrenBuffett.com

  8. Dovie says:

    The only difference that I see among the posters opinions is that we are still focused on who is to blame. I would love to see TSA, FEMA, and Homeland Security disbanded – there are some cuts.

    I believe “the deficit” is the flavor of the day and that it is the direct result of other policies. I believe it was totally predictable.

    Doug agrees with Warren Buffet but is talking “Keynsians”. (Good grief, how old is that term? Let me guess, it was popular in 1950 and therefore appeals to fat old Tea Party guys- and whatever happened to the Glenn Beck manufactured “progressives”?)

    The only disparity in opinion is what “outsider group” is going to take the blame. We’ve been through liberals, progressives, union people, govt employees (even though most tea partiers I know are retired govt) gays and those who want marriage to animals legalized and those with families that aren’t as good as Sarah Palins. Now it’s Keynsians snd the Boomers. In the meantime, all those who believe in Ayn Rand and Jesus are the “good guys”. This is asinine. I do not think EITHER Ayn Rand OR Jesus would like the Tea Party.

    It is way past time to knock it off.

  9. ctrentelman says:

    who are these liberals of whom you speak? Last time I checked, someone who wanted income and outgo to match was called a conservative. “Tax and spend” is vastly superior to “borrow and spend,” which has been the so-called “conservative” mantra, and since we all know that all discretionary spending, if eliminated, would not balance the budget, I presume you are of the “borrow and spend” camp.

    I also grow weary of those who say “raising the taxes of the wealthy won’t help much so why do it?” These are the same people who say “if we can’t cut PBS how can we hope to make bigger cuts?” The same reasoning cuts both ways.

    And, anyway, why not raise taxes on the so-called job creators? As it stands now, they aren’t creating any job, those they do create are poorly paying, and they aren’t paying their fair share, they’re paying half what I pay.

    As Mr. Buffett also said, any businessman who would pass up a chance to make money because the tax on that money will be a titch higher isn’t much of a businessman. The impact of all this playing with the tax rates is vastly over-hyped.

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