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.