Warren Buffett's sinister view on taxes

I can rephrase Dr. Goldstein’s anecdote in just a few words: “Your money or your life.”

I’ve never met Matthew Goldstein, but judging by his bio I don’t think it’s something I’d like to do. It reads like a stereotype of the elitist, leftist intelligentsia. A B.A. in English and History, an M.A. in World and Comparative Literature (whatever that means) and a Ph.D. in English, all from über-liberal universities, and a job at a community college in Oakland, California.

Dr. Goldstein has commented about blogs written last week criticizing Warren Buffett’s recent pronouncement that he doesn’t pay enough taxes (like mine):

Berkshire Hathaway CEO Warren Buffett heated up the blogosphere with a recent New York Times op-ed piece, “Stop Coddling the Super-Rich.”

. . .

But when the Sage of Omaha starts offering old-fashioned soak-the-rich rhetoric, people take notice. And support from those who stand to lose the most from a tax hike can only help the cause of so-called class-warriors, right?

Well, maybe.

When taxes on the nation’s highest earners become an expression of noblesse oblige, they may only reinforce existing economic inequalities. Doesn’t any middle-class society worthy of the name need to make the super-rich pay their taxes?

Well, actually, no. You see, middle-class societies depend on the “super-rich”. Those super-rich people are the ones investing the money in job-creating new businesses, like the investment groups behind Google and Twitter. They invest in existing corporations, like the people buying out the shares of GovernmentGeneral Motors and yes, investors in Berkshire Hathaway. Their money, sitting in banks, is loaned to mom-and-pop stores and workshops, and to middle-class families buying new homes. When that money is ripped-away in the form of taxes to pay for phantom “green jobs”, nanny-state policies and to “protect the poor”, it’s not available to create new or grow existing businesses and hence, new jobs for poor and middle-class workers.

Mr. Goldstein clearly doesn’t understand this, probably because it doesn’t appear he’s ever held a job outside of academia. In fact, I don’t see in Mr. Goldstein’s short biography any indication that he’s at all qualified to comment on economics, business or taxes. Not that it matters to the San Francisco Chronicle or any other newspaper or to the liberals who will read his sophomoric prose and nod their heads appreciatively. He hasn’t been tainted by the world of business or the careful study of the dismal science.

Based upon the previous paragraph, you might ask for my qualifications. Very well: I have a Bachelor of Business Administration (Cum Laude) from a small public university in New England that I’m enough ashamed of (due to poor performance and liberal stupidity–but I repeat myself) that I won’t mention its name, and a Master of Business Administration from the well-regarded Terry College of Business at University of Georgia. I’ve received awards from <a href=”http://www.apics.org” target=”_blank”>APICS</a> and from my employers for work I’ve done on increasing productivity and reducing costs.  I was on a finalist team at the international Moot Corp competition at the University of Texas and the New Venture Championship at the University of Oregon (which my team won). I’ve held jobs ranging from minimum wage retail to hourly grunt work to professional work involving Information Systems Management, accounting and financial planning, operations management and Sarbanes-Oxley compliance. My undergraduate studies included marketing and finance, and my education at UGA involved extended classwork in marketing, economics and entrepreneurship.

In other words, I know my… Er, stuff.

Dr. Goldstein can probably critique my grammar in this post at length, and I wouldn’t dare to lecture Dr. Goldstein about the philosophical ramifications of our changing language structure or the cultural significance of Herman Melville or the Marquis de Sade; nor would I write an op-ed in a major newspaper (or blog) about English or literature. I’m simply not qualified. Hence, having Dr. Goldstein lecture his readers (and by extension, me) on the economic ramifications of heavy taxation upon high-income Americans is at best a wee bit pretentious and at worst naked socialist propaganda.

Enough attacking the messenger. Let’s get down to what he actually said.

Dr. Goldstein recounts a story wherein he was teaching English to a wealthy corporate executive in Bologna, Italy. The executive surprised Dr. Goldstein when he explained that he was, in fact, a socialist.

In a conversation about politics one day–over espresso served on a silver tray by his secretary–he surprised me somewhat by announcing that he was a socialist. When I asked him to explain, he wondered if I’d ever seen Doctor Zhivago.

When I said of course, he asked if I remembered the scene when Omar Sharif returns from the war to find his family estate taken over by hordes of starving peasants. I nodded uncertainly.

“Well, I don’t want those people in my house,” he said.

Elitist? Most decidedly. But he was in fact making a compelling argument, based on enlightened self-interest, for treating society’s most vulnerable decently: take care of the poor or the poor will take care of you.

I could comment on Doctor Zhivago being, in part, an indictment of socialism’s destruction of the individual but as I said I’m no expert in such matters. So let’s look at Dr. Goldstein’s friend: He’s not a socialist for altruistic reasons, and clearly he’s not a practicing socialist wanting equality of outcomes or a spreading of wealth. Rather, he understands that his position is based entirely upon the good graces of the more numerous lower classes. If the lower classes get upset enough at the aristocracy and/or those with wealth, they can overthrow and start a new system. It’s socialism as an insurance policy.

Strikingly, it’s a self-defeating insurance policy. Higher taxes on businesses and wealthy individuals mean less investment in new businesses and new jobs. More people end up in social welfare programs. Eventually, the system doesn’t bring in enough money, so the government just prints more cash resulting in inflation. The inflation makes the social welfare system even less effective and the result is social and economic upheaval. And when the societal enemy is “the Rich”, the insurance policy Dr. Goldstein’s friend chose becomes suicidal.

I can rephrase Dr. Goldstein’s anecdote in just a few words: “Your money or your life.” Give up the money and wealth you’ve worked hard to obtain, or risk a repeat of the Russian Revolution. It’s robbery where the government is the one holding the gun.

There’s another problem with Dr. Goldstein’s article. Read what he says: “Ultimately, though, if we’re really going to have the middle-class society we all say we want–with safe streets, clean water, good schools, etc.–we’re all going to have to learn to love the taxman.”

Um, actually, no, I don’t want a “middle class society”. I want a wealthy society (which, by the way, is what we have–just compare “middle class” Americans to “middle class”–well, anyone else). Settling for everyone being middle class isn’t my idea of progress, and you don’t get a wealthy or a middle class society from progressive taxation. You get an under-performing aristocratic society.

You see, Dr. Goldstein clearly doesn’t understand the difference between income and wealth. We don’t tax wealth. We tax income. We tax people who earn a lot of money, but that’s not necessarily wealth. The vast majority of high-income individuals are people with small businesses who report their business income not in a 10-K filing with the SEC but on their personal 1040 form at the end of the year. Having business income of $250,000 this year doesn’t necessarily translate into a 5,000 square foot house with three BMWs in the garage. Rather, it might translate into a new machine press for the workshop or replacing the outdated telephone system next year.

That, I suspect, is actually why Mr. Buffett likes the idea of raising taxes on “high income” individuals. First, since he pays capital gains taxes, it won’t affect him since the majority of taxes he pays (well, when he pays them) are capital gains, not income taxes. Second, it makes it harder for privately-owned small proprietorships to compete with the corporate businesses he already owns. Third, it makes selling those private businesses to a financier like him an attractive alternative (and, by extension, the lower after-tax profits lowers the buy-out value of some sole-proprietorships). For Buffett, higher personal income taxes benefits him both directly and indirectly. For him, it’s Win-Win.

And there’s an even more sinister reason for Buffett to support progressive taxation: Basically, it amounts to, “I’ve already got mine.” Buffett, after all, is one of the wealthiest people on the planet, at about $47 billion. This grants him power, influence and prestige. More progressive taxes don’t affect him, even if the capital gains rate is raised to meet the income tax rate. Buffett’s income last year was about $41 million, based on the 17% rate Buffett stated in his op-ed and reports that his taxes-paid were $7 million. It doesn’t take a genius, or even 4th grade math skills, to figure out that Buffett’s wealth has increased far beyond the rate of his income.

What am I driving at? Well, Buffett’s got all this power and influence. He’s Top Dog. Personal friends with the President of the United States, Senators, Congressmen, Governors and the like. There’s only a couple of people in the world who have the kind of power and influence he’s got. He can spend almost nothing out of his personal fortune and be king-maker in virtually any political arena he chooses. He has access and influence, and the biggest threat to that access and influence is the nouveau riche.

Okay, I’m not going Gormogon, here, nor is this a Bilderberg conspiracy. I’m just theorizing. Normally, I’m the one tearing down the “rich industrialists trying to take over the world” meme (after all, why be the target when you can just be friends with it?). I’ve only circumstantial evidence that this is actually his reasoning and I don’t suspect he’s acting in any conspiracy but rather solely out of self-interest. This theory just explains Buffett’s hypocritical position on taxes and wealth. I mean, it’s this or he got kicked in the head really hard by a mule awhile back.

“New money” means new people getting access and influence. It diminishes his access and influence, despite his great wealth. After all, there are laws about how much money one person can give to a political candidate. Even if there were no caps on political giving, if Warren suddenly gave, say, one billion dollars to the Obama campaign, it’d look mighty hinky and the blogosphere would go apoplectic about the “Bought and Paid-For President”. So the new rich, even at a much smaller scale than him, are quite a threat to Mr. Buffett’s power and prestige.

The best way to deal with new money, of course, is to keep the hard working individuals from getting it in the first place. That’s what a progressive tax system does. The more money that is taxed from high-income individuals, the less money they have to spend on political candidates, lobbyists, political action committees, or any other political activity. It doesn’t affect Warren: He has wealth. More progressive taxes ensure that his wealth and influence is still among the greatest.

In other words, progressive taxation doesn’t benefit the poor. It ensures the continuation of the existing aristocracy.

I refuse to believe that Warren Buffett doesn’t understand everything I’ve just explained. He’s not a fool. He understands finance and economics and business, as he’s proven time and again with his business deals. He’s experienced the influence and power. He knows.

Dr. Goldstein clearly doesn’t have a clue. His education hasn’t covered this. He’s way out of his sphere of knowledge. As a result, I don’t think Buffett is the willing dupe of the Left, as some have decided. Rather, I suspect individuals like Dr. Goldstein are the willing dupes of Mr. Buffett.

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