Boosting Buffett's Bill

We now have a clear majority and possibly almost 100% agreement, among interested parties, that the current Income Tax code is ridiculous for a variety of reasons. Solutions proposed range from simply establishing higher brackets for the irrational grouping of millionaires, billionaires, corporate jet owners, and people making more than $250,000 a year to completely abolishing the Income and Payroll Taxes and replacing them with the Fair Tax, which is a flat tax on consumption or, in simpler terms, a BIG sales tax.

Establishing higher brackets for millionaires and billionaires is fine, but it won’t make much difference to them or to our national financial situation. I object to it unless done as a part of comprehensive reform because, once done, everybody will sit back and wait to see the dollars rolling in and the deficit shrinking, only to be disappointed. And time will have been lost.

Attacking the corporate jet business will simply destroy employment and taxable incomes in that small but important segment of the economy much as was done with the Bush I special luxury excise tax on yachts twenty years ago.

Jacking up marginal rates on folks earning $250,000 a year will simply punish those who are already bearing the major portion of the tax burden and are the big spenders in the economy.

At the other extreme, the Fair Tax is an intriguing idea and would have been a much better choice than the income tax when the income tax was first implemented. Under the fair tax, we would never have become a consumer driven economy with all the environmental and energy problems that go along with that. We would have remained a frugal people, focused on savings and investment, and would have no national debt.

But, the Fair Tax is a long shot and would be a very difficult transition to make. Probably nobody would buy anything but necessities for a couple of years, and the economy would really hit bottom. Still, I am glad that smart and talented people are championing the Fair Tax, hope their efforts pull us in that direction away from the ridiculous, and won't be upset if, by some miracle, they are successful.

The Flat Tax, a simple across the board flat rate on all income with no or almost no exemptions, deductions, exclusions, or credits has a lot of appeal. I strongly favor the simplification and like the idea that an income tax should tax all income, but I’m not so conservative as to believe that it is unreasonable for a person to pay a higher marginal tax on their second million dollars of income than on their first or even on their second hundred thousand than on their first.

So, let’s go for elimination of ALL the deductions, exemptions, exclusions, and credits but keep the rates progressive. I don’t have enough information about income distributions to know exactly what the rates would have to be to deliver more revenue without all the “loopholes” than we are now getting with them, but I think it would be pretty close to this:

Under this scenario, Warren Buffett would have paid ~$18,500,000 in taxes on his $62,000,000 in taxable income instead of the $6.9M he claimed in the interview with Charlie Rose (discussed here). Is that enough? Well, I’m sure it will satisfy some and fail to satisfy others and Buffett won’t even notice the difference. It would definitely be a much higher effective rate than his office staff would pay.  The questions are whether the federal government can put that extra $12M to better use than Buffett and whether Buffett would still have voluntarily given away $30,000,000 without that charitable tax deduction?
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