Tags: Warren Buffett | Arthur Laffer | income tax

Laffer: Buffett's Hypocrisy 'Unfathomable'

Friday, 19 Aug 2011 10:33 AM

Warren Buffett's claims that the government is coddling the wealthy by not taxing them enough carries the banner of hypocrisy to new heights, because even if taxes were raised on the rich, Buffett could still dodge them, says economist Arthur Laffer, an architect of Ronald Reagan's economic policies.

"The hypocrisy of Warren Buffett is unfathomable. If he really wanted to make it fair, why doesn't he propose a wealth tax on everyone over $1 billion?" Laffer tells CNBC.

"Of course he's not going to suggest that because he would have to pay that."

Buffett wrote in a New York Times piece recently that he pays less in taxes, percentage-wise, than do people who work in his office, and that the wealthy should pay more.

Buffett says he pays 17.4 percent of his income in taxes, a figure he says is unfair considering salaried workers often pay more.

"He doesn't really report all the income his wealth really generates," Laffer explains. "If you saw in that New York Times piece, he ported $6-plus million in taxes at a 17 percent rate. That's probably a $40 million annual income and he's worth $60 billion."

"He's got all of his wealth in unrealized capital gains, it's never seen a tax and when he gives it to the Bill and Melinda Gates foundation, it never will."

What the country needs is to realize that politically popular, feel-good suggestions like upping taxes on the rich because they earn more with the aim of pumping more revenues into the economy won't work.

"If you raise tax rates on the rich," Laffer says, "all the evidence suggests that they pay less in taxes, because they can get lawyers, accountants, deferred-income specialists, they can change the location of their income, the timing of their income, the composition and the volume. They leave. They just don't pay it."

Furthermore, increasing government spending in an effort to kick-start demand via stimulus or loose monetary policies won't do the trick either.

First the government needs to cut spending, Laffer suggests, and then apply a flat tax of some sort. "If you have a two-person economy, two farms and that's all there is in the world, if the second farmer, Farmer B, gets unemployment benefits, who do you think pays for them?

"That is what government spending is — taxation. And the reason this economy is so bad is because of our stimulus spending, because of TARP, because of the Obama stimulus, because of the bailouts," Laffer says. "It's bipartisan ignorance."

Other critics agree that Buffett is not telling the whole story on taxes.

"When Buffet receives dividends and capital gains, it is true that he pays 'only' 15 percent of that money on his tax return," says Dan Mitchell, a senior fellow at the Cato Institute, according to Fox News.

"But dividends and capital gains are both forms of double taxation. So he wants honest effective tax rate numbers, he needs to show the 35 percent corporate tax rate."

Complete overhaul of the tax code is needed, especially one that applies a flat tax.

"With no double taxation and a single, low tax rate, we would know that rich people were paying the right amount, neither too much based on class-warfare tax rates nor too little based on loopholes, deduction, preferences, exemptions, shelters, and credits," according to Mitchell.

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