Omaha
Our leaders have asked for “shared sacrifice.” But when they asked, they forgave me. I asked my ultra-wealthy friends what pain they expected. They, too, remained unscathed.
While poor and middle-class people fight for us in Afghanistan and most Americans struggle to make ends meet, the super-rich continue to receive exceptional tax breaks. Some of us are investment managers who earn billions of dollars from the work we do every day, but are allowed to classify their income as “performance fees” and are taxed at a bargain 15%. Others, like long-term investors, only hold stock index futures for 10 minutes and are taxed at 15% on 60% of their gains.
These and other benefits are showered on us by lawmakers in Washington who feel an obligation to protect us as if we were spotted owls or some other endangered species. It's good to have friends in high places.
My federal tax bill last year, which includes the income tax I paid and the payroll taxes paid by myself and my agents, was $6,938,744. That seems like a lot of money, but I paid only 17.4 percent of my taxable income, which is actually a lower percentage than the other 20 people in my firm, whose tax burdens ranged from 33 percent to 41 percent, with an average of 36 percent.
If you make your money from money, like my super-rich friends, your percentage might be a little lower than mine, but if you make your money from a job, your percentage will undoubtedly be a lot higher than mine.
To understand why, we need to look at the sources of government revenue. Last year, about 80 percent of these revenues came from personal income and payroll taxes. The ultra-rich pay 15 percent income tax on most of their income, but essentially zero payroll tax. It's a different story for the middle class, who typically fall into the 15 percent and 25 percent income tax brackets and are also subject to heavier payroll taxes.
In the 1980s and 1990s, tax rates for the wealthy were much higher and I was in the middle range. The theory I sometimes hear is that because the tax rates on capital gains and dividends were so high, I should have been infuriated and refused to invest.
I didn't refuse, nor did others. I've worked with investors for 60 years and I've never seen anyone hesitate to make a wise investment because of tax rates on potential gains, even when the capital gains tax rate was 39.9% in 1976-77. People invest to make money, and fear of potential taxes has never dissuaded them from investing. And to those who argue that higher tax rates have a negative impact on job creation, I would like to point out that between 1980 and 2000, there was a net gain of nearly 40 million jobs. You know what has happened since then. Tax rates have fallen and job creation has declined substantially.
Since 1992, the IRS has compiled data from the tax returns of the 400 Americans who reported the highest incomes. In 1992, the top 400 had a total taxable income of $16.9 billion and paid a federal tax rate of 29.2% on that total. By 2008, the top 400 had a total income of $90.9 billion, with an average of a staggering $227.4 million, but their tax rate had fallen to 21.5%.
The only taxes I'm referring to here are federal income taxes, but I'll bet the 400's payroll taxes are insignificant compared to their income. In fact, in 2008, 88 of the 400 reported no pay at all, but all reported capital gains. Some of my peers may be avoiding work, but they all love investing. (I know that feeling.)
I know many of the super-rich, and they are generally very decent people. They love America and are grateful for the opportunities this country has given them. Many have joined the Giving Pledge, pledging to donate most of their wealth to charity. And they probably wouldn't mind being told to pay more taxes, especially when so many of their fellow citizens are really suffering.
Twelve members of Congress will soon begin the critical task of fixing our nation's finances. They have been directed to develop a plan to reduce the 10-year budget deficit by at least $1.5 trillion. But it is crucial that they accomplish much more than that. Americans are rapidly losing confidence in Congress' ability to address our nation's fiscal problems. Only immediate, real, and very substantive action will prevent that doubt from turning to despair. That sentiment can create a reality of its own.
The first job of the 12 Senators is to cut future promises that even wealthy America cannot deliver on. There are huge savings to be made here. The 12 Senators then need to get to work on revenue issues. I would leave tax rates unchanged for 99.7 percent of taxpayers and leave employee contributions to payroll taxes at their current 2 percentage point reduction. This reduction will help the poor and middle class who need every benefit.
But for those earning over $1 million (236,883 households in 2009), we should immediately raise tax rates on all taxable income over $1 million, including dividends and capital gains, and for those earning over $10 million (8,274 households in 2009), we should raise tax rates even higher.
My friends and I have been pampered for too long by a billionaire-friendly Congress. It's time for our Government to get serious about shared sacrifice.
