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Taxing the Rich

Seth Jentner07/30/2013

Warren Buffett made some interesting comments in a 2011 letter published in the New York Times titled, “Stop Coddling the Super-Rich.” Mr. Buffett stated that he and other very wealthy people are willing to and can afford to pay more in federal taxes. Not being in the “super-rich” category, I can only thank him for expressing his personal generosity. Let me respond within the context of the 28% effective federal income tax rate I pay.

According to Mr. Buffett, he pays only 17.4%, and, on average, the super-rich pay 21.5%. That sure doesn’t feel right. Wouldn’t it make sense to remove income-tax loopholes, which only benefit the “super-rich”? It appears they hire lobbyists to get loopholes passed into law, and tax specialists to apply them on their behalf. (Oh, I forgot, there are votes to buy and political favors to secure too.)

Wouldn’t it be wise to adopt a relatively broad, flat tax-rate which treats all Americans the same? In my opinion, if tax rules are simple and straight-forward and tax rates are reasonable, there would be more focus on innovation to design, produce and sell American goods and services rather than looking for tax loopholes and tax shelters.

In my opinion, if tax rates are reduced, loopholes are eliminated and the tax-base is broadened, compliance hurdles will be lowered and people’s confidence will increase. Economic activity will improve, more people will be employed, tax revenues will increase and less government programs will be needed.

In spite of any tax reforms, federal, state and local governments have no choice but to rein in spending. Families, businesses and governments must live within their means. Spending more than you make is a recipe for disaster. This is Economics 101. There are only 100 cents in a dollar.

Let’s encourage the behavior that made America great:  calculated risk taking, innovation, personal responsibility, deferred gratification and personal charity. Let’s require lawmakers to live by the same laws they enact for the rest of us. This may reduce market volatility and encourage people to make investments based on perceived economic merit rather than on short-term political expedience.

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