Investors Back Obama's Buffett Rule
Global investors overwhelmingly support President Barack Obama’s proposed tax increase for those earning annual incomes of $1 million or more in an effort to reduce the deficit.
By a margin of 63 percent to 32 percent, respondents in a Bloomberg Global Poll approved of the president’s proposal, known as the “Buffett rule” in a nod to Warren Buffett, the chairman of Berkshire Hathaway Inc., who has said it is wrong that he pays a smaller share of his income in taxes than does his secretary.
Obama said Sept. 19 that making sure that the wealthy pay at least the same tax rate as the middle class was “just the right thing to do.” House Speaker John Boehner accused the president of practicing “class warfare,” saying any new tax would hurt job creation and Buffett’s situation was not typical.
The call for the rich to pay more, however, found backing among financial professionals in the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. “Higher tax payments could help to avoid or delay potential social disturbances and in addition create some kind of a general solidarity,” says Henry Littig, chief executive officer of Henry Littig Global Investments AG in Cologne, Germany, a poll respondent.
In the U.S., support for the idea was lower, with more than half opposing it, although four in 10 supported it. “The U.S. does not have a tax rate problem -- we have a spending and entitlement problem,” said poll respondent Jay Wright, managing director of Samco Capital Markets in San Antonio, Texas. “And if we do not address it quickly we are going to be Greece.”
Support for the millionaire’s tax was highest in Europe, where French President Nicolas Sarkozy plans a 3 percent surcharge on incomes above 500,000 euros ($680,000.) European poll respondents backed Obama 78 percent to 17 percent; Bloomberg customers in Asia supported the president’s idea 69 percent to 21 percent.
“Increasing taxes on millionaires may not harm the economy, but it will not help it either,” said Don Lindsey, chief investment officer at George Washington University, who participated in the survey. “What we need is a complete overhaul of the tax system.”
In a New York Times op-ed last month, Buffett wrote that his federal income tax bill was $6.94 million, or 17.4 percent of his taxable income -- a lower rate than any of the other 20 employees in his Omaha, Nebraska, office.
In an interview today with Bloomberg Television, Buffett said the “ultra-wealthy” should pay a new minimum tax, without any change in tax rates on income or capital gains. “An athlete making $10 million -- he would not have a change in his tax rate at all or $20 million or $30 million even,” Buffett said. “But somebody that buys a stock index future and sells it 10 seconds later and gets 60 percent by long-term gains, he would have a different world to live in.”
The new tax would apply to perhaps 50,000 individuals and raise around $20 billion annually, Buffett said.
‘Send in a Check’
Buffett has repeatedly said that his secretary pays a higher share of her income in taxes than he does, prompting Republicans such as Senate Minority Leader Mitch McConnell to gibe: “If he’s feeling guilty about it, I think he should send in a check.”
Some participants in the Bloomberg poll agreed. “Buffett is being very deceptive,” said Michael Prisby, corporate investment officer at Citizens Financial Bank in Munster, Indiana. “He may be taxed at a capital gains rate of 15 percent, but that doesn’t mean all high earners are.”
On average, taxpayers with annual incomes of more than $1 million last year paid a 29 percent tax rate, compared with 15.1 percent for those making between $50,000 and $75,000, according to the non-partisan Tax Policy Center in Washington.
Some high-income individuals, like Buffett, do pay a lower average tax rate because much of their income is derived from capital gains rather than wages. In 2009, the most recent Internal Revenue Service data shows that 1,470 individuals with at least $1 million in annual income paid no income tax.
The debate over a “Buffett rule” tax caps an era in which disproportionate rewards have gone to those at the top of the nation’s income distribution. Between 1993 and 2008, the top 1 percent of families captured 52 percent of total income gains, according to a 2010 paper by economist Emmanuel Saez of the University of California, Berkeley.
“The Buffett rule does not apply to all rich people or the average rich person, but it does apply to some rich people,” said Roberton Williams, an analyst at the Tax Policy Center.
The administration has said it has no plans to submit a detailed millionaires’ tax proposal to Congress. For now, that means the main significance of the Buffett rule is political not financial.
The proposed tax is the rhetorical centerpiece of White House jockeying in the run-up to the deliberations of a congressional “supercommittee” seeking $1.5 trillion in deficit reduction by Nov. 23.
Earlier this week, Douglas Edwards, who described himself as “unemployed by choice” after retiring as an early employee from Google, urged the president to “please raise my taxes” at a town hall in Mountain View, California.
Far From Rich
Lionel Mellul, co-founder of Momentum Trading Partners in New York, said he endorsed the idea of the rich paying more, while taking issue with the $1 million threshold. A New Yorker with a $1 million annual income is “far from really being rich,” he said.
In follow-up interviews, many respondents called for a stem-to-stern overhaul of the tax code.
“Until the administration completely overhauls the personal and corporate tax code to both drive growth and incentivize the efficient transfer of capital and risk, the wealthy people will just have their tax lawyers find more loopholes to lower their taxes,” said Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco.
The quarterly Bloomberg Global Poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm, on Sept. 26. It has a margin of error of plus or minus 3.1 percentage points.
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