Reflections of a stormy petrel

Nothing could be more stupid than the mass negative reaction from every Tory, Republican and Conservative I know to the rising anger about income inequality. Let me explain something to you brain-deads, in the unlikely event that any of you should be able and willing to listen: We have been through five years of HELL caused purely by the idiot greed and purblind optimism of both sides of the ruling classes, left and right. You are both guilty. The majority of the population, middle and working classes and the lumpenproletariat below, were all made to pay to restore some sort of order to the ships of states that the top one per cent had driven straight into the storm; and all this time, not one banker has gone to jail or ended up in the unemployment queues, not one broker had his ill-gotten gains confiscated, not one politician has been convicted or impeached. We all know that we are the victims of the crimes of others and that the criminals are all "too big to fail" or jail. And now, on top of it, we are told to rejoice and give thanks to our wise leaders because larger numbers of McJobs, paid a pittance and as secure as a fungus-eaten tree branch, are becoming available, and the scum on top call this a recovery. Now I know that the left are as guilty of this as the right, and Obama and Labour just as much to blame as Cameron and the Republicans. But if you Stupid Parties allow Obama the monopoly of hypocritical compassion and of tokenistic but visible efforts to raise the bottom wages, then you will be punished at the polls once again, and, you pathetic shower, you will have deserved it. What I think of a continued rule of that gaggle of sexual antinomians and elite ignorami that dares call itself the left, I had better not say. (And Italy just managed to find the worst leader for its own Democratic party it could possibly hope for - but that is another story again.) Roll on the dark ages, come the barbarians, I don't think there is any health left in this world.

I never heard anything stupider than the notion, seriously entertained by the European leadership, that they could appeal to the G20 non-European powers for help. Don't the idiots realize that there is such a thing as imperial overhang? That there are people in Beijing, Brazilia or Djakarta who would just hug themselves with delight at the thought of Europe ruined and begging? Don't they realize that, thanks to villains like Edward Said, even those who are too young to remember (and indeed, those who can remember the days of the empires feel less bad about them than those who don't) have been taught at school to resent the very notion of European power? Europe must recover by its own unaided efforts; end of story.

INTRODUCTION: For the few who may not know it yet, Warren Buffett is probably the most successful businessman alive, and one of the richest. His success comes from shrewd long-term investment in promising businesses, and I would say that he has probably done more real job and business creation than the whole political elite of the planet. I hate his views on abortion and related matters, but when it comes to business and economic growth he must be allowed to know what he is talking about.

Stop Coddling the Super-Rich

By WARREN E. BUFFETT

Published: August 14, 2011

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

(Note: I rushed to complete this and publish it because, as I am about to leave, I risked losing it.)

I have been skimming - not really reading - some seventeenth-century English history. One half-remembered feature drew my attention: in England in the sixteen hundred there used to be regular riots, because, even in times of public hunger, large amounts of wheat were exported from the country.

That the people rioted is hardly surprising. These were not beggars, but artisans, employed men, even farm labourers, and their wives; and in times when they knew they could not eat and must watch their children starve, they saw wagon trains loaded with good grain, leaving their counties, making their way to the coast. What was going on?

What was happening was something that many people today will not be able to imagine: the buyers in England were unable to compete with those of the Conntinent - and thus to pay for their own grain - because they had no money. That is not to say that they were poor: they were simply very imperfectly inserted in the money economy. They were industrious workers; but a good deal of what they did wass for barter. Worse still, their main contact with the money economy was the payment of rents, taxes and fines. The money they received went out of their hands again. A man might even have a considerable amount of what would ordinarily be called wealth - own his farm and land outright - and still not only be unable to accumulate capital, but barely be able to conceive of it.

In some parts of the world, this is a recent memory - or still going on today. When my mother was a baby, her parents were considerable landowners in the most fertile area of Italy's deep South, Puglia. And she once told me that there never was any problem with anything that could be grown from the farm - mounds of grain, hills of beautiful oranges - but when it was a matter of buying a pair of shoes - drama!! The whole cycle of life tended to go on with small amounts of money, if any.

I say this because it is important to place our situation as westerners in context. The free availability of money is not natural, but something of a privilege. It is a result of the accumulation of centuries of production reckoned into money, and of the access to structures - in particular, banks and insurance companies - that systematize that access. And it gives us possibilities that our fathers never dreamed of; in particular, to budget for our future. Hesiod's farmer, hard-working and hard-headed though he is, cannot see beyond the next harvest; of old age, he only knows that it is odious and defenceless, and certainly looks forward to going on working for his bread until he is physically incapable. We, on the other hand, can plan ahead.

Loooking around me, in this wasteland of debt public and debt private, in which both nations and individuals have lived their lives according to the amount of money they could borrow, I simply find myself wondering whether a clearer understanding of the privilege of being fully within the money economy - even where you are poor - could not have kept us from quite so many follies.

Robert Novak is one of the most famous conservative journalists in America. He is, thank God, an honest man, and is quite willing to tell truths uncomfortable to Republicans. Today's column about Fannie Mae and Freddie Mac is required reading:

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