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Warren Buffett’s rank demagoguery on FICA

Warren Buffett’s rank demagoguery on FICA

Warren Buffett has an op-ed in The NY Times bemoaning the fact that he and other super-wealthy investors pay a lower percentage of their income in taxes than their secretaries and other lower-paid staff members.  This is an argument frequently heard from Democrats.

But in making that argument Buffett misleadingly lumps federal income taxes in with that he calls “payroll taxes.”  Payroll taxes are known as FICA (the Federal Income Contributions Act), and it is the percentage employees and employers pay on wages with a limit to fund social security and Medicare.

As I have posted before, FICA is not a tax in the way other income taxes are taxes; FICA is supposed to be a pay-in to the mythical social security “lock box” which will provide funding for social security payments.  The reason there is a cap on the amount of wages subject to FICA is that there also is a cap on social security benefits (by contrast, there is no cap on the smaller portion of FICA used to fund Medicare).  FICA payments used to fund social security were not intended to be a general revenue raiser for all sorts of unrelated government spending, and were tied to wages because social security was a type of retirement plan for wage earners.

In reality, the line has blurred and FICA payments now are loaned to the Treasury for general government spending.

When Buffett and others (including those people who heckled Mitt Romney recently) demand no limit on FICA, and apparently not even restricting it to wages, what they really are saying is let’s create a scam whereby we compel people to pay unlimited amounts into the social security system with no correlation, even indirectly, to social security benefits, with money which will not be used for social security.  What this does put another nail in the coffin of social security by treating FICA as just another tax with the revenues to be used for things other than funding social security.

Buffett goes even further, echoing Obama’s call for a continuation of the “payroll tax holiday,” i.e., allowing middle income taxpayers to pay nothing into social security.  This simply further divorces contributions from benefits and turns social security into just another welfare program.  In fact, it creates a “double dipping” effect which further damages social security funding, because wage earners get the equivalent of a refund of their FICA obligation yet still get social security benefits, literally something for nothing.

Some of the investing rules which Buffett cites in his article may be worth revisiting because they are divorced from economic reality;  but let’s not forget that it is people like Democrat Chuck Schumer who have been the most vigorous defenders of “tax loopholes” for hedge fund managers and others.  Regardless of whether these investing rules are changed, Buffett should know better than to lump ordinary marginal tax rates in with FICA payments, and to use esoteric investment taxation as an excuse to raise taxes on small business owners and other job creators.

While the left may cheer this soak the rich strategy and Buffett may get a feel-good out of it, in fact all they are doing is playing into the destruction of social security as they claim to want it, turning social security into just another taxing and spending mechanism to be played with as political and fiscal circumstances dictate.

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Comments

Warren needs to wait no longer … he can mail his check to:

Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

.. or visit:

https://www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454

So you don’t forget, mail by midnight tonight.

    eMVeeH in reply to Neo. | August 15, 2011 at 10:58 pm

    …or who’s stopping this moral idiot from sending off a check to the US Trea$ury! Punk! His brains must be fried just like Gates. They sure do love telling others what to do.

Buffet is another man I’ve lost all respect for, what a lying idiot.

Here is Peter Sciff’s takedown of Warren’s claim that he pays less taxes than his secretary… A LIE.

http://www.youtube.com/watch?v=_MjBdWFg-Lw

In order to say that there is no indirect correlation between social security taxes and social security benefits without a cap, you must assume that no social stability is created by the program. The argument from people such as Warren Buffet is that the super wealthy benefit considerably more than the average person from social stability, because without social stability such wealth accumulation is impossible. At least pretend to debate their actual arguments, instead of creating straw men.

    Crawford in reply to Awing1. | August 15, 2011 at 5:39 pm

    What a load of bunk. The poor benefit more from social stability and suffer more from instability.

      Awing1 in reply to Crawford. | August 15, 2011 at 6:24 pm

      I’m not saying I agree with their argument, I’m just saying this is what the argument is.
      One way to imagine what it is they are saying is to imagine all of society breaking down and anarchy ensuing. Money becomes worthless, even gold would be worthless because at the end of the day, food and water means a hell of a lot more than a brick of metal. Which group do you really believe would end up closer to their current state, the wealthy, for whom protecting all their possessions without the assistance of others would be nearly impossible? Or the poor, for whom protecting all their possessions without the assistance of others is a little more of a daily affair already?
      At the end of the day, the question of who benefits more from social stability is a bit of an abstract one. I agree with those who argue the ultra-wealthy benefit considerably more from social stability than the poor, but I disagree that it should inform tax policy for other reasons. My point is, if you’re going to claim you’re arguing against someones position, at least state their position fairly.

    lichau in reply to Awing1. | August 15, 2011 at 6:07 pm

    Can you point out a socially unstable country with a dearth of rich people?

      Awing1 in reply to lichau. | August 15, 2011 at 6:38 pm

      Sure, Rwanda. I don’t know a lot of entrepreneurs and professionals who are doing well there.

        lichau in reply to Awing1. | August 15, 2011 at 7:55 pm

        No entrepreneurs in Rwanda? Shows you have never been there. I haven’t either, but I have been to some places that look a lot like that. Entrepreneurship in places like that makes its cousin in the US look sickly by comparison. You see guys off to the side of the road overhauling auto engines in the dirt.

        For a list of rich people in Rwanda, see http://www.tmcnet.com/usubmit/2007/04/09/2470873.htm

        You will a huge number or entrepreneurs along with not a few that would have to be called “professionals”. There is also a considerable list of “not yet super rich” that likely will be on the list in the future.

        Would you care to try a second strike?

          Awing1 in reply to lichau. | August 15, 2011 at 8:23 pm

          Are you serious? This is your retort? First off, the argument isn’t that there aren’t entrepreneurs, but that they can amass considerably more wealth when social stability exists. Secon, what does a list of the richest people prove? Ignoring the fact that your list is of the richest in Uganda, not Rwanda, every country will have ‘the richest people’, the question is how rich, and ultimately whether they would be considerably better off in a socially stable environment. In an imaginary country, where 99% of people have $4 and 1% has $5, you would still be able to make a list of the richest people.

          This is a pathetic attempt to try to completely change the argument I put forth from “the wealthiest individuals benefit more from social stability than the poorest” to “everyone is equally wealthy in an unstable society and there are no entrepreneurs in such an environment”. You should be ashamed of yourself, people such as yourself are why fiscal conservatism isn’t more politically powerful. When you make illogical arguments and straw man attacks in the name of conservatism, those who can be swayed associate such tactics with the ideal and are pushed towards fiscal (American)liberalism because their specious arguments are superficially more cogent.

          Umm… Not to get too involved in this particular thread, but might I suggest that certain entrepreneurs amass considerably more wealth and are better off when social stability exists. Usually it’s those providers of “civilized” goods and services.

          However, there are other entrepreneurs who will amass significantly more wealth when chaos exists. For example: Weapons manufacturers and dealers, ammunition dealers, food, fuel and pharmacist outlets capable of protecting their stock and supply lines, security / protection providers and drug providers (as an escape from the horror of the anarchy). Those entrepreneurs benefit from the increased prices and profits that can be squeezed from a chaotic situation (profits need not be in money, but in goods, services, barter value, etc…). The classic example would be the local warlord who provides protection to the populace in exchange for their fealty.

          P.S – This is about economics. I make no comment about the morality of said transactions above.

1. Buffett is famous for holding his investments for very long periods. I bet if you proposed marking his holdings to market every year and taxing accordingly, he’d immediately sing a different tune: e.g., the need for long-term economic stability etc etc etc.

2. Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances…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…

Buffett is said to be a very sophisticated man behind the folksy persona. Does he really believe that spending cuts will be the first priority? If not, what’s his game?

3. Even if I accepted Buffett’s arguments, I would consider giving the super-rich tax breaks for investments that create American jobs. I assume the exemptions could be crafted suitably; please ignore my nervous glances at the Law of Unintended Consequences.

4. Rarely indeed does our wise and erudite host commit an inaccuracy, but: Bill, it’s Warren Buffett with two f’s and two t’s.

    gs in reply to gs. | August 15, 2011 at 10:22 pm

    What’s Buffett’s game, I wondered.

    Assume for simplicity that the economy generates a given amount of private-sector income every year. The government will maximize its tax revenue if that income is concentrated in the highest bracket. It can be taxed and redistributed to favored constituencies.

    For this scenario to play out, the government will have to maintain an upper upper class; crony capitalism is an obvious way. The government gets more money and its associated power. The rich get economic security and political assistance; overall, the rich arguably are better off, to the detriment of the rest of us, than they would be in a more open, more competitive economy despite such an economy’s less progressive taxes.

    Buffett is a genius at identifying situations whose risk is materially less than it superficially appears. Just sayin’.

    (Cf. commenters lichau and mbabbitt.)

I once asked a Liberal, “Who paid more in actual dollars”:

1. Person A who pays “only” 10 % of a million dollars. ($100,000)

2. Person B who pays 20 % of a thousand dollars. ($200)

3. Person C who pays 0% of a hundred dollars. ($0)

The response is always Person B…AND Person C!!!

How can anyone hope to reason with a Liberal who is literally stuck on the left side of a basic mathematical equation?

Warren Buffet can go the rest of his life and not take an income. Not so for his secretary. I’d be very surprised to learn that Buffet pays a dime more in taxes than he is obligated to under the law. If he believes that those who have more should pay more let him begin the process by voluntarily forking over a large portion of his wealth to the U.S. Treasury. Not gonna happen? Didn’t think so.

    Awing1 in reply to Merlin. | August 15, 2011 at 5:39 pm

    Your argument is as stupid as the argument that because Michele Bachmann accepts farm subsidies and her husband accepts Medicare/Medicaid payments in his practice, they don’t believe those programs should be reduced.

    Both are making arguments about what the policy of the government should be, not how individuals should react to those policies.

      Crawford in reply to Awing1. | August 15, 2011 at 5:43 pm

      If Buffet really believed the government needed the money, he’d fork it over without needing a gun held to his head. Since he does not, apparently, think the government’s need is that dire, why should the rest of us consent to being robbed to satisfy his odd beliefs about what government policy should be?

        Awing1 in reply to Crawford. | August 15, 2011 at 5:48 pm

        Please actually read my post, I clearly already answered this.

          Crawford in reply to Awing1. | August 15, 2011 at 8:49 pm

          If you answered it, I missed it.

          Buffett is arguing that we should be forced to do what he could voluntarily do, but refuses to. If it’s such a fierce moral urgency that he’ll condone theft from his fellow citizens, then he could alleviate the immorality by showing a way that avoids the theft — voluntarily giving. By not volunteering, he makes it clear he really doesn’t think the situation is all that urgent.

          The Bachmanns are not supporting committing an immoral act against their fellow citizens; they are not under the equivalent burden.

          Awing1 in reply to Awing1. | August 15, 2011 at 8:58 pm

          If your starting position is that taxes are equivalent to theft, trying to convince you of anything is likely futile.

      Captain Obvious in reply to Awing1. | August 15, 2011 at 6:14 pm

      Although I agree with your point about Bachmann, it’s not really an apt analogy to Buffet. Bachmann’s motivation is to lower her net tax burden by restructuring the tax code in PLACE of the tax breaks she receives. She can not legally achieve the goal she seeks purely of her own volition. Buffet, whose motivation is to (naively) attempt to close the budget shortfall, has no such limitation toward that end.

        I think you’re incorrect about his goals. He is arguing that all high net worth individuals should pay more to close the budget loophole, and whether that goal is naive or not, he cannot legally force the other high net worth individuals to pay more in taxes. Both are arguing for policy changes, not changes in a moral assessment of voluntary individual behavior, therefore comments on their individual behavior are rather irrelevant.

          ucfengr in reply to Awing1. | August 15, 2011 at 8:03 pm

          No, he’s arguing that high income individuals should pay more to close the budget gap. If he wanted high net worth individuals paying higher taxes, he’d advocate a wealth tax or a law preventing people like him and Bill Gates from setting up charitable foundations to avoid the inheritance tax.

          Captain Obvious in reply to Awing1. | August 15, 2011 at 8:11 pm

          No, it’s Buffett’s means which are naive, not the goal. Sorry if that was unclear. He is arguing that high worth individuals should pay more, naively believing this would close the budget gap, as opposed to encouraging politicians to spend more and businesses to move overseas. That is beside the point.

          He is a high worth individual, and he is legally able to pay more. She is arguing her tax liability should be lower, but can not legally pay less. That they both fail to do what they espouse is a false equivalence when her failure stems from following the law while his stems from …? Greed?

          If he believed vegan-ism was so important that “there oughta be a law” forcing people to eat vegan… well there’s no law stopping him, but he’ll continue to eat steak until everyone else is vegan first? That’s a closer analogy, and the absurdity and hypocrisy are apparent.

          Awing1 in reply to Awing1. | August 15, 2011 at 8:53 pm

          ucfengr, that I would definitely grant. He moves in his article from the “super-rich” to “high-income earners” without making a distinction, and there clearly is a very large distinction.

          Captain Obvious, I think you’re matching up the ends and means of Bachmann’s and Buffett’s arguments unfairly. Bachmann’s end is lowering her tax rates, Buffett’s end is considerably decreasing the deficit/debt. In one sense, both could do this legally, Bachmann could destroy all her property and accept less income, and her income rate would decrease. Buffett could be better at investing, make considerably more money and donate all that to the US government. Neither of those scenarios is really practical.
          Instead of doing this, both are arguing for changes to law. Bachmann wants to reduce or eliminate the farm subsidies, along with other federal programs, to pay for a lower tax rate. Buffett wants to raise the tax rate on high income earners, to pay for closing the debt/deficit.
          Both could legally execute their means, Bachmann could refeuse the farm subsidy and Buffett could donate his money to the federal government, but neither would receive their intended end in doing so. Therefore, they both chose not to.

          In order for your analogy to work, it would be necessary for Buffett to believe that it is morally reprehensible that he doesn’t pay more to the government in every circumstance. That is not what he argues, and that is not what he believes. The vegan believes it is morally reprehensible to eat meat.

Warren Buffet is quite happy for his income taxes to go up. He knows that taxes have to come from somewhere; even if he paid 100 percent of his annual income in taxes, it would still be a miniscule percentage of his net worth. And, he could figure out a way to reduce it even further.

A high income tax is not a tax on the “rich”, it is a tax on “getting rich”; “rich” is a measure of assets, not income. Asset rich people are usually only mildly opposed to taxing incomes–since it affects them only tangentially.

Also, Buffet is a big fan of the death tax. He has picked up some nice companies that went on the market at less than optimal pricing due to the owner dying and the heirs needing to liquidate to pay the inheritance tax.

I know several very “rich” people–in the correct sense of assets–that actually have pretty modest taxable incomes.

Because “many of their fellow citizens are truly suffering,” Buffett is sure his coddled, super-rich pals “wouldn’t mind being told to pay more in taxes.”

If Buffett concedes the government has the right to tell him to fork over a larger percentage of his income in taxes, doesn’t the government have the right to tell him to fork over ALL of his income in taxes?

Now there is “social stability” we can believe in!

Indeed, given the fact that the rest of us are suffering to such a great extent, why shouldn’t the government confiscate ALL of Buffett’s wealth and redistribute it to the rest of us?

Buffett could live out his old age as a true egalitarian, surviving on Social Security and Medicare like the rest of us schlubs.

After the debacle of the debt ceiling debate will someone please make the argument why we should send even more money to these clowns? We would be the new definition of insanity for doing that.

Never trust anybody who wants their taxes raised: most likely they are either well meaning fools wishing for a government created Shangi-La or connivers playing a trick on everyone else for their own self interest.

In order to have a realistic discussion of FICA, I think we need to acknowledge that the amounts paid in are not even “indirectly” related to the amounts paid out. It is “entitlement” to the benefit not “amount” of the benefit that is tied to the payments. Workers who die before retirement get nothing, and lose all of their “contributions”. Workers who pay in their entire lives get the same as those who work only 40 quarters. Spouses who did not work at all, and who may not even have been married to the worker through his earning years can get benefits. The families of single people who never marry collect less off of the same contributions. Social security disability payments have burgeoned ridiculously, to the point where all manner of dubious mental conditions entitle people to non-retirement payments (and many of them continue to work “off the books”). Retirees collecting benefits now on average collect far, far more than they ever contributed.

The whole thing is a ponzi scheme, in which an ever-increasing pool of workers have had to pay in more and more of their earned incomes in order to fund, not their OWN retirement benefits, but the benefits being paid out to current recipients. And that simply cannot continue. The fact is, is that it IS a welfare scheme, and it IS a scam, and it’s one that is funded by taxes on those least able to pay it, and who, for one reason or another may never see a return on their contributions. The fiction that social security is somehow similar to a pension, or that it’s not welfare because even millionaires don’t need it can collect their monthly payments as long as they paid in may make some people feel better, but the entire system is in need of an overhaul.

If as a society we need to have old age welfare for some, and if we are going to make a judgment that entitlement to this welfare is going to be based on the person’s demonstrating that he or she has productively worked for a certain number of quarters, then so be it, but the schizophrenic theory of what is going on has to stop, the huge waste in the system (which includes medicare) must be eliminated, and the benefits should be collected and paid from the general revenues without the creative accounting and game-playing and posturing.

U.S. federal taxes are near their lowest level in generations. Expecting those well-off to pay a bit more in a time of national crisis is not asking too much.

Just a decade ago, the U.S. had structural surpluses. The U.S. is the wealthiest country in the world, and more than capable of meeting its financial obligations.

@ Zachriel,

In other words, keep feeding the pig.

What’s the “national crisis” of which you speak? Washington’s reluctance to alter its business-as-usual lifestyle?

Not one more dime in taxes from ANYONE until Washington learns to make ends meet with the money it already has. That means the pig will need to go on a crash diet and Americans will need to learn how to live without their hand in someone else’s pocket.

Is that asking too much?

That “structural surplus” of which you speak was built on the foundation of taking money out of the Social Security lockbox and using it to allay current operating expenses. Read “Janitor’s” post for details.

As for the U.S. being the “wealthiest country in the world,” think again. Countries are not wealthy; individuals are. By coveting the nation’s wealth to support your welfare state benefits, you are coveting the wealth of individual producers.

You may think wealth can be milked from producers as if they are cows. Think again. In America we cows can vote.

Who “benefits” more from social stability is a wash, but only in an imperfect reconciling of different categories, and I’m surprised at the degree Awing’s argument sickens me.

In supposed support of the less enfranchised put-upon poor people who deserve more of other people’s monies, she would take a modern American world in which the law and mores basically no longer stand in the way of social and economic mobility (and which historically didn’t for certain sanctioned classes, hence American productivity and rise to global superstardom) and assert a one-way Marxist image of such people forming an oppressive human pyramid with The Rich perched precariously at the top enjoying the view and hoping that the squashed bodies beneath them don’t fidget too much lest they, The Opportunist Betters, come tumbling down,

whereas, the reality is more like The Rich have helped, along with the Not Rich, to build a country in which anyone can become Rich were they to be lucky, smart and/or diligent enough, and one in which everybody benefits from the social contract of rights and responsibilities and the stability born thereof, and one, truth be told, which were it to start disintegrating would inflict untold damage on the middle and lower classes because they are not as free to send their money or relocate their lives elsewhere, as are the Rich.

Sherman Broder: In other words, keep feeding the pig.

No. That’s not what we said. The budget surpluses were not only due to taxes, but spending restraint. Furthermore, the economy experienced one of its longest expansions in history.

Sherman Broder: That “structural surplus” of which you speak was built on the foundation of taking money out of the Social Security lockbox and using it to allay current operating expenses.

Social Security has been part of the unified budget since the 1960’s. In any case, having a unified budget with a surplus is a positive good. And there was talk in 2000 of putting the surplus in a lockbox, sort of a rainy day fund for emergencies. The U.S. would have been much better positioned if they had done so, but they chose another path.

The games the federal government plays…

“Since the total national debt went up every year under Clinton, there wasn’t a real surplus. The government just borrowed money from trust funds instead of from the public, called the borrowed money income, and claimed to have a surplus.”

From: http://www.craigsteiner.us/articles/30

Zachriel: Social Security has been part of the unified budget since the 1960′s.

Sherman Broder: The games the federal government plays…

Social Security has been part of the unified budget since the 1960′s.

The deficit is *defined* as the difference between spending and revenues. Public debt decreased in the latter years of the Clinton Administration, the very definition of a surplus.
http://www.cbo.gov/budget/data/historical.pdf

More importantly, they were structural surpluses, meaning the U.S. would continue to generate surpluses through the normal business cycle.

Zachriel, follow the argument.

Debt owed by the Treasury to the various federal trust funds is NOT debt held by the public and isn’t accounted for in the table you provided.

They didn’t call him “Slick Willie” for nothing.

Sherman Broder: Debt owed by the Treasury to the various federal trust funds is NOT debt held by the public and isn’t accounted for in the table you provided.

The table does include both on-budget and public debt, however, a surplus is *defined* as revenues exceeding expenditures, and the U.S. had surpluses at the end of the Clinton Administration, with public debt set to continue its decline.
http://www.cbo.gov/doc.cfm?index=1447&type=0

    It kind of depends on what the meaning of “is” is, doesn’t it?

    What a laugh!

      Zachriel in reply to Sherman Broder. | August 18, 2011 at 9:49 am

      It has to do with bringing more money in than money going out, and paying down the public debt so that the U.S. owes less going forward, and with structural surpluses going forward, putting the United States in a strong position economically in an increasingly competitive world.

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