Does Warren Buffett Read BeeLine?

Warren Buffett has argued that he does not feel right about paying too little in taxes.  He claims he pays a lower effective tax rate than his secretary ( I would like to see what he pays her).  I explained the likely facts and distortions behind this assertion in previous blogs, "Playing the Secretary Card" and "Pants on Fire"

In response to Buffett, Senator Mitch McConnell said that if Buffett were feeling "guilty" about paying too little in taxes, he should "send in a check".  There is nothing to prevent a a taxpayer from making a voluntary payment to the U.S. Treasury.  Buffett responded that he would gladly match any contribution made by a Republican member of Congress to pay down the national debt.

I turns out that 841 Americans actually did donate a little under $1 million to do just that last year.  Warren Buffett was not among them but Rep. Scott Rigell (R-Va) was.  He actually donated $23,103.33 in 2011 and plans to donate $26,000 in 2012 (about 15% of his salary).   Buffett, being a stand up guy, has stated he will match the Congressman's debt contribution as described in the letter below.

However, what I found most interesting was the statement at the bottom of Buffet's letter.  It sounded awfully familiar.

"We also very likely agree that spending must drop to 20-21% of GDP along with revenue increasing to 18-19%."

This is from the blog post that I wrote on April 12, 2011, "My Mother Solves The Budget Deficit".  I wrote this to lay out what I thought the strategy of the Republicans should be in the debt ceiling debate that was going to occur over the summer.  Has Warren Buffett been reading BeeLine????

I think the Republicans would be well served to agree to a tax increase in the upcoming debt ceiling discussions, if and only if, federal outlays are first reduced to no more than 20% of GDP (we are now over 24% of GDP).   Tax increases would be in play but would only be triggered if the spending cuts come first. If a tax increase was required, taxes as a % of revenues could not exceed 18% in total (which is the long term historical average over the last 30 years). 

Warren Buffett is now saying the same thing that BeeLine has been saying for almost a year. The same Warren Buffett that the White House loves to trot out with his statements on increasing taxes on the rich and other economic topics. It doesn't get much better than that.

The Republicans have been given a huge opportunity with this statement from Buffett to push hard for a budget deal that would force spending down to the 20% range.  They should seize on this opening immediately.  They could put the Democrats on the defensive with the words of their own oracle-Mr. Buffett.   It would also put us on a path toward a balanced budget.  Those are both worthy objectives if you are a Republican in Congress.

It is also very much to the advantage of the Republicans (and the country) to deal with the impending expiration of the Bush (and Obama) tax cuts that expire at the end of this year.  President Obama and the Democrats have little motivation to do anything about the expiration.  Taxes will go up dramatically on January 1, 2013 under current law if nothing is done in the interim.  Most Democrats will be very happy with this result. From their perspective, it just gives them more money to spend and spread around.  The Republicans need to get ahead of this issue and take the high ground.  The Buffett letter provides them the opportunity to do so.

The Republican proposal should be as follows:


1) We agree with Warren Buffett on the "necessity to dramatically reduce the deficit soon."

2) We agree with Warren Buffett that spending must drop to 20% of GDP.

3) We agree with Warren Buffett that revenue needs to increase to 18%.

4) We are sure Mr. Buffett agrees with us that fundamental tax reform must be enacted to remove many of the exclusions, preferences and deductions in the Internal Revenue Code that otherwise keep marginal rates too high (including his secretary) for individuals and harms the competitiveness of U.S. corporations since we currently have the second highest corporate tax rate in the industrialized world.

5) We are sure he also agrees that if the current U.S. tax system was fundamentally reformed that it would increase revenues as a % of GDP. The tax reform program we are suggesting would be initially drafted to be revenue neutral to current law with the expectation that the effects of the new system would actually increase revenues as a % of GDP to 18% as the economy improved.

6) However, if this does not occur, tax rates would be automatically adjusted upwards to account for any shortfall below the 18% target at such time that spending was reduced to the 20% spending target. The taxpayers deserve the same sort of assurance that Mr. Buffett wanted before he committed his money to pay down the national debt on his "challenge".  Once spending targets are reached the revenue targets will be met by automatic tax rate increases if they are necessary.

7) We look forward to Warren Buffett's encouragement of the Democrats to identify areas of spending that can be reduced to get us to the 20% target to match the Republican commitment to reach the 18% revenue target.

8) We agree with Warren Buffet that there is a way to deal with the budget deficit program. We appreciate his guidance and look forward to working with Democrats to deal with this issue during the coming year. Electoral politics should not be an obstacle. We simply cannot wait another year. It is time to get this done for the American people and our future in 2012.

Thank you very much, Mr. Buffett.  BeeLine appreciates the endorsement.  We now only have to convince 535 members of Congress and the President it is time to start spending time on issues that mean something.

President Obama seems to be making a 30% minimum tax on millionaires the centerpiece of his 2012 legislative agenda that he calls the "Buffett Rule".  What would that do help solve our budget problems?  Almost nothing.  He is playing "small ball", to use a baseball term, when we need to be playing "long ball". The non-partisan Tax Foundation estimates that the millionaire's minimum tax would only generate $36.7 billion in revenue per year.  That is almost not noticeable compared to the $1 trillion budget deficit that is projected for the year.  It would reduce the deficit by less than 4%.  More troubling is the time and effort that will be put into arguments for and against the provision when the focus of the President and Congress should be on the real issue-an unsustainable path of federal spending.

If President Obama wants to follow the Buffett Rule then the Republicans would be well advised to move the discussions to the BeeLine/Buffett Rule.  It is time to start swinging for the fences and for the future of the United States of America.  We don't have the time to waste on dividing the country on gambits and gimmicks from the President and Congress.  We need greatness and we need it soon.