Warren Buffett, the second-richest man in the U.S., pressed his call for more taxes on the wealthy by mocking the idea that higher rates discourage investment.
Legislators should increase taxes on those earning more than $500,000, including minimum rates of at least 30 percent on all income above $1 million, Buffett said in an opinion piece in the New York Times today.
U.S. lawmakers returning this week from the Thanksgiving recess are seeking a budget deal to avoid a so-called fiscal cliff with more than $600 billion in tax hikes and spending cuts set to begin in January. Republicans including Mitt Romney, the defeated presidential candidate, and Grover Norquist, who encourages lawmakers to sign a pledge shunning tax increases, have said lower rates can boost the U.S. economy.
“Let's forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if -- gasp -- capital gains rates and ordinary income rates are increased,” Buffett wrote. “Only in Grover Norquist's imagination does such a response exist.”
Buffett, worth $46.5 billion according to data compiled by Bloomberg, is using his clout to urge Congress and Obama to include measures that raise revenue as part of a deal to resolve the fiscal cliff, which may push the U.S. economy back into recession.
“We need to get rid of arrangements like 'carried interest' that enable income from labor to be magically converted into capital gains,” Buffett, chairman of Berkshire Hathaway Inc. (BRK/A), wrote. “And it's sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.”
Romney's returns show investments in funds located around the world, including Ireland, the Cayman Islands and Bermuda. The former governor of Massachusetts has said it is fair for him to pay a lower tax rate than a worker making the median annual income of about $50,000.
“It's the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work,” Romney said in an interview with “60 Minutes” on CBS, broadcast on Sept. 23. Romney, who paid a 14.1 percent tax rate on $13.7 million in income last year, makes most of his income from investing a fortune estimated at $250 million.
Buffett has said his tax rate is the lowest among the about 20 employees at Berkshire's headquarters in Omaha, Nebraska. Capital gains from most assets held for longer than a year are taxed at a top rate of 15 percent, while wage income is taxed at a top rate of 35 percent. The difference between those two accounts for Buffett's lower rate.
Buffett managed funds for investors from 1956 to 1969 through partnerships. Taxes never led any of his clients to forgo an investment during that period, he wrote today, even though the capital gains rate was as high as 27.5 percent and the top marginal rate was at least 70 percent.
“Under those burdensome rates, moreover, both employment and the gross domestic product increased at a rapid clip,” Buffett wrote. “The middle class and the rich alike gained ground.”
Buffett continued to make investments under Berkshire, a textile maker he took control of in 1965 through a partnership. Since then, he has built the firm into a business with operations in insurance, retail, energy, freight and manufacturing. Its market value as of Nov. 23 was $220 billion. Buffett is the company's largest shareholder.