Tax Analysts Blog

Donald Buffett?

Posted on Sep 21, 2015

Ever since Mr. 47 Percent with his 14 percent tax rate lost the 2012 presidential election, Republicans have made it their business to connect with working-class Americans. So supply-side economics and all its focus on tax breaks for businesses and investors had to make way for a new kind of thinking. Worried that the GOP might never retake the White House, a group of conservative upstarts called the Reformicons started proposing tax breaks for middle-income families. And even some establishment Republicans took up their suggestions, including Ways and Means Committee Chair Paul Ryan and Sens. Marco Rubio and Mike Lee.

That did not make them any friends at The Wall Street Journal or with the business lobby. With the federal budget already stretched to the max, more tax breaks for the masses would mean fewer tax breaks for traditional Republican causes. And to make matters worse, shifting tax benefits down the income scale would erase the big economic growth effects of tax cuts. But the intra-party struggle did not dilute the party brand. To those swing voters on the outside looking in, Republicans were still all about cutting taxes.

Then, at the September 16 debate, a new and startlingly different version of Republican populism took center stage. No longer was the talk just about making the tax system more progressive by cutting taxes on middle-income taxpayers. Donald Trump was talking about raising taxes on the rich:

      I know people that are making a tremendous amount of money and paying virtually no tax, and I think it's unfair.
What makes Donald speak such sacrilege? And at the Reagan Library, of all places! Well, for one thing, he’s not getting his ideas about taxes from bland think-tank studies. He has been schmoozing his whole life with Manhattan’s superrich. He has observed firsthand that most great wealth is the result of soaring stock and real estate prices. This wealth is taxed either at preferential capital gains rates or -- if held until death -- not at all. All Trump is doing is applying common sense to his own experience and pointing out the obvious unfairness.

Another outspoken (though far less flamboyant) billionaire has made the same observations and reached the same conclusion. Warren Buffett knows what tax he pays and knows what his secretary pays and has pointed out the obvious unfairness. So in a November 2010 interview he said:

      I think that people at the high end -- people like myself -- should be paying a lot more in taxes. We have it better than we've ever had it.
At the debate, Ben Carson defended his idea for a flat 10 percent tax and called Trump’s ideas socialism. Perhaps Carson’s stance on taxes is so different from Trump’s and Buffett’s because he's had such a vastly different personal experience with the tax system. When he was a neurosurgeon at Johns Hopkins, Carson and his colleagues very likely faced a combined federal and Maryland income tax rate in excess of 40 percent.

More details on Trump's tax ideas are supposed to be released in a week or so. So we will have to wait and see exactly what he has in mind for taxing the superrich. All the chatter in the press is about repealing the rule in current law that gives hedge fund managers low capital gains rates on their market-based compensation. But the Joint Committee on Taxation has estimated that closing the so-called carried interest loophole would raise only $16 billion over a decade. That's small potatoes in a campaign in which Republicans all have plans for multitrillion-dollar tax cuts.

If repealing the carried interest benefit is all that Trump proposes, it will have the desired effect of stirring up a big kerfuffle with Wall Street types. But, heck, low-energy Jeb Bush is proposing the same thing. And by doing so, the former governor of Florida may have Trump boxed in.

Either Trump can meekly -- and uncharacteristically -- do the same as Bush or he can raise the stakes. Having already matched Buffett's rhetoric, perhaps Trump might consider leapfrogging over Bush’s nod to populism and propose his own version of a Buffett rule. That would mean raising more revenue not just from a relatively small number of fund managers but from wealthy Americans across the board.

That would truly be Republican heresy. And even Trump may not be willing to go that far. But with Trump, anything is possible -- especially when it comes to populist challenges to the party’s establishment.

Read Comments (1)

edmund dantesSep 20, 2015

Perhaps Trump will propose the truly heretical idea of taxing for the first
time the ultra-rich—the tax exempt endowment funds and foundations. There
should be no exemptions from taxation in the tax code--not for churches,
hospitals, schools, anything. The political power of the tax-exempts is so
extraordinary that the tax cost of their exemption is never even calculated!
Only a complete outsider such as Trump could hope to bring them into the tax
tent.

We might also hope for an end to the tax exemption for muni bonds--a big source
of the disparity in taxation between Buffett and his secretary.

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