In a recent New York Times article (well it wouldn’t have been the Wall Street Journal, would it?), legendary US investor and financial guru Warren Buffett declared that the rich — like him — should be paying more tax, and so sharing the pain of the recession with John Doe on Main Street.
Certainly the American middle classes (by which they seem to mean what we would call lower middle or working class) are having a hard time, so there is a superficial attraction in the idea that maybe the rich should share more of the pain. It also makes Warren Buffet look nice and cuddly (did he, like the Conservative Party, need to “decontaminate the brand”?), and so might tend to deflect any criticism that might be directed at the rich.
Just days later, a group of sixteen company executives, business leaders and wealthy citizens in France (of all places), led by the L’Oreal heiress Liliane Bettancourt (recently under investigation for allegedly failing to declare her wealth to the tax authorities), issued a similar statement.
What is the motivation here? As John Redwood pointed out in a recent BBC interview, there is nothing in the world to stop any rich person from writing a six or seven figure cheque to their Finance Minister. It would certainly be received with thanks. And with alacrity. Indeed there was nothing to stop Madame Betancourt from declaring her Swiss bank accounts in the first place (as she allegedly failed to do). And equally there is nothing to stop these rich folk from pumping funds into charitable enterprises of their choosing (as indeed, to be fair, Warren Buffett does. Along with Bill Gates, he may well be one of the biggest charitable donors in the world).
No. These people are not asking for permission to donate money to their national Treasuries, because they can do that without permission. They are asking for higher tax rates to be applied to other people as well.
There’s just one fly in the ointment. There is overwhelming evidence that higher tax rates are counterproductive. They fail to collect more revenue. And they depress growth, inward investment, employment and prosperity. There are clear data from dozens of countries around the world, over decades, showing that low and flat taxes deliver both more revenue and better economic performance.
Yet this idea is so counterintuitive that the left (and many others) simply can’t get their heads round it. Some Lib-Dems openly recognise that (for example) our 50% tax rate in the UK actually raises no extra revenue, but they argue that it should remain in place “for fairness”. Others just can’t get over the sheer — well — counterintuitiveness of the proposition. There is a frequent commentator on my blog, calling himself Lazarus, who insists that he cannot see how it could be true — and therefore, he seems to imply, it isn’t true. (Lazarus doesn’t seem to understand the climate debate, either). When Ronald Reagan proposed reducing taxes in order to increase revenues, his idea was ridiculed as “voodoo economics”. But it worked.
So does Warren Buffett imagine that higher taxes on the rich are a practical, economically efficient way to solve fiscal imbalances and to promote economic growth? I can’t believe that so astute a man can believe any such thing. He is therefore falling into the Lib-Dem error, and calling for a damaging economic policy simply because it appears to be fair — although destroying growth and jobs and prosperity doesn’t sound very fair to me. Or perhaps he genuinely fears a proletarian backlash against the wealthy in these challenging times, and is simply trying to get his rebuttal in first.
This is taking counterintuitiveness to a new level. Buffett’s proposal seems superficially generous and fair. But look more deeply at the economics, and it can only be seen as self-indulgent and damaging.