May 20, 2003
PAYING BACK....In the Warren Buffet op-ed I mentioned below,
he also says this about the fact that both he and his receptionist pay
about the same tax rate even though he's a zillion times richer than her:
not complaining: Both of us know we were lucky to be born in America.
But I was luckier in that I came wired at birth with a talent for
capital allocation -- a valuable ability to have had in this country
during the past half-century. Credit America for most of this value, not
me. If the receptionist and I had both been born in, say, Bangladesh,
the story would have been far different. There, the market value of our
respective talents would not have varied greatly.
This is such an important point, because wealthy conservatives are forever crying that it's our money, dammit, and we earned it via hard work. Why should we have to pay a higher tax rate than anyone else?
Yes, rich people are often rich because of their innate talents and
hard work. But as Buffett points out, they are also rich because the
culture they live in helped them along. If Bill Gates had grown up in
Pakistan, he might be worth a few million dollars, but growing up in
Seattle he ended up worth $50 billion. So of that $50 billion, how much
is due to his innate talent and hard work and how much is due to the
fact that he grew up in America?
The answer is obvious. America was responsible for a big chunk of
Bill Gates' fortune, which is why it makes sense that he should be asked
to pay more to keep the country going. But instead the ultra-rich
fight tooth and nail these days to pay as little as they possibly can.
Why are they so begrudging about paying back a country that has given
them so much?
Posted by Kevin Drum at May 20, 2003 05:12 PM
Because the very rich, by and large, are very rich because they fight
tooth and nail for every dime, irrespective of what they deserve or
earn. That's _why_ they are very rich. Cranky old misers aren't misers
because they're rich, they are rich because they are misers. Buffet is
exceptional not just because of his skill, but because his wealth
doesn't come from placing a huge value on wealth and thus spending much
of his time thinking about wealth and planning ways to get more wealth
and begrudging everything that takes it from him, but because of his
skill at manipulating capital and, one assumes, a true joy at performing
what he was obviously born to do.
The answer is obvious. America was responsible for a big chunk of Bill
Gates' fortune, which is why it makes sense that he should be asked to
pay more to keep the country going.
This is a fine argument as far as it goes, but the problem is that you (and Buffet) seem to ignore fractions. Bill Gates is "asked to pay more" (accounting trickeries aside). That's what a "tax rate" is, it's a fraction, not an absolute number. What you're really trying to argue for is that his rate - not the amount he pays, but the fraction he pays - ought to be higher.
And, that is a far less obvious proposition. It may indeed be true,
it's just not as obvious as you try to pretend here, by blurring the
distinction between a number and a fraction.
I'm sure she ain't complaining to your face, Warren. She knows her
ass would be out on the street if she did. But I'm sure her ballot
tells quite a different story.
Surfer: no blurring going on here at all. This is a straightforward appeal for a more progressive tax system.
After all, the first sentence of the post was a complaint that
Buffett and his receptionist pay the same *tax rate.* They shouldn't.
Buffett should pay a higher rate.
We are getting close to a topic of great interest to me: If you are lucky in life, do you deserve all that flows from that?
Conservatives tend to think that luck is the property of each person.
Either that, or it's bestowed by a Higher Power. Therefore, it's
"deserved" and the good fortune should not be redistributed.
They almost certainly don't believe in what might be called
"scientific randomness," which is a close cousin of evolutionary theory.
The same thinking that denies evolution and instead posits a deity
guiding the universe also makes various fortunes and misfortunes part of
a grand scheme. This is even more striking in Luther's theology, which
elevates predestination to new heights.
Those at the top of the wealth pyramid probably know better, but for
those lower down it's useful to proclaim that the tricks of fate are to
be stoically endured - or celebrated - depending on how the cookie
Actually, it's a rather interesting - and easy to state issue: Should people with good fortune be obligated to share that with those who experience bad fortune?
Of course, determining what is Luck and what is Hard Work can become
difficult. But there are many cases which are unambiguously not
the result of one's character. Consider the poor person hit by a car.
That's clearly bad luck. Or that millionaire who won the $300 million
lottery last year. Not only was he clearly lucky, but this additional
luck was bestowed on a very rich man.
It's worth noting that Bill Gates is giving an extraordinary amount of money away. In fact, he's set up a foundation to do it.
As far as I know, however, he's not a Democrat (unlike his dad). I believe he gives money to Repub politicians.
Here's a basic issue with the rich, Calpundit: unless they just
inherit their money, they get rich by being obsessed with performance
and efficiency. They want measurable results for the money they spend.
They want ROI.
Fairly or not, they view the gov't as a vast, inefficient
bureaucracy. In their view, gov't spends lots and lots of money, for
I mean, seriously: if you were Bill Gates, and you wanted to do the
most good with your discretionary altruism dollar, would you send it to
This is just to tie it back to a hobby-horse of mine, an issue on which, one would think, the right and the left could agree: efficiency in gov't. Make the money we spend count. Don't tell me you can't do it with a large organization--Gates did.
I'll wager Warren is paying a whole lot more in taxes than his
receptionist. Is it accurate to say that they are begrudging "paying
back a country that has given them so much" when they are, in fact,
paying a whole lot more than the rest of the country?
I agree with your point Realish about efficiency in government. I
would love to see taxpayer money be used in a more efficient manner.
However, as we all know, there are 435 member of the House of
Representatives who aren't rewarded for making the government more
efficient. They are rewarded for bringing industry, money, and jobs to
their districts. And some of those jobs are just a waste of money that
provide nothing to the vast majority of Americans. Based on our system
of government, some inefficiencies are going to be the price of
Bill Gates gives a ton of money to libraries. Public Libraries, the kind run by (gasp!) the government!
He's also giving money to HIV-related causes.
Bill Gates isn't stupid. :) He knows that public institutions like
libraries, and public health initiatives, like AIDS prevention, are
long-term investments which will only make him richer in the long run.
Tying this in to Quiddity's post above: Wasn't Gates incredibly
fortunate to sell MS-DOS to IBM in the first place? I'll try to find the
back story, but I seem to recall some sort of serendipity in the
BTW, Buffet's example is almost assuredly tendentious. Supposedly he
lives fairly frugally, so he actually might not take much more income
from his company than his receptionist. But more likely they wouldn't
be paying an equal average tax rate without counting the payroll tax,
which stops at something like $85,000.
So half of the 30% the receptionist pays is payroll tax (remember,
he, correctly, counting the employer's contribution against the
receptionists tax burden), while it is significantly less than that for
Thus, the issue isn't so much the progressive nature of the income
tax, but the old argument over whether the payroll tax should be capped,
which is something not un-related to, but still different from, tax
Scott, Buffet makes it very clear in the article that he's not
referring to the income tax. And why should he anyway? It's not like
our government is treating the payroll or income tax revenues any
differently. The payroll tax is an essential part of any fair
discussion about tax rate progressivity (as opposed to something unfair,
like Buckley's absurd restaurant metaphor).
Buffet was making a good point about the influence of America on his
wealth, and I'm glad Kevin emphasized it. Still, I was surprised to see
that Buffet, who otherwise is pretty good about keeping his perspective
while being wealthy, fell in the trap of crediting his wealth strictly
to deterministic causes. I guess he's entitled to a little
self-delusion, but it was disappointing, since he could have made an
even more important (and more accurate) point about the nature of
First of all, the more money one makes usually means that they get a
higher standard of living. They also have to potential to enjoy more
things out of life, etc. Paying by proportion means that you pay for the privileges that come with increased wealth.
Personally, income tax is a pain. You want fair? Go with a national
sales tax. Then you can be sure that the rich are paying for the
privilege of being rich.
(Gates and DOS)
Gates becoming a billionaire in the 90's was the confluence of
preparation, good business sense, being in the right place at the right
time, and being a take-no-prisoners right bastard.
IBM was looking for an OS for its off-the-shelf project (the 5150, to
be marketed as the IBM PC). When Gates learned about this, he offered
them Seattle Computer Product's Q&D DOS, a somewhat sketchy rip-off
of the industry standard CP/M, rebranded as MS-DOS.
Gates' mother was on a charity board with one of the IBM execs in
this; whether or not this was the cause of IBM's extreme prejudice
against CP/M proper is unknown, but the end result was that MS-DOS
became the standard OS for IBM, marketed by IBM as PC-DOS.
Gates, in his wisdom, was open to license his MS-DOS to IBM clone
manufacturers that were springing up and needed IBM PC compatibility.
This was his 2nd necessary break to becoming a billionaire.
Microsoft, being an application development house at the time, also
had business dealings with Apple, who sent them early Macintosh
prototypes. Seeing the future, Gates immediately directed his minions to
begin copying the Mac GUI for inclusion in a future MS desktop
environment. His 3rd step...
Having licensed MS-Basic to the millions of Apple II's that had
shipped, when this license was coming up for renewal, Gates had
incredible leverage over Apple in 1985 to obtain a license to the Mac
GUI for Windows 1.0 and "following versions".
His 5th step was ensuring the success of Windows 3 in the
marketplace. This was done by (illegally) tying Windows to MS-DOS -- OEM
PC vendors wishing to ship MS-DOS were "encouraged" to purchase Windows
3 along with it (at pain of paying more for MS-DOS alone).
The MS application bundle also helped ensure Windows became a success.
The final step was Windows95, the culmination of all the above processes into total market domination.
My experience with successful Americans who vote for Republican party tells me Kevin's argument is not effective.
Those people believe they are successful not because of American government policies, but in spite of American government.
Do they lack comparative perspective? Yes. But they will never
admit government programs are good, even if they vote for them. And
they never think about how they benefit from government in ways that
poor people don't.
For example, rule of law and order disproportinately benefits the
rich. Why do I care if thieves aren't punished if I own nothing? But
if I drive a $50 thousand car I care very much. And of course everyone
benefits from law & order, but the rich benefit most and should be
taxed at higher rate to pay for these services.
There's no question that there's a fair amount of inefficiency in government spending. I think it comes with the territory.
On the other hand, I'm sure everyone on this thread who, like me, has
worked in the private sector for the past 25 years, will agree that
there is plenty of inefficiency there too.
We should certainly try to make government spending as efficient as
possible. But the larger question is determining what things government
is better able to do than the private sector and vice versa. The free
market is a wonderful thing, but it's the not the universal answer for
As for Gates and Buffett, of course there's some luck involved in
their fortunes, but I'm not suggesting that they don't deserve their
fortune on those grounds (or any other, for that matter). Rather, I'm
just arguing that since they got so much out of America, they and their
fellow super-rich should be less resentful about giving some of it back.
I'm sorry. I didn't mean to imply that I thought I was catching
Buffet hiding something. It wouldn't have occurred to me that he was
including the payroll tax had he not said it.
But the point is still that the discussion over the payroll tax cap
has some features that discussions of tax rate progressivity don't, most
obviously that the payroll tax looks a lot like (or can be though as) a
forced purchase of a specific product rather than a contribution to the
If Buffet doesn't think that it should be considered that way he
needs to argue why it shouldn't be considered that way. Once we accept
that then we will all agree that the current way of raising revenue for
SS is bad. But he has to get over that hurdle first.
One of the great myths that lies behind the Republican rhetoric on
the rich is the notion that the amount of money people make is how much
The thing is, it's demonstrably false that market forces automatically reward people according to their real contributions.
The argument here is simple. In, say, the 50s and 60s and 70s, the
average Fortune 500 CEO made (roughly) 50 times as much as the average
worker. Today, the average Fortune 500 CEO makes well over 500 times as
much as the average worker (I don't remember the exact number here, but
the underlying point is certainly true). On no rational accounting can
the contributions of today's Fortune 500 CEO be said to be more valuable
to their companies than those of their counterparts a number of decades
How explain the relative differences in pay, which are over an order of magnitude in size?
For the sake of our current argument, it's mostly irrelevant. The one
thing you CAN'T say is that both the CEOs in the fifties AND the CEOs
today are getting what they have earned. Today's game in corporate
America is just far more rewarding for the CEO than in decades past, and
it's only fair that American society take back a goodly portion of the
money that gets played in that game.
If, as seems immensely plausible, the CEOs of today are being paid
far far beyond their deserts, why should they not be taxed at a far
higher rate? Indeed, why in general assume that rich people have truly
"earned" all their money? Why not assume instead that they are in large
measure beneficiaries of a society and a game they did not set up, and
which they should pay a good premium to play in when they win big?
Colour me Canadian, but I grew up believing in a mixed economy. Some
things are too important to trust to the private sector. Government is
inherently inefficient. It isn't supposed to be efficient.
Justice can't be efficient. The adjective just doesn't fit. Making
sure every child is fed, has medical care, and an opportunity for an
education can't be efficient. The adjective doesn't fit. Making sure
there is a Canadian media voice on a continent dominated by the American
- and corporate - culture isn't efficient.
Why isn't it okay for a society to collectively decide to assure these things, efficient or not?
There is nothing inherently wrong with income redistribution through a
progressive tax system either. If that results in a system that is less
efficient in terms of incentives, so be it. About the only thing
economic policy can do, it seems to me, is make tradeoffs between
efficiency and equity, between efficiency and fairness, between
efficiency and justice, between efficiency and environment.
A little inefficiency in the American economy might marginally reduce
the collective output and wealth, but so what? it is a small price to
pay for a little fairness, equity and justice.
What's so great about efficiency?
Keep in mind that the vast majority of rich folks are rich because of
inherited money. Some are go-getters like Donald Trump; more are
drifters like Georgie Bush.
Most rich folks that I've known aren't opposed to paying their fair
share of taxes. Most of them, like Buffet, know how the system works
and, more importantly, can do simple arithemetic.
Inherited wealth breeds a strong tendency toward social Darwinism --
"I have more money than you because I'm better than you. Proof: I have
more money than you." These are the people who are pushing the Bush
tax cuts. Since they're the Superior Race, they should get a free ride.
"Still, I was surprised to see that Buffet, who otherwise is pretty
good about keeping his perspective while being wealthy, fell in the trap
of crediting his wealth strictly to deterministic causes."
No, he didn't do that. He didn't say that America caused his wealth, he said America allowed his wealth. In other words, America was necessary but not sufficient.
He's not talking about social programs being involved either (the
quoted poster did not suggest this, others did). He's talking purely
about the basic economic system. Which, as Kevin mentioned in an earlier
post, is regulated capitalism.
They shouldn't. Buffett should pay a higher rate.
Sigh. I know that's what you're saying. I'm just saying that there is
no obvious argument for why this should be the case, other than "cuz you
think it should be that way".
What you did is took an obvious argument for one thing (it's obvious,
and easy to argue, that Bill Gates should pay "more" than Joe Schmoe)
and tried to pretend that it actually supported an entirely different conclusion (that Bill Gates should pay a higher fraction
of his income than Joe Schmoe pays of his). That's the "blurring"
part, and I think you know it. Well, if you don't, you should.
P.S. I realize that Buffett was actually complaining that he and
receptionist pay the same tax rate. What's not clear is, exactly, just
what is wrong with that situation. He still pays a zillion times more money than she does! Of course, Buffett is free to complain about anything he wants. Doesn't mean the complaint is necessarily valid.
Much of the resentment isn't from high rates, as such, although they're
plenty bad (and most of Buffett's fortune gets clipped at Cap gains
rates -- 20% -- where as I, a professional, am getting nicked at 35%+ on
most my useful, investable (i.e., above expenses) income. So, yeah,
he's paying a small chunk of his money to the government because she's getting taxed at a higher rate.
The resentment comes from a government which feels it doesn't need to
keep taxation consistent (down or up) from one year to the next. In
the late 1970s, California constructed a 5-year Cap Gains holiday (that
is, no state cap gains if you kept invested for five years) -- but then,
as a lot of people started cashing out from those investments in the
mid-1980s, California changed the rules.
I think taxes ought to be low, low, low. But what makes it
impossible for me to structure long-term economic decisions is that I
haven't the slightest clue what the government is going to do to tax
rates and policy in a year or two or ten.
So, yeah, I resent the government tax policy, because I can't make
decisions that take into account my largest expense. Gee, that
shouldn't cause me any resentment at all, should it Kevin?
See, now that just bugs the crap out of me. Inefficiency is inherent
in gov't spending? Inefficiency is somehow emblematic of justice and
caring and compassion?
Take health care--if we demanded better health care results (and by this I don't mean less spending or more profit, but healthier people)
for each dollar the public spends, we could get it. There's no
built-in reason we can't. There are many health care systems out there
that are more efficient than ours that we could learn from.
We could upgrade and connect the many disparate and ancient computer
systems used by healthcare agencies at the local, state, and national
level. We are data rich and information poor, and outmoded information
systems are one of the reasons. We could do more targeted studies on
the relative outcome of various preventative vs. ameliorative
treatments. We could use (both market and gov't) incentives to reward
Yes, there are many barriers in the way of rational,
non-ideologically-driven reforms, but the point is, if we spent the same
amount of dollars more efficiently, we would have more aggregate
health. And who, I ask you, could oppose that?
"Efficiency" is just smart steps towards the goal. It's not a goal.
If our goal is caring for the poor, or protecting the environment, or
simplifying the tax code, or stimulating the economy... whatever... all
these things can be done in more or less efficient ways.
Everybody wants to bitch and agitate for their favored programs, but
nobody follows up and demands performance. That's why the conservatives
own the "gov't is ineffective" trope.
So, Boban and the poor don't care about law and order nearly as much
as the next guy? Sounds like a good slogan for the Democratic
party...''we're criminals and coming after you rich guys...see if we
care!!''....I think Al Sharpton should be your front man...GO AL win the
nomination....instead of blow jobs we'll get nationally televised
Tis post provides a fascinating glimpse into the liberal mind. A
person is only giving back if they pay taxes to the Government? What
about charitable contributions, or the jobs their firms create? Only
the state counts?
I agree with Tom Maguire about giving back. Taxes aren't the only way to do so.
And using Gates and Buffett as examples of "the rich" is somewhat
disingenuous. Obviously these two can afford pretty much whatever tax
rate they have to.
The problem is that what the government considers "rich" isn't really rich at all.
It is, of course, an absurd, and I also think a dangerous,
description of Buffet's success to say he was "hard-wired" for capital
allocation. Genes can't do that, and the offhand way in which everybody
debating his point without noting that hard wired bit spooks me. On the
substance, of course, Buffet is obviously right. The rich make out like
bandits, and they should pay a much higher percentage of their income
both because that helps level out the luck and because they get far more
of the benefits the U.S. government provides.
Me: "Still, I was surprised to see that Buffet, who otherwise is
pretty good about keeping his perspective while being wealthy, fell in
the trap of crediting his wealth strictly to deterministic causes."
taktile: "No, he didn't do that. He didn't say that America caused
his wealth, he said America allowed his wealth. In other words, America
was necessary but not sufficient."
Yes, he did do that. Buffet: "But I was luckier in that I came wired
at birth with a talent for capital allocation -- a valuable ability to
have had in this country during the past half-century. Credit America
for most of this value, not me."
He should have written: But I was luckier in that I came wired at
birth with a talent for capital allocation, and I was extremely luckier
still to have had many breaks go my way in a system where this can only
happen to a certain number of people.
One reason (not the only one) for favoring a progressive tax system
is equality of pain. This, I think, is Buffet's point, and I'm in full
agreement. A tax rate of 10% is likely to be much more painful to
someone making $10,000/yr than a rate of 50% is to someone making
$10,000,000/yr. We should share our suffering equally.
This arguement is old, but seems forgotten in this thread.