Tuesday, October 13, 2015

Stop Nagging Buffett: Higher Taxes Should Be Law, Not Charity

Adam Ozimek jumps in on the should Warren Buffett just donate money to the government conversation here, with “Should people who want higher taxes donate to the government?” He builds off of Matt Zwolinski arguing that “After all, if Buffett really believes that he ought to be paying more taxes, then what’s stopping him?” Will Wilkinson bring up that this requires us to discuss collective actions and “the rationality of complying with a rule that (1) you support, but (2) will only have its desired effect if general compliance with the rule is high, and (3) you suspect general compliance will not be high.” All these discussions pivot off the idea that the government provides charity, and that if Warren Buffett wants the government to provide more charity why does he do his charity through private means?

Wilkinson has an important point, but they are all approaching the debate with the assumption that Warren Buffett wants the government to spend an additional dollar. I don’t see Warren Buffett saying that, and it isn’t even required for him to call for higher taxes on himself and similar earners to make his famous argument. The crucial comparison in Buffett’s discussion isn’t Buffett’s rates now versus the rates he’d pay in a social democratic country, but the rate that he pays versus his secretary. Warren Buffett could want the government cut in half and for his tax rate to go up; Buffet he could want a government so small it drowns in bathtubs yet find it unfair he pays a lower tax rate than his secretary.

Which means the central discussion isn’t one of the government collecting more and providing more, but the two central principles of fairness in taxation: vertical equity – those with more pay more – and horizontal equity, where people who are the same should be taxed the same. (Whether these are necessarily two principles of equity or one is a debate for another day.) It isn’t necessary for Buffett’s argument that the government should do more, or even that it should do what it does now, so the donating to charity example doesn’t carry weight. His argument is that the way taxes are collected now violate general principles of equity and fairness.

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