Warren Buffett, Give Your Secretary a Raise!

by John Berlau on September 19, 2011 · 5 comments

in Deregulate to Stimulate, Economy, Features, Sanctimony, Zeitgeist

Post image for Warren Buffett, Give Your Secretary a Raise!

So it has been decreed — by Warren Buffett, by President Barack Obama, and by media members going gaga over to so-called Buffett Rule — that the main goal of our nation’s tax policy should no longer be fostering economic growth, should no longer be making the U.S. more globally competitive, should no longer be removing special interest distortions from housing to ethanol credits.

Rather, the singular goal of the tax system should be making sure Warren Buffett pays the same tax rate — under a curious definition of “rate” that overlooks the fact that individual capital gains and dividends are actually double taxation on corporate income – as his secretary.

“Right now, Warren Buffett pays a lower tax rate than his secretary — an outrage he has asked us to fix,” Obama proclaimed in his September 8 address to Congress. He again invoked this “outrage” in announcing proposed tax hikes today.

After hearing that from the president, I’ve drunken this Kool-Aid as well. I agree; this injustice cannot stand! So here is my solution to fix the wealth disparity between Buffett and his secretary without the collateral damage the president’s planned tax hikes would do to the entrepreneurial sector. Force Warren Buffet to give his secretary a raise!

That’s right. Congress should draw up the Give-Buffett’s-Secretary-A-Raise Act. This bill would force the billionaire who is so “benevolent” with other people’s money to immediate quadruple his secretary’s salary from $60,000 a year — from the description Buffett gave in 2007  and current media reports — to $240,00 per year.

Now, some of you students of the Constitution out there might call a legislation like this a “bill of attainder.” And you may be right. But what you have to remember is that under this administration, the Constitution is so flexible, it’s already being bent into a thousand pieces. That why with Obamacare, the “regulate commerce clause” also gives the federal government the rights to force folks to engage in commerce with the individual mandate.

And besides, Buffett is the one asking — in his recent New York Times op-ed and elsewhere — for “shared sacrifice” among the super-rich. “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering,” he writes in the NYT. Well, Mr. Buffett, why don’t we start the “sacrifice” with you by forcing you to fork over more to your long-suffering secretary?

Really, only $60,000 a year for the assistant to the second-richest man in America? What kind of a tightwad is old Warren? In all seriousness, that’s much less of a salary than many assistants to powerful executives have taken home.

Roseanne Badowski, longtime executive assistant to Jack Welch during his tenure as CEO of General Electric, reportedly earned a six-figure salary. “High-level assistants are well compensated,” The Wall Street Journal noted last year. The paper gave a salary range of $72,000 to $100,000.

And then, there are the cashiers at Home Depot who grew wealthy with the company through their stock options. Crystal Hanlon, who began as a $5-an-hour cashier in the ’80s became a millionaire through the stock options she was compensated with, as did more than 1,000 Home Depot employees.

Yet the “benevolent” Buffett has long opposed companies giving employees the opportunity to build wealth through stock options. And he hasn’t just practiced this stinginess at Berkshire, but championed accounting rules that mandate this stinginess throughout corporate America. The options expensing rule, pushed by Buffett and imposed by the quasi-governmental Financial Accounting Standards Board, has made it extremely difficult for firms that could be the next Home Depots to offer broad-based stock options to rank-and-file employees. (For more on how requiring options to be expensed against earning hurts workers, and actually makes financial statements much less accurate, see the research in this petition to the SEC presented by venture capitalist Kip Hagopian and signed by accounting experts and economists such as Nobel Laureate Harry Markowitz.)

Buffett also has been shown to have his own self-interest at heart in championing the estate tax, also known as the death tax. As I noted in 2004 in National Review and the great corporate welfare muckraker Timothy P. Carney reported in his first book, The Big Ripoff, Buffett’s Berkshire Hathaway has profited mightily from this tax that forces so many family businesses to sell out.

Berskshire’s subsidiaries sell life insurance policies for the purpose of helping businesses pay the estate tax. These policies help keep a the business in the family, but the premiums are very expensive, and the insurance would not be needed, of course, if the death tax were abolished. Buffett has also snatched up companies from the Buffalo Evening News to Dairy Queen at bargain prices due to deaths that forced families to sell.

And the “carried interest” tax hike that Obama and Buffett advocate and spin as only hitting hedge fund managers would actually overturn longtime principles of taxation of partnerships, including those in real estate, medicine and law. It would also have a devastating effect on venture capital partnerships, even those supporting the green jobs Obama loves. (And as the Solyndra scandal shows, the government can’t very well replace the function of venture capitalists were they to be taxed away.)

In Buffett and Obama’s static vision of the economy, wealth cannot be created, only redistributed. Though their intentions  may be sincere in claiming to care for ordinary workers, this zero-sum vision operates to keep employees  in their place.

By curtailing incentives for entrepreneurship, the economic policies that Buffet and Obama champion make it more likely that Buffett’s secretary will always be a secretary and Joe the Plumber will always be a plumber, something the latter famously recognized.

Closing true loopholes as part of broader tax reform that results in lower corporate and individual rates is welcome. So is regulatory relief that would help potential entrepreneurs such as Buffett’s secretary if she wanted to give her tight-fisted boss the heave-ho and strike out on her own.

But the goal of public policy should not be to make millionaires pay more. Rather, the goal should be to create conditions under which more millionaires are made.

Charlie Jui September 19, 2011 at 2:31 pm

Before you talk about tax policy, let’s look at what taxes are intended to do., As far as I can see, taxes are devised to provide a government with the income to govern. As for fostering a vigorous economy…isn’t that the job of the private sector? What the government should do is to provide security and stability. We have police forces to provide security of the person and of property. Financial regulations protects individual consumers and investors from fraud. And a layer (a very limited one in the U.S when compared to other western democracies) of protection against extreme poverty that would otherwise tend to destabilize the polity: If the poor have no incentive to obey the law…what do you expect will happen?

John Berlau September 19, 2011 at 11:53 pm

Charlie,

The point of this column was to explore what taxes are intended to do and what not to do, because too many people are acting like the whole purpose of our tax system is now to redistibute wealth from Warren Buffet to his secretary (ignoring the fact that Warren Buffet already has the power to do that by paying here more!)

The private sector cannot foster a vigorous economy if the greedy hand of government is strangling it through overregulation, as it is now, and overtaxation through the highest corporate tax rate in the world (something President Obama admitted in his speech today) and the proposed Obama-Buffett tax hikes.

Financial regulations such as Sarbanes-Oxley and Dodd-Frank go way beyond protecting investors from fraud and drive up the costs of legitimate investors and entrepreneurs engaging in mutually benficial transactions that would drive innovation and growth. In fact, the government is involved in regulating so many minute things that it misses the real fraud. The SEC and Justice Department turned a blind eye to Bernie Madoff bilking his investors at the same time they were prosecuting Martha Stewart for trivial actuions that hurt no one.

And the poor don’t need government “protection” — other than the protection the government should provide to everyone from force and fraud. What the poor need is opportunity, something that in many instances government barriers prevent.

John B September 21, 2011 at 2:24 pm

Not only is it double taxation on corporate income, in the majority of cases it’s double taxation on the individual. Before most people can invest money in stocks, they have to pay income tax on their earnings, and pay capital gains tax when they sell. Idiots like Obama and Buffet forget that investors risk all of the money when they invest in stocks since that stock could implode or lose value. These idiots think there should be no reward for risking their money like this. They think it’s a guaranteed gain, which it’s not.

Then if the investor loses all of their money in a stock, they can only deduct a maximum of $3,000 per year on their tax return, which can take decades to recoup. Under Obama-Buffet’s proposal, there is less reason for people to put their money at risk and invest in stocks. With Obama going on national TV and spewing this inaccurate garbage, how can anyone take this joker seriously?

If Obama-Buffet were successful in implementing this ridiculous proposal, the stock market would crash in nothing flat, and they would even look more stupid.

John Berlau September 22, 2011 at 11:07 am

Great point, John B!

And just so readers know, that’s another John B, not me.

Comments on this entry are closed.

{ 1 trackback }

Previous post:

Next post: