Money Matters: A federal debt reduction plan

By Phil Krinkie The Daily Record Newswire In a recent New York Times op-ed titled "Stop Coddling the Super-Rich," billionaire investor Warren Buffett laid out his case for increasing taxes on the rich. He makes the claim that he and his billionaire friends have been coddled by Congress long enough. One of his main points is that many billionaires have a much lower tax rate than middle-class working people because their investment income is taxed at a lower rate. The example cited by Buffett is that his overall tax rate in 2010 for both income and payroll taxes was 17.4 percent. By comparison he claims the other 20 people in his Omaha office paid an average tax rate of 36 percent. He points to the 15 percent capital gains rate as the reason that he and his mega-rich friends aren't paying their fair share of taxes. He also claims that neither he nor others will stop investing regardless of the tax rate on capital gains, even suggesting that when rate peaked at 39.9 percent in 1976-77, people didn't shy away from making sensible investments. Initially Buffet attempts to make the case for raising the capital gains tax rate above 15 percent on himself and his billionaire friends, but then takes a sudden turn in his tax policy in rationale. His stance changes from increase taxes on the mega-rich to increasing taxes on anyone making more than $1 million a year. A reminder: One billion is one thousand million. Buffett's personal wealth is estimated at $47 billion, making him the second richest man in America. Buffet states that last year he paid almost $7 million in federal income and payroll taxes. His claim is that amounted to 17 percent of his taxable income, which would place his total taxable income at approximately $35 million, or 35 times that of an individual who had a taxable income of $1 million. His logic might sound like a solution, until you stop to consider the size and scope of the federal debt. For example, if the federal government were to confiscate 100 percent of Buffett's resources along with that of his billionaire friends, how much money would flow into the U.S. Treasury? Taking the combined wealth of the 100 richest people in America in 2010 (according to Forbes magazine) their total wealth would come to approximately $837 billion. Applying the total assets of the richest 100 Americans totaling $837 billion to the current budget would only reduce the projected 2011 federal deficit of $1.6 trillion by half. It would still leave $800 billion to be added to our current $14.5 trillion debt. Buffet's idea of raising taxes on millionaires won't solve America's deficit spending problem any more than confiscating the assets of every billionaire in America. The immediate financial challenge we face is to stop the bleeding. We can't continue to borrow 40 cents of every dollar that Congress spends. As my college economics professor pointed out, "The propensity to spend is always greater than the propensity to save." This is basic human nature, and for public office holders, there is no savings account -- only spending on steroids. First and foremost, Congress must first adopt a strong balanced budget amendment. Not a sieve or a watered-down approach, but a true balanced budget measure that will force Congress not to spend more than the revenue it receives. Then and only then should Congress consider a tax increase. Not a tax increase to fuel more spending but rather a tax that would be paid by everyone in order to start paying down our soon-to-be-reached $16.7 trillion debt ceiling. Americans have been under the illusion for decades that we could continue to rack up charges on the federal credit card and only have to make the minimum payment every month. We have saddled ourselves with an ever-increasing debt load, and it's time we realize that our economy will falter until we deal with our debt problem head-on. Our federal debt problem has not been caused by a flaw in the tax code, but is a result of our spending addiction. Published: Tue, Aug 23, 2011