From the FT's Lex blog
Warren Buffett wants a "billionaire-friendly Congress" to raise his taxes.
His $7-million tax bill amounts to a rate that is half the 36 per cent marginal rate paid by his office staff. Mr. Buffett may get an unfairly good deal from the federal government, but his case provides a misleading view of a broken tax system.
The federal system is not regressive (making the poor pay relatively more than the rich). The top 1 per cent of U.S. taxpayers pay 23.2 per cent of their income in taxes, nearly double the proportion of all Americans. At the bottom, nearly half of Americans pay no net tax. Nor does the federal government take much from excise and value-added taxes, regressive levies that are popular in supposedly more socialist European countries.
All that may make the U.S. sound ruthlessly egalitarian, but other taxes and loopholes spoil the picture. State and local sales and property taxes are quite regressive, while payroll taxes, which fund social security, are also skewed, being both flat and subject to an income cap.
But uncapping social security taxes or cutting benefits to wealthy retirees would change the system from pension to charity -- and not do much to cut the deficit. And doubling the tax rate on Mr. Buffett's fellow billionaires, America's 400 wealthiest households, would raise enough money to run the federal government for only two days.
Only more progressive federal taxes can create a level playing field and plug the revenue gap. That could be done by phasing out mortgage interest deductions or breaks on investment income, mostly hitting millionares and up. Mr Buffett is right to point out (in The New York Times) the system's unfairness. Tinkering with marginal tax rates, however, would only make loopholes more distorting. Rather than soaking the rich, the taxman should take away their lifejackets.