Warren Buffett is someone who’s been calling for higher taxes on the rich. Here he is again in a New York Times op-ed today. But Buffett also outlines some fiscal goals:
Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.
Right now we’re more like 16% revenue, 24% spending. Buffett would boost revenue to a bit above its historical average of 18% partly via his version of Obama’s so-called Buffett rule — a new 30% alternative minimum tax on taxable income between $1 million and $10 million, and 35% on amounts above that.
One effect of this rule would be to raise investment tax rates dramatically from today’s 15% level, which would be anti-growth. But that point aside, does Buffett really think we can only get revenue to 18.5% of GDP via tax hikes? Turns out, the long-term CBO budget forecast pegs revenue at 18.5% of GDP in 2022 even while keeping the Bush tax cuts in place. That’s right, if we do nothing other than let the economy continue to recover we’ll hit Buffett’s revenue target, according to the CBO.
In other words, to get to Buffett’s 18%-21% revenue/spending ratio, we really need to focus on spending cuts, not tax hikes. And why not first try to boost revenue through economic growth rather than raising the tax burden? Why tax hikes first in a weak economy?
Liberals touting the Oracle of Omaha’s economic views should also keep in mind he is calling for a government much smaller than they probably want. For instance, a budget plan put forward by the Center for American Progress a year or so ago has revenue and spending at about 24% of GDP in 2030. One from the Economic Policy Institute has revenue at 24% and spending at 28%.
And Team Obama? Well, its most recent budget called roughly for revenue of 20% of GDP and spending of 23% in 2022. Beyond that, who knows? But the White House stiff-arm of Simpson-Bowles may be telling since that plan called for long-term targets of 21% of GDP for spending and revenue. My guess is that Obama is much closer to the CAP/EPI target than Simpson-Bowles. It sounds like Buffett is just the opposite. Maybe Obamanomics needs a dose of Buffettology.