Do the Rich Pay Enough Taxes in the U.S.?

It wasn’t that long ago that Warren Buffet, the investor with such a refined sense for business that he’s considered the third-richest man in the world, cried out that he should be paying higher taxes. During the 2008 elections, he declared that his secretary paid more taxes — proportionally speaking — than he did.

He’s now stirring up controversy again with a piece that appeared in The New York Times in which he accuses the politicians in Washington of “coddling” the super-rich and calls for a higher tax on the wealthiest Americans — a position that coincides with Obama’s during the debate over the debt ceiling.

Before answering the question of whether the super-rich pay enough in taxes, there are some facts that need to be kept in mind. It’s important to note the gap between the rich and poor has reached its highest level in the history of the measurement. While the country’s richest 10 percent own nearly 50 percent of its wealth, the poorest 20 percent lay claim to just 3.4 percent.

According to experts, these figures are a result of the Bush tax cuts, which, while benefiting the middle class, were much more generous to those with higher incomes. As a result, the tax rate for the wealthy — 35 percent — is the lowest in modern history. On the other hand, one of the things Buffet criticizes in his piece in The New York Times is the capital gains tax, which stands at 15 percent. But the reality is that the dividends offered by companies are already subject to a higher rate, with the profits of large companies theoretically being taxed 35 percent.

Raising this 15 percent capital gains tax, as Buffet suggests, is debatable: First, it would violate the principle of “double taxation,” which guides many states with a strong rule of law; second, it would discourage investment, one of the engines of the economy.

But in many cases, thanks to many exemptions present in the current tax code, any individual or company with a good financial advisor can avoid the theoretical maximum tax rate of 35 percent.

It’s for this reason that many congressmen — Democrats and Republicans alike — have been hoping for a simplification of the tax code during the debate over the debt ceiling. Such a simplification would include both the elimination of the majority of exemptions and a reduction in tax rates.

This change would provide for better transparency in the tax system and would allow us to better know how much each person contributes. Surely this will be one of the topics addressed by the super-committee, which has been charged with reducing the debt; the adoption of this measure could be one of the few things on which members of both parties agree.

For the majority of people, the answer to the question posed in the title of this piece largely depends on a moral judgment. Is a society in which there are enormous differences between the rich and the poor a just one?

In my view, there are various practical considerations that need to be kept in mind. There aren’t any conclusive studies about it, but my intuition and life experience tell me that those tremendously unequal societies tend to be more violent.

So I agree with Buffet’s diagnosis but not with his prescription. Instead of changing the capital gains tax, we should rework the tax code to make it more transparent.