May 16, 2024

Warren Buffet Is Wrong on Taxes

Buffett is right most of the time, but he is no prophet because he is wrong about raising taxes while ignoring spending cuts.

Many people have made money by following the advice of Berkshire Hathaway CEO Warren Buffett. His recommendations about which stocks to buy, which to sell and where to invest (or not) have earned him the “Oracle of Omaha” title. I prefer a modern cultural version: “the Taylor Swift of Capitalism.”

Speaking at his company’s annual hedge fund shareholders gathering, Buffett predicted the government will have to raise taxes if the massive $34 trillion (and counting) national debt is to be reduced. He said nothing about cutting spending which remains the real problem. The debt is approaching the value of the entire U.S. economy. It does not take an economist or someone with only a minimal knowledge of economic principles to conclude that Buffett has it backward.

According to the Committee for a Responsible Federal Budget: “In the first seven months of Fiscal Year (FY) 2024, spending on net interest has reached $514 billion, surpassing spending on both national defense ($498 billion) and Medicare ($465 billion). Overall spending has totaled $3.9 trillion thus far. Spending on interest is also more than all the money spent this year on veterans, education, and transportation combined.”

Is there anyone who believes that allowing the Trump tax cuts to expire at the end of next year will cause politicians to suddenly become responsible about spending should they gain additional revenue? Everyone knows the main drivers of the debt are Social Security and Medicare. Few politicians want to touch this “third rail” because they fear being demonized, losing their precious seats in Congress, or suffering defeat in a presidential race. This is, after all, the age of “entitlement.”

As noted by the Peter G. Peterson Foundation, “Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar. The federal government should not allow budget imbalances to harm the economy and families across the country.”

This should be so obvious as to be beyond debate, but we can’t get a real debate on the economy because so many people rely on government to do for them what they mostly once did for themselves — save and invest wisely, live within your means, be responsible for yourself and if you must look to government for help, make it last on your list, not first.

Buffett noted projections from the Congressional Budget Office (CBO) which has forecast a rise in federal deficits to 8.5 percent of GDP in fiscal 2054 from today’s 5.5 percent. But that’s only deficits, not debt. Deficits are added to the debt. When politicians claim to have reduced the deficit, they usually say nothing about the debt or cutting even the smallest amounts of spending.

I have previously argued for the necessity of a complete audit of the federal government. Members of an audit committee could be appointed by Democrat and Republican Members of Congress, they would have to be nonpartisan and serious about the task assigned to them. This is what the Base Realignment and Closure Commission did after it was chartered by the Defense Department in 1988. Some politicians howled as outmoded and aging bases in their districts were closed, but it worked and saved money.

A similar approach to the national debt could also work. The last thing we need is for the productive to be taxed at greater rates so that politicians can continue to misspend the money.

The definition of a prophet is that he must be right 100 percent of the time. Warren Buffett is right most of the time, but he is no prophet because he is wrong about raising taxes while ignoring spending cuts.

©2024 Tribune Content Agency, LLC.

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