Wednesday, September 21, 2011

Buffet's Secretary Betrayed

Let's accept the argument of Warren Buffet, that his secretary pays a bigger share of her income in federal taxes than he does.  Why would that be?

The reason is that his secretary pays payroll taxes and he does not, or at least not so much.

But what are these payroll taxes?  They are usually characterized not as taxes merely, but as insurance premiums on the government's social insurance schemes, programs to protect ordinary people from the vicissitudes of life: old age, sickness, and poverty.

So Warren Buffet's secretary pays a ton of money to the government so she can collect Social Security and Medicare.  Gee, it's a pity that Social Security and Medicare are bankrupt, so Warren's secretary may not get what she was promised.

But that is not all.  Warren Buffet pays a ton of taxes to the government on his secretary's behalf.  We are talking about the employer share of FICA taxes and stuff like unemployment tax and state worker's comp. (By the way Warren:  Do those business taxes count as her taxes or your taxes?)

Looked at all together these taxes paid either by Warren Buffet's secretary or by Warren himself are taxes to fund the government's social insurance programs.  The idea is that ordinary people aren't powerful enough or sensible enough to make provision for old age, for unemployment or to insure themselves against injury.  So the government must take taxes from them and their employer in order to give it back to them, less a processing fee.

Is that really true?  Are ordinary people not capable of making sensible provisions against the future?

Of course the problem is not just that the government is doing things that people could be doing on their own.  Politicians use these programs to make promises to voters.  They say: Yeah!  We are going to force employers to give you more time off when you have a baby.  They also raise the cost of doing business in a dozen different ways. All of these measures are either wages that could have been paid to the employee but have been diverted to a government program, or they just make the cost of hiring people more expensive.

Unfortunately all of these programs are rife with inefficiency and with cheating.  It's the free-rider problem, the basic problem of any society.  People scam their way onto disability programs.  Medical providers scam Medicare.  Ordinary honest people get cheated out of a portion of their contributions.

The person I feel for is Warren Buffet's secretary.  After all she's not a rich billionaire like Warren Buffet.  Whatever happens, he's got enough money to take care of himself and his family.  But the ordinary people of the middle class cannot afford to waste resources. like a rich guy.  They work because they have to, not because they are brilliant stock pickers.  They hope one day to send the kids to college and then to retire.  All the wasteful government programs they are forced to fund with their taxes make it harder to make ends meet and to achieve financial security. And the wasteful programs are supposed to help them!

One day, the ordinary middle class is going to wake up and realize that they have been betrayed.  They will realize that all the social insurance programs are social insurance in name only.  The programs are really just means by which politicians bid for votes.  The idea is to buy the votes of people by offering them material benefits.  The whole transaction is in the promise and in the vote.  If the promise actually gets enacted, if the monies actually help people, it is just an accident.  Almost certainly some special interest will get in line to get the money first, and almost certainly the money won't be there in 20, 30 years.

Almost certainly, the ordinary person would have done better to save money themselves rather than let the politicians get their hands on the money.

So the question about Warren Buffet and his secretary is upside down.  The question is not whether Warren should pay more in taxes.  The question is why his secretary is forced to pay so much.

Why should Warren Buffet's secretary be forced to contribute to so many programs that serve her so poorly?

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