September 8, 2011

THE THIRD-richest man in the world is being called a socialist again.

Conservative ideologues are fuming about a New York Times op-ed article written by Warren Buffett called "Stop Coddling the Super-Rich," which makes the case that the super-rich get huge tax advantages and "other blessings...showered upon us by legislators in Washington." Buffett proposes that the federal government help close its deficit by raising taxes on the richest 0.3 percent of U.S. households with incomes over $1 million a year.

The verdict from Fox News anchor Neil Cavuto: "More class warfare from an affable billionaire." Fellow Fox host Eric Bolling wondered: "Is he completely a socialist and playing into Mr. Obama's hands of tax anybody who makes money and give it to people who don't work?"

Most commentators had to admit that the premise of Buffett's article was far from radical. "While the poor and middle class fight for us in Afghanistan and while most Americans struggle to make ends meet," Buffett wrote, "we mega-rich continue to get our extraordinary tax breaks."

Warren Buffett

Buffett uses himself as an example. Last year, he paid $6,938,744 in federal taxes--income tax plus payroll taxes--according to the article. "That sounds like a lot of money," he writes--and indeed, this is many times what most people will earn in a lifetime of work-- "[b]ut what I paid was only 17.4 percent of my taxable income." As Buffett continues, "If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine--most likely by a lot."

Buffett is right about this. This year, individuals will pay 25 percent on taxable income between $34,501 and $83,600.

Most people would like to see an end to this--to borrow Buffett's phrase--"coddling of the super-rich" and their corporations. A poll in April showed 72 percent of Americans "support tax increases on people with incomes of more than $250,000, including 54 percent who strongly support them," according to the Politico website.

But this public sentiment hasn't yet had a discernable impact in Washington. The debt-ceiling agreement negotiated over the summer doesn't include a cent of new taxes on the rich, but does commit the federal government to reduce spending by $2.4 trillion, which will mean deep cuts to programs working people and the poor depend on.

THE TRUTH is that Buffett's article barely scratches the surface of the disparity in how much of their money rich people pay in taxes compared to the rest of us.

For one thing, the rich have countless tricks to shield their income from being taxable. As Sharon Smith wrote for SocialistWorker.org:

Tax deductions such as "accelerated depreciation" (write off the cost of your machinery and equipment years before it actually wears out!) and "deferred tax" (why pay taxes now when you can postpone them for a decade or two?) might be as incomprehensible as they are unavailable to the average taxpayer, but they are gold mines for the extremely wealthy. The offshore tax haven is the biggest tax loophole of all. According to U.S. PIRG, the IRS itself estimates that individuals and corporations currently have $5 trillion stowed away in offshore low-tax havens.

Right now, corporations are pushing for what's called a "repatriation holiday" so they can bring some of this loot back to the U.S.--at a 5.25 percent tax rate, rather than the supposedly standard corporate tax rate of 35 percent. As a New York Times article explains:

Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as "the next stimulus"... But that's not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage. Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

The article goes on to point out: "Merck brought back $15.9 billion in October 2005. The next month, it unveiled a restructuring plan to cut 7,000 jobs." So much for tax breaks creating jobs.

THERE'S ANOTHER way that Buffett's article obscures the bigger picture. In the whole piece, he doesn't once mention why he's the second-richest person in the U.S.--his wealth. Buffett declared more than $40 million in income last year, but his property and assets are worth $50 billion. What he paid in taxes last year was 0.0138 percent of the value of his wealth.

How did Buffett amass this vast wealth? The same way his "super-rich friends" do all over the world--by profiting off the labor of working people, regardless of the conditions they face.

Take an example: Buffett's Berkshire Hathaway investment firm owns a chunk of Coca-Cola, a company whose products are banned from 50 college campuses because it refuses to allow an independent investigation into the deaths of unionists working for it in Colombia. A SocialistWorker.org report described the conditions for workers there:

Nonunion truck drivers in Colombia, who work 15-hour days, would have to work two years to earn what Coca-Cola CEO Neville Isdell takes home in an hour. And if ever a truck is hijacked or damaged, or if even a single bottle goes unaccounted for, the cost is docked from the driver's wages.

The company treats unionized workers in the U.S. with just as much contempt. According to a report on recent strike in Washington:

Coke showed its ruthlessness by immediately cutting off health benefits to all 500 striking employees. Since health insurance premiums are paid month by month, it means that the workers had already paid their premium for August, but still had their August coverage cut off.

This is how the sausage is made. The fortunes of investors like Buffett are amassed through ownership of corporations like Coca-Cola, where profits depend on keeping costs as low as possible, especially for workers, who have no real choice but to work labor for one or another employer.

Berkshire Hathaway also owns 18 percent of the Washington Post Co., which includes a division called Kaplan Inc. Kaplan has come under considerable scrutiny in the past year because of the for-profit colleges it operates, which have made it the target of multiple whistleblower lawsuits.

These colleges produce so much profit for the overall company that education now accounts for 62 percent of revenues--compared to 14 percent from newspaper publishing--almost $3 billion annually. And of those revenues for Kaplan, 91.5 percent comes from the federal government "through Pell grants, Stafford loans, military and veterans benefits, and other aid," according to the New York Times.

For-profit college operators like Kaplan and the University of Phoenix now enroll 11 percent of the nation's higher-education students. "But their students account for 43 percent of those defaulting on student loans," the Times reported.

These operators have a formula that works wonderfully for them, though: They keep the financial aid cash allocated to students from various government programs, whether or not the students graduate. The colleges therefore have an interest in signing up as many students as possible. The Times article on Kaplan reported that employees and students say the company's "fast-growing revenues were based on recruiting students whose chances of succeeding were low":

They cite, for example, a training manual used by recruiters in Pittsburgh whose "profile" of Kaplan students listed markers like low self-esteem, reliance on public assistance, being fired, laid off, incarcerated, or physically or mentally abused... Carlos Urquilla-Diaz, a former Kaplan instructor and administrator who is one of the Miami whistleblowers, recalled a PowerPoint presentation showing African American women who were raising two children by themselves as the company's primary target.

Recently, Kaplan settled one of the whistleblower lawsuits charging that it made fraudulent claims. The cost of the settlement was $1.6 million--a drop in the bucket for a business that produces several billion dollars annually--or, I should say, rakes in several billion in taxpayer dollars annually.

Kaplan is breaking new ground in preying on the most vulnerable. And while Warren Buffett may not be writing the PowerPoint presentations, you can bet he appreciates the revenues the company generates for Berkshire Hathaway.

If Buffett was such a good guy, he would have admitted wrongdoing and publicly disowned Kaplan's practices--the same goes for Coca-Cola. Instead, the Washington Post Co. dished out some hush money in the hopes that the scandal will go away--with nary a word from the "affable billionaire."

In addition to Coca-Cola and the Washington Post Co., Berkshire Hathaway owns all or part of dozens of other companies, including Geico, See's Candies, Jordan's Furniture, Business Wire, American Express, Moody's--the now controversial ratings agency that gave the thumbs-up to bundled sub-prime mortgages--and, yes, the infamous Wal-Mart.

So when Buffett claims in his New York Times article that his super-rich friends, "by and large," are "very decent people," it's worth remembering what makes Buffett himself so rich.

THE TIMES op-ed has gotten noticed because it advocates raising taxes on the very rich. But before that, Buffett advocates further dramatic reductions in government spending: "Job one for the 12 [on the bipartisan committee that is supposed to come up with more than $1 trillion in cuts] is to pare down some future promises that even a rich America can't fulfill. Big money must be saved here."

That's a reference to plans to cut Social Security and Medicare--the retirement and health care government programs that are overwhelmingly popular with working people, but which the rich want to see cut back.

In other words, Buffett's very modest proposal questions none of the conventional wisdom that trillions of dollars in spending cuts are necessary. He only differs from Fox News on the point that there shouldn't be any new taxes.

Nor is Buffett being altruistic--his business interests depend on the government being able to function in certain ways, as Wall Street Journal blogger David Weidner pointed out:

Mr. Buffett is willing to pay more taxes--and suggests that he actually trusts the government with his money. And why not? The government provides infrastructure for Berkshire businesses and health care for its retirees. The government polices competitors using illegal or unscrupulous practices. The government educates the Berkshire workforce, and so on.

The Tea Party fanatics may be dominating mainstream political discussion with their crusade against "big government," but capitalists do recognize how the state serves crucial functions for their system.

What's more, many of Buffett's investments are in companies that would profit more if consumer spending were higher. As Weidner wrote, "You don't need to be Warren Buffett to realize financial demographics are moving in the wrong direction for a company that sells chocolates and sofas and advertises its insurance with a talking gecko."

Buffett's image as the "affable billionaire" who suggests raising taxes on himself bolsters the idea that there are good rich people and bad ones, and the good ones will help us out when we're in trouble, or at least advocate on our behalf. But Buffett's record--and even the very modesty of his tax proposal itself--proves that he's more interested in helping himself.

Given that he's the third-richest person in the world and profits daily from the misery of others, we shouldn't expect anything different.