Originally intended for the Washington Post: Rejected (and therefore Slashdot Quality)
Bleeding Heart Economics
By: Brian J. Ewart
Warren Buffett made public his disgust with the Bush Administration's dividend tax relief plan in an Op-Ed piece titled "Dividend Voodoo". His heart bleeds with guilt over his own success in life; he feels so much for the poor, that he is blinded to the real economic benefits of a tax cut for everyone. Furthermore, his argument fails to address the inequities of the current tax system that this cut attempts to rectify.
Buffett claims that repealing the dividend tax "tips the balance" of taxation in favor of the rich. Perhaps by this he meant that the tax break would benefit those who invest, but his assumption that those Americans who invest their savings are rich is in fact fallacious; many investors in this country are working-class. Furthermore, a repeal of dividend taxes might even encourage your average American to put his savings into the market; and not into the high-risk stocks that Mr. Buffett eschews, they would be more likely to invest in stable companies that will perform consistently - the type of company that he prefers. Why does he believe that an average American cannot use this tax cut to gain the same advantages as the super-rich?
Mr. Buffett goes on to claim that corporate profits would be invested whether or not they are paid out as tax-free dividends. He uses Berkshire Hathaway as his primary example of this, claiming that although rich beneficiaries like himself would undoubtedly invest most of their newfound income so would the businesses paying those dividends. This is of course true, however, most companies are not like Berkshire Hathaway - they don't invest in a wide variety of other businesses as a primary function. When this money is paid out as a dividend it will be re-invested in ways that most companies wouldn't. A shareholder in Disney, might use his dividend payment to purchase shares of General Electric, or invest in a new startup, or perhaps even buy bonds or commodities, meanwhile Disney is likely to spend that money on executive salaries, developing its own businesses, or perhaps to build a cash reserve. This allows that capital to "move" in the marketplace, with a greater degree of freedom than it might have elsewhere; besides, the money belongs to the shareholders - if they think that it is best left invested in the company, then they will vote not to pay a dividend.
"Dividend Voodoo" proposes a Social Security tax "holiday" to provide a more equitable distribution of tax relief to needy Americans. Surely someone with a Masters degree in economics would know better than to propose such a thing. Social Security is like a leaky bucket, in order to keep the bucket full, you have to keep adding water - by instituting a "holiday" from this tax, he would drain the bucket, perhaps to the point where it can no longer be refilled.
It was suggested that to give $1,000 dollars to 310,000 needy Americans would provide more growth than providing him with $310 million in tax-free dividend payments; this is what I like to refer to as "give-a-man-a-fish" economics, it sounds like a good plan, but as the saying goes, "give a man a fish and he won't starve for a day. Teach a man how to fish and he won't starve for his entire life." What this country needs is a "teach-a-man-to-fish" economy - that means we need to create jobs. If Mr. Buffett thinks that giving $1,000 to 310,000 families will create jobs, then perhaps he would like to put his money where his mouth is and partake in that charitable pursuit.
This tax cut will most importantly correct an awful double-taxation; the government already taxes the income of out nation's businesses. Under the current laws, that same income would be taxed yet again once it is distributed to a company's shareholders. Perhaps Mr. Buffett's would like to check his math - his tax rate could not possibly be as low as three percent after the dividend tax cut, as he claimed, because that money had already been taxed as corporate income, the rate of the corporate income tax should have been calculated into his final figure.
Warren Buffett's opposition of the President's dividend tax-repeal is shortsighted and was written in a way that is designed to bamboozle the reader into believing that the tax increase will not benefit anyone other than Mr. Buffett and his Forbes 400 colleagues. This however is not the case; the tax repeal makes Federal tax laws fairer, and will surely benefit everyone. Then again, I'm sure he can afford the handkerchief to wipe the egg off of his face when President Bush proves him wrong.