1 Response to Kowalski Agrees with Warren Buffett: The Rich Should Pay More Taxes

1. Steve M. says:

   September 2, 2011 at 5:49 pm

   I don’t understand why Mr. Buffet thinks the way he does. He has already paid income tax on the wealth that he invests to earn his return. Taxing capital gains is a second level of taxation, above the initial taxation of income. If I already have billions of dollars, and no job, increasing taxation on me would have no impact.

   As to an entrepenuer forgoing an opportunity because of higher taxes, I agree with the professors comment…sort of. If I were to invent an amazing product, there’s no way high taxation of my income would stop me from pursuing its production. It may, however, make me think twice about producting that product in the United States. We live in a competitive world, and there is always somewhere else with lower taxes and less regulation than the U.S.

   I think the professor’s comment regarding historical tax rates and income may need to be clarified. What exactly was the “most prosperous time” in our history that Mr. Buffet and Prof. Kowalski are referencing? And, were there factors outside taxation that might have a much larger impact on said prosperity? Such as the internet, railroads, the automobile, electricity, etc. Was the professor suggesting that the tax rate does not affect the economy? or that it has a positive effect? I would argue that during periods of high growth, the impact of taxation is minor relative to other factors, but in low growth periods, high taxation makes it harder to get moving again (if taxes are thought of as friction in the economy, that would seem to make sense).

   Finally, it is worthwhile to mention that income metrics are very susceptible to how they are measured. For example, looking at household income vs. individual income can lead to distortions, as the definition of the term household has changed over time (we used to have one earner per home, typically, but now in many cases there are two). Similarly, if we measure changes in income by looking at tax brackets as a whole, versus individuals in those brackets over time, our data will be very different. See Thomas Sowell on Income Confusion (http://www.creators.com/opinion/thomas-sowell/income-confusion.html).

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