After Warren Buffet suggested that rich people like him should pay more taxes, conservatives predictably encouraged him to voluntarily give more money to the government if he so desperately desires to do so. (E.g., from Michelle Bachmann: “If he’s worried about being undertaxed, we’d suggest he simply write a big check to Uncle Sam and go back to his day job of picking investments.”)
Jonathan Chait then replies:
Obviously this fails to grasp the fundamental collective action problem that’s the entire basis for taxation. You obviously can’t fund the government on the basis of voluntary donations. Buffett and other wealthy people who favor higher taxes on the rich don’t just believe they should pay more taxes. They believe the government needs more revenue. It’s amazing how many conservatives continue to think this just-pay-more response constitutes some kind of slam dunk rebuttal.
This seems like a sensible reply, but I don’t think it fully excuses Buffet’s behavior. This situation is best thought of as a prisoner’s dilemma-style situation (as it was framed by the commenters at Steve Landsburg’s site): The optimal solution from Warren Buffet’s perspective is for all rich people except him to have their taxes raised. Of course he won’t try to push that idea, as he could never gain any traction with it. The 2nd best option (in his opinion) is for all rich people to have their taxes raised (and that’s the option he pushes). The 3rd best is for nobody’s taxes to be raised, and the worst is for only his taxes to be raised. (For example these rankings would apply if Buffet gets 5 units of pleasure for every dollar he has, 2 units for every dollar a poor person has, and 1 unit for every dollar another rich person has).
(Note that if the 1st and 2nd options were reversed, then Buffet would immediately give away a lot of money to the government, which he has not done, despite Bachmann’s encouragement. Thus I believe the above ordering is correct, and the prisoner’s dilemma description applies.)
When viewed in this way, Buffet’s disingenuousness comes into full view, and Chait’s defense of Buffet can be seen to be lacking. Buffet’s op-ed gives the sense that a sense of fairness and justice should compel us to have the rich pay more in taxes, to alleviate the suffering of the poor:
Most [rich] wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering….
This cut helps the poor and the middle class, who need every break they can get.
This sort of language really does not seem to comport with Buffet’s failure to donate money to the government voluntarily. The 2nd sentence would only be consistent with his action if he amended it to read “This cut helps the poor and the middle class, who need every break they can get, except for those breaks that affect my own pocketbook without affecting other rich peoples’.” It doesn’t make sense to suggest that a sense of sympathy for the needy should compel the rich among us to donate to the poor, yet that same sense of sympathy should not compel the richest among us (i.e. Buffet) to donate to the very poorest (a donation whose marginal benefit would almost certainly exceed the average benefit of having all of the rich donate to the poor).
Buffet should admit that, as the prisoner’s dilemma analogy shows, his behavior (not donating + advocating for higher taxes) stems from a desire to be as rich as he possibly can be at the expense of poor people if necessary, combined with a preference for poor people to become richer at the expense of rich people other than himself. This is hardly the paragon of a philanthropic attitude.
If Buffet wants higher taxes, he should feel free to keep advocating for them. But he should drop guilt-tripping as his primary method of argument.
Warren Buffet has famously given large amounts of money to charity, and pledged even more.
“Buffet’s failure to donate money to the government voluntarily.”
Can you prove that he’s failed to donate money to the U.S. voluntarily? Secondly, if he hasn’t, does his philanthropy in other channels suffice for this standard? Lastly, the fact that he doesn’t pursue a course of action does not mean that the course of action is itself wrong. You can ask an alcoholic if drinking to excess is a bad idea, and he might tell you yes, but you aren’t required to believe the opposite of everything he says about liquor just because he abuses it.
On the issue of whether he actually has given money to the government voluntarily – a glance at his Wikipedia page will convince you that he is unlikely to have given significant portions of his money to the government (there is a whole section on his philanthropy). I can’t “prove” that he has given no extra money to the government, but I find it hard to believe that he has. He very likely would have told us if he’d given money to the government voluntarily given that he has such a strong propensity to broadcast to us his donation activities (e.g. that he gives/pledges so much money to Bill Gates’ foundation) — why wouldn’t he have told us if he’d in fact have given money to the government voluntarily given how much this would strengthen his argument w.r.t. the issue at hand, and given his history of telling us all of the details of his donations? Also the language in his latest op-ed indicates that at least last year he gave only what was required (“But what I paid was only 17.4 percent of my taxable income…”) But in any case I am happy to argue about the hypothetical world where Buffet has not given significant money to the government, which everyone else (at least Bachmann and Chait) seem to be happy to argue about as well.
As to your more substantive point, about charity: Buffet has shown a clear preference for doing what he wants to do with his money (pledging to give 83% of his wealth to his buddy Bill Gates’ organization) rather than giving it to the government, where it will be spent in a way he has no control over. This is consistent with the natural inclination most people have for spending their money in a way they can control, rather than giving it to the government, where politicians can whimsically decide what do do with it. Buffet much prefers that his money be spent in a way determined by the cool analysis of Gates and his employees, over its being spent based on what politicians he may or may not have voted for want to do with it. Yes, Buffet gives money to charity rather than spending it all on himself, and he should be applauded for that, but he has shown no greater appreciation for hearing the words “I am from the IRS, and I am here to take your money” than the rest of us.
On your last point: my post is meant only to address the question of Gates’ alleged hypocrisy, it is not meant to address the question of whether taxes should actually be raised.
While a large-scale revenue increase probably does correlate with the amount of money that will be spent on the poor (notwithstanding the ’90s boom and budget surpluses that coincided with welfare reform), I don’t believe very small revenue increases would lead to equal increases in money paid out to the poor. If I am right, Buffet is acting rationally and without hypocrisy in advocating, as he does, for tax increases, while making private donations to charities other than the IRS. If taxes are raised over a whole class of people, as Buffet desires, government disbursements might actually benefit the poor to a greater extent than they now do, especially if the resulting substantial increase in tax revenue is a response to Buffets call for payouts to the poor. On the other hand, if one rich person gives a little extra to the government, it will be rolled into a surplus to be used as future tax cuts or refunds, or for foreign invasion funds, or to pay interest on national debt, or to an arbitrary assortment of government programs, including payouts to the poor. If the money the US government actually spent on the poor increased smoothly with every dollar increase in revenue, it would be harder to poke holes in Jonathan’s argument.
How do you imagine the US government would respond to a strings-attached offer from Buffet to double or triple his six million dollars in taxes? The Tea Party would see this as an invitation to play Richard Prior in Brewster’s Millions to Buffet’s John Candy: tag line, “A minor league baseball player has to waste $30m in 30 days….”.
So the tea party would just push to waste $18m in return for having to spend buffett’s $18m on the poor, which they don’t really want to do?
The movie is about a guy who was given money and told to go waste it. From the Tea Party’s point of view, the whole transaction would amount to being asked to waste $18 by spending it on the poor.
Jon,
I think you are misrepresenting Buffet’s utility function here – it seems to me that he is clearly indicating that he derives a substantial portion of his personal utility from observing the government fund programs for the poor and the middle class – and that he sees this as best achieved though a hike in the marginal tax rate for the top bracket.
Even if this is not the case, you have incorrectly formulated his 2nd best response: you state that Buffet’s “2nd best option… is for all rich people to have their taxes raised.” Then you claim that: ” if the 1st and 2nd options were reversed, then Buffet would immediately give away a lot of money to the government.”
That is clearly not the ‘best response’ since he has explicitly stated that his preference is an increase in tax rates for the rich – not merely for himself as an individual of the rich class. You conflate the two, and then knock down a straw man by critiquing him for not contributing additional personal funds. He never states that he derives utility from an increase in his personal contributions to government revenues. He only claims to prefer an increase in contributions from his entire income bracket.
He’s not as rich as the U.S. government. If he were, then possibly he would fund the social welfare programs that he supports on his own. Since he’s not, it is utility-maximizing for him to encourage the government to formulate a tax code that then funds the programs that he supports.
Hi Conor,
You say: “That is clearly not the ‘best response’ since he has explicitly stated that his preference is an increase in tax rates for the rich – not merely for himself as an individual of the rich class… He never states that he derives utility from an increase in his personal contributions to government revenues. He only claims to prefer an increase in contributions from his entire income bracket.”
Here you seem to be affirming my placing option 2 (all rich people’s taxes are raised) ahead of option 4 (only his are raised). So I’m not sure what you disagree with.
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