Taxing Progressively

Getting Beyond the ‘Buffett Rule’

In 1944, the year billionaire investor Warren Buffett first paid income tax, Americans ‘soaked the rich’ — and benefited mightily from the soaking.

By Sam Pizzigati

Warren Buffett, the third-richest man in America, has always been a bit of a traitor to his class. The super rich, Buffett holds, ought to pay income taxes at a higher rate than average Americans because they have the capacity — and good fortune — to contribute significantly more to our national well-being.

Current tax law, Buffett goes on to explain, lets the really rich routinely avoid that responsibility. In fact, as Buffett has famously declared, his secretary pays taxes at a higher rate than he does.

Billionaire Warren Buffett still remembers when he first paid income taxes in 1944. All of us today have an important tax reason to remember 1944 as well. Krista Kennell/

Billionaire Warren Buffett still remembers when he first paid income taxes in 1944. All of us today have a reason to remember 1944 as well. Krista Kennell/

Buffett believes in tax fairness. Donald Trump, on the other hand, most certainly does not.

The Donald has personally lobbied Congress for tax breaks that ease the tax bite on wealthy real estate developers like himself. And his latest White House campaign tax proposal, the Center for Budget and Policy Priorities points out, would if adopted “raise after-tax income for those with annual incomes of over $1 million by 14.3 percent.”

White House hopeful Trump doesn’t just pay taxes at a lower rate than his secretary. At his debate last week with Hillary Clinton in St. Louis, he essentially acknowledged he regularly pays no federal income taxes at all.

Trump’s brand of in-your-face tax dodging simply — on philosophical grounds — outrages Warren Buffett. But at the St. Louis debate Trump gave Buffett’s outrage a personal twist. The GOP nominee publicly charged that the Omaha billionaire has claimed even “bigger deductions” than he has.

Buffett shot back at Trump the next day. He released his latest tax return and denied he had ever exploited the tax break that has enabled Trump to zero out his entire federal income tax liability.

The tax return Buffett released showed he had paid $1,845,557 million in taxes for 2014, 16 percent of his income. Buffett also noted that he’s been paying taxes “of a similar nature” for years.

But Buffett’s rebuttal to Trump did admit that he hasn’t always paid taxes in the millions. As a 13-year-old in 1944, the billionaire quipped, he did pay only $7 in federal income tax.

That 1944 tax year actually has a much higher claim to fame than experiencing the first of Warren Buffett’s 72 federal income tax returns. That year, history tells us, climaxed the most ambitious stretch of “soaking the rich” in U.S. tax history.

The rich of Buffett’s teens paid two-thirds of their incomes in taxes.

Over the three-year period that ended with 1944, America’s richest — those taxpayers averaging over $2 million, in today’s dollars — on average annually paid between 68 and 78 percent of their total incomes in federal income tax.

How do those overall tax rates compare to tax rates on the rich today? In 2013, the most recent year with IRS stats that single out the super rich, the 400 Americans with the nation’s highest reported incomes paid on average just 22.89 percent of their total incomes in federal income tax.

Many tax reformers, in response to stats like these, are calling for a fixed minimum tax rate on America’s wealthy. No one taking in millions a year, they argue, ought to be paying less than 30 percent of their income in federal income taxes.

This “Buffett rule” has won the support of a number of political leaders, including Donald Trump’s chief rival for the White House. But the tax experience of the 1940s suggests we can tax the rich at a much higher minimum rate and, in the process, accomplish amazing things as a nation.

And what did we accomplish back in the 1940s? Not much. We just thumped the Nazis and began an epic sharing of the wealth that turned the United States into the first mass middle class nation in world history, the first nation ever to have a majority of its people not living in poverty.

So, yes, let’s put a 30 percent Buffett rule in place. But let’s do our best to not — for a moment — stop there.

Institute for Policy Studies associate fellow Sam Pizzigati co-edits His most recent book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900–1970. Follow him on Twitter @Too_Much_Online.

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