Billionaire investor and philanthropist Warren Buffett has come out in defense of Republican presidential hopeful Mitt Romney after he acknowledged last week that his personal income tax rate was “probably” in the region of 15 percent. The former Massachusetts governor will release his 2010 tax return as well as rough estimates for 2011 on Tuesday.
Mr. Romney’s decision comes in the wake of last week’s GOP debate in Myrtle Beach, S.C., where he was urged by some of his Republican colleagues to come clean about his earnings and taxes. His reluctance to release this information ahead of the South Carolina primary is likely to have contributed to former House Speaker’s Newt Gingrich‘s strong performance last Saturday.
However, Mr. Buffett says that Mr. Romney’s low rate of tax is perfectly legitimate, although he believes millionaires and billionaires should be treated in the same way as ordinary workers. In an article published in the New York Times last August, the chairman and CEO of Berkshire Hathaway implored Congress to stop “coddling the super rich”.
In a Bloomberg Television interview with Betty Liu on Monday, Mr. Buffett reiterated his opposition to the current tax code. “It’s the wrong policy to have. There’s nothing wrong about him [Mitt Romney] paying that. He’s not going to pay more than the law requires. And I don’t fault him for that in the least. But I do fault a law that allows him and me, earning enormous sums, to pay overall federal taxes at a rate that is about half what the average person in my office pays.”
The reason both Mr. Romney and Mr. Buffett pay such low rates of tax is because most of their income is derived from dividends, capital gains and other investments, which only attract a 15-percent tax rate. If the majority of their earnings fell into the wage-income category, their tax rate would be the standard 35 percent. As Mr. Buffett explains, he and the former Massachusetts governor only do a very small amount of work for their incomes.
“He [Mr. Romney] makes money the way I do. He makes money by moving around big bucks, not by straining his back or going to work, cleaning the toilets or whatever it may be. He makes it shoving around money. I make it shoving around money,” the Sage of Omaha told Betty Liu.
President Barack Obama, who fully supports Mr. Buffett’s argument that all Americans should pay their fair share of taxes, put forward a millionaires tax last September which would ensure that the top earners in the country do not pay a lower rate of tax than ordinary Americans. As expected, his proposal, nicknamed the ‘Buffett Rule‘, received strong opposition from the Republicans. Furthermore, an article published in the New York Times shortly after the president submitted his millionaires plan suggested that the ‘Buffett Rule’ had not been properly thought through and could have a devastating impact on the U.S. economy.
