This past weekend, billionaire and philanthropist Warren Buffett penned a NYT op-ed asking for America to “stop coddling the super-rich.” This ethos sounds nice and in many ways rings true, but flatly misses basic principles of political economy. If the wealthy see increases in their federal taxes, any of the 50 states will start to compete for some of that tax base by creating incentives to lure away a higher tax base. This type of behavior has a long history in America. Instead of asking the government to tax the rich more, Buffett should have rather used his pulpit to prod rich people (and profitable corporations) to spend more and hire more people for work. That is the greatest crime today, that rich people are able to hide their money (such as in foundations) and only spend around 5% of the endowment, while they employ their friends and family within the foundations, or for companies that have received federal stimulus dollars and are profitable but yet laying off work force and not hiring or helping retrain those that are unemployed.
A few days ago, NYT columnist Joe Nocera called for people to “boycott campaign donations” as a tactic to send a message to Washington. This idea makes no sense economically. At some point, everyone has a price and willingness to pay, and elected officials will also have a willingness to accept. If just the rich dial down their cash donations, or corporations, then more fringe donators will see their voice and influence increase, so much so that Nocera’s idea would cause more harm than good. Perhaps other methods are worth trying, such as centralizing and anonymizing campaign donations.
These articles were widely circulated, especially on Twitter. I was personally surprised to see these arguments in the NYT (with no respect for reality) and to see how fast the ideas caught on via Twitter. The NYT would help make for more interesting ideas if it didn’t just write fancy rants that defy economic logic, but rather pushed the envelope on what people can do to make material differences and help change today’s political equation.