A Modest Proposal to Raise Taxes on Mr. Buffett (and me)

I doubt that it will go anywhere, but there is a proposal on Capitol Hill to tax private equity funds more.  As usual with Congress, we can criticize this from two angles.  The first is that they are creating a discriminatory rule that will create more clever structuring, but not result in significantly more taxes.  Private equity funds might float stubs of their holdings on the public equity markets in order to avoid taxation.  There are other ways they could deal with it as well.

The other criticism is that the proposal is not broad enough.  We need to tax everyone on the appreciation of their assets every year, whether they have sold them or not. Granted, this modest proposal would require a substantially larger IRS, but as for real estate, the Feds could piggyback off of what is done at the state level, with suitable massaging to create comparability.

This would whack the life insurance industry, certain tax-efficient mutual funds, etc.  It would lead to many abandoning their holdings on which they wanted to avoid taking the tax hit.

With the money raised here, the AMT could be easily eliminated.  What’s more, we could lower the top marginal tax rates, still bring in excess revenue.  We could have a flat tax, and the rich would pay a lot more than today.  No more shelters; everyone pays on the increase of their beneficial income, whether they have received it in cash or not.  This would create greater liquidity and volatility in the markets as stock that was locked away comes out for sale to create liquidity for tax payments.

Do I want this system?  If it is part of radical simplification and flattening of the tax code, yes.  Those who benefit from the system would pay their fair share, rich and poor alike.  I might end up paying more, but it would be more equitable.

PS — private businesses would still be difficult to apply this to, but I would tax them on their EBITDA.