Buffett higher tax call strikes a nerve

(Reuters) - Warren Buffett has touched a national nerve.

The 80-year-old "Oracle of Omaha," one of the world's three richest men, has taken to the pages of the New York Times to call for higher taxes -- yes, higher taxes -- for himself and his well-off peers.

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," he said.

Buffett calling for a higher tax burden for the wealthy is nothing new; last November, in a lengthy sit-down interview with ABC News, he insisted that the wealthy "have it better than we've ever had it" and that they had an obligation to pay substantially more tax.

However, the timing of his latest appeal made people take notice. Washington lawmakers are fighting about how to reduce the nation's budget deficit and curb its massive debt burden, and the question of "added revenue" -- code for higher taxes -- looms larger than any other.

Republicans have fiercely resisted any attempts by President Barack Obama and Democrats in Congress to make higher taxes for the wealthy part of any budget plan, insisting instead on all the deficit-curbing measures be made through spending cuts.

Taxation will be a major theme of the 2012 presidential election, and Buffett planted himself squarely in the middle of the debate.

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks," he wrote.

Buffett is not alone in agitating for change.

Starbucks Corp Chief Executive Howard Schultz is brewing up support for his call to withhold political contributions to U.S. lawmakers until they strike a "fair, bipartisan" deal on the country's debt, revenue and spending.

TRENDING HIGH ON TWITTER

In his Times piece, Buffett felt free to speak for his fellow rich.

"Most wouldn't mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering," he said.

While there are plenty of "super-rich" who have been outspoken on tax issues in past, like Carlyle Group co-founder David Rubenstein and Congressman Darrell Issa, only one of the country's notably wealthy people who was contacted by Reuters was immediately willing to respond to Buffett's call.

"George Soros says he agrees and congratulates Warren Buffett," his spokesman said. "The rich are hurting their own long term interests by their opposition to paying more taxes."

From the general taxpaying public, the reaction was almost instantaneous. "Warren Buffett" was one of the single most mentioned topics on Twitter as of Monday afternoon, as was the title of his op-ed piece, "Stop Coddling the Super-Rich." Nearly 55,000 people voted in an MSNBC.com poll on his comments, and 95 percent agreed with him.

President Obama, appearing in Minnesota on a bus tour of the U.S. Midwest, cited Buffett's comments as further proof that Congress needed to find ways to raise tax revenue without taxing the middle class any further.

Speaking of the various tax incentives he and other wealthy taxpayers receive, Buffett said "(these) and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places."

Buffett, chairman of the conglomerate Berkshire Hathaway, said his federal tax bill last year was $6,938,744, the equivalent of 64 shares of Berkshire Class A stock.

"That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income -- and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent," he said.

Why Germany might let Germany fall

by Fareed Zakaria in globalpublicsquare.blogs.cnn.com

This is the moment of truth for Europe.

For the last year or so, the Europeans have repeatedly produced workable compromises that kicked the can forward. They hoped these compromises would quiet the markets.

This strategy was often quite successful. Europeans kept promising, “Yes, we are going to bail out the weaker countries with the greatest debt load, but we want some structural reforms in return. And as we get more structural reforms, we’ll bail them out more. And if the crisis seems more intense, we’ll bail them out again.”

The Europeans repeatedly produced packages that were enough to satisfy the markets. Their hope was that at some point concerns would dampen down and then in the quiet of the night they could allow a country like Greece to soft default - a restructuring that doesn't spook everyone and doesn’t become a Lehman Brothers-like event. They sought a quiet reshuffling of debt.

I think this soft landing has now become impossible.

Today what people are basically asking is: “Is Europe’s debt going to be centralized or not?” In other words, is Europe going to be willing to say, “All our debt is pooled together and theoretically, as a single entity, we’ll pay it back.”

The key to this commitment is Germany. Germany is the only country that can pay.

But Germany is increasingly reluctant to do so. What we're watching is the rise of a new, ‘normal’ Germany, which in turn will lead to the unraveling of the old, highly unnatural structure of Europe.

The old structure of Europe rested on an extraordinary degree of German abnegation of its own interests. The Germans believed their national interest lay in subordinating itself in every way to Europe’s broader interest. That was what Europe was built on.

That’s why when you go to Brussels to the European Union you find a French-run affair with Germany’s money - a German-financed, French-run organization.

That has changed. The Germans, 60-years after World War II, are understandably becoming a more normal country. They are deeply, purely European but they are not going to pursue Europe’s interests at the expense of their own.

Despite what people say, Angela Merkel has been extraordinarily willing to bail out weaker states in Europe. Obviously, she's tried to get a good deal in terms of forcing some structural reforms in Greece and places like that. But the real story is that she did this despite German public opinion, which is now 75% opposed to any kind of bailout. This German opposition to bailouts will surely remain going forward.

And if that is the trend going forward, the Europeans are going to have a very, very big problem. There really is no way you can make the numbers work without a much more substantial German commitment of resources than there is now. If that doesn’t come through, it’s very difficult to see how the euro in its current form survives.

The key to Europe’s future is how Germany conceives of its interests. If it does so in a way that would be perfectly normal (it is important to emphasize there is nothing scary about Germany simply saying that it wants to do what’s right for Germany as well as Europe rather than always putting Europe above Germany) this might be the end of Europe as we've known it. It might be the end of Europe as a constructed, political entity built and supported by key nations, particularly Germany, no matter the cost.

Problems before US economy

This beautiful article appeared in NYT and was suggested by Nouriel Roubini @twitter:

WASHINGTON — Early in Bill Clinton’s presidency, his populist advisers saw their spending plans crash into resistance from Wall Street, which demanded deficit-cutting austerity.

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter,” Mr. Clinton’s political strategist, James Carville, lamented at the time. “But now I want to come back as the bond market. You can intimidate everyone.”

So it is relevant to ask: What does the bond market want at this moment of economic peril?

As it happens, two leading bond traders have strong opinions — though not what the Clinton-era populists would have expected.

Austerity? Yes, say Bill Gross, a Republican, and Mohamed El-Erian, a Democrat, the chief investment officers of the giant bond fund Pimco. They support curbs on entitlement spending.

But that is for the long term. Right now, they argue, the government needs to arrest America’s dangerous economic slide.

In fact, their prescriptions are more aggressive than any the White House has proposed or appears to be contemplating for President Obama’s planned speech in September. Among them: direct federal hiring to reduce unemployment and increase lagging demand.

Mr. Gross, a billionaire acclaimed for his early warnings that the dot-com and subprime mortgage bubbles would burst, said, “Capitalism in its raw form can’t pull us out of this hole.”

Five Weak Spots

Mr. El-Erian, who ran the nation’s largest university endowment as head of the Harvard Management Company, says the United States needs to move simultaneously to fix five overlapping structural problems.

The first is housing, staggered by fallen prices, foreclosures and “underwater” mortgages that exceed the value of the homes they financed.

One critical step, Mr. El-Erian said, is for government to ease refinancing rules for homeowners who remain current on their payments but do not meet borrowing criteria. (Mr. Gross observed that these lower-interest-rate refinancings would cost Pimco money on its mortgage investments.)

The second is the labor market, which has steered too many workers toward the housing, retail and leisure sectors, which will not fully recover anytime soon. To create new and better jobs, the government needs a renewed focus on improving math, science and engineering education, as well as job retraining programs to make workers more competitive.

While waiting for education investments to pay off, however, Mr. Gross says the government should finance immediate job creation to shore up the third structural weakness: America’s fraying infrastructure. Updating roads, bridges and airports would provide an engine for reducing unemployment faster.

“You’ve got to create a demand for labor,” Mr. Gross said. “The private sector is not going to do it.” Even if the government must do it directly, he said, “Putting a shovel in the hands of somebody can be productive.”

The fourth weakness lies in lending. Banks, still smarting from the loan losses that resulted from the financial crisis, want to lend to big companies that don’t need money, but not to small businesses that do.

“Credit pipes are clogged,” Mr. El-Erian said. One way to unclog them is a program of public-private partnerships, like the Infrastructure Bank that the Obama administration has proposed.

On the fifth problem, the government’s questionable long-term solvency, the Pimco executives say Republicans and Democrats are both right. Spending on Medicare, Medicaid and Social Security entitlements must be curbed, and taxes must go up — on the affluent and perhaps the middle class, too.

Given the scale of the problem, Mr. Gross says the tax increases proposed in the “grand bargain” that Mr. Obama and Speaker John A. Boehner sought earlier this summer were too small. Instead of $1 in tax hikes for every $3 in spending cuts, he wondered, “How about one-to-one?”

Short-Term Vision

Actually, Mr. Gross knows why not: tax increases are unpopular. Nor does he hold illusions about the political feasibility of other steps that he and Mr. El-Erian insist make economic sense.

Easier refinancing for underwater borrowers would require new loan guarantees by Fannie Mae and Freddie Mac, both symbols of the country’s failed housing policy.

New spending for education, infrastructure, lending or job creation would collide squarely with Washington’s bipartisan turn toward budget austerity. Both sides of the “grand bargain” are loaded with electoral risk.

A comprehensive economic solution requires the country to “step back and say, ‘Where do we want to end up in five years?’ ” Mr. El-Erian said. Neither voters nor elected officials typically show such patience.

So in reality, neither bond king feels that he has much political clout.

Mr. El-Erian said he rarely talks with the Obama economic team, especially after his recent public complaints about weak leadership in Washington.

Mr. Gross remains a registered Republican, but an independent one who notes that if bond-buying “vigilantes” on Wall Street ever could have imposed their wishes on government, they can’t anymore.

“The true vigilantes,” he explained, are the Chinese and the Federal Reserve. Which reflects the depth of America’s economic problem.