Warren Buffett’s Answer to An Awful Economy: Schadenfreude

I’ve been a bit hard on Warren Buffett in some of my past columns. It’s not that I don’t respect the man. The amount of his wealth that he’s committed to charities is alone worthy of endless praise. There’s just something downright frustrating about having one of the country’s greatest business minds at our president’s disposal during a time of deep economic turmoil, and listening to him repeatedly offer up some of the most ridiculous advice imaginable for how to fix it.

I mean, this guy isn’t some phony media-economist like Paul Krugman. Buffett is a man who understands how wealth is produced. He understands what grows an economy, what gives investors confidence, and how jobs are created. He should be a great resource to someone like President Obama who clearly has no clue how a successful economy works.

Yet, instead of supporting the same serious, pro-growth policies that helped make him his fortune, all we ever hear from him is fruitless class warfare rhetoric that mirrors what we’ve heard from President Obama over the last few years. One could even make the case that Buffett was the guy who jump-started the nauseating “fair share” campaign.

It seemed to begin when Buffett started publicizing that his secretary pays a higher tax rate than he does. He declared the discrepancy to be a social injustice! This was music to the ears of President Obama, who’s always on the lookout for new ways to drive a wedge between the upper-class and the majority of the electorate.

The only problem is that Buffett’s claim was bogus. He knew full well that his tax rate was based on capital gains income (by his choice) while his secretary’s rate was based on her salaried income. Capital gains income is taxed twice. Money placed into the stock market has already been taxed at the normal income rate. It’s then taxed a second time when it’s taken out. The second tax rate is lower than the income rate, by design, to encourage wealthy people to invest more of their money into the stock market, which strengthens the economy. In other words, Buffett told a bit of a fib. He absolutely pays a higher tax rate than his secretary.

The truth, however, didn’t stop the president from doubling-down on the theme. Inspired by Buffett’s story, Obama came up with The Buffett Rule – a proposal to apply a minimum tax rate of 30% (including on capital gains) to individuals making a million dollars a year or more. It was billed by the president as a great step toward economic fairness and a important step toward getting our monstrous dept under control. Obama campaigned on the proposal for more than half a year, with Buffett lending his credibility to the plan. The media loved the idea, as they do pretty much any idea that the president comes up with. They followed Buffett’s secretary around with cameras, hailing her as a middle-class hero (she actually makes a solidly upper-class income), and singing the praises of Obama’s bold move toward getting the country’s fiscal house in order.

The glaring problem is that the proposal was utterly pointless. It was nothing more than a gimmick. The Congressional Budget Office worked the numbers and found that the amount of federal revenue the Buffett Rule would bring in was equivalent to the amount of money the federal government spends in one day. Yes, the Obama/Buffett grand plan for deficit reduction and helping the economy – the one the president spent months campaigning on – would have funded the federal government for a single day each year.

Was this a joke? This country is stuck in a devastating economic slump, and this was the best advice the “Oracle of Omaha” could come up with? If it was a joke, it’s on ongoing one. Buffett’s still vocal about wanting rich people to be forced to pay higher tax rates for no identifiable benefit to anyone. He even wrote an op-ed this week, encouraging congress again to enact the plan.

The other day, however, he did finally offer at least some insight into what his reasoning behind the tax hike is. On the Today show he told Matt Lauer that it would have a great effect in terms of the morale of the middle class.

That comment really struck me. If the goal is to raise the morale of the middle class, I would think that being able to find a job would be a good start. I would think that companies being able to give raises to their employees would be a good start. I would think that some fiscal sanity from our government and a growing economy would be good starts. Are middle class Americans honestly supposed to feel better about their own situations if rich people are forced to fork over more of their own money to the government? It’s not like they would benefit from it in any way.

No, what Buffett is offering isn’t a solution to anything. All he’s doing is promoting schadenfreude.

What is schadenfreude, you might be asking? Long time Dennis Miller fans might know the answer, but most people are probably familiar only with the concept. Schadenfreude is a German word defined as: “Pleasure derived from the misfortunes of others.” Yes, there’s actually a word for that.

We’ve all been guilty of feeling this ugly human emotion at different times our lives. It’s typically brought on by pent-up envy that lets us feel better about ourselves when someone we perceive as having a better life than ours is dealt a loss.

It’s the sly smirk that we fight to keep from forming on our lips when the lavishly-spending neighbor gets his expensive car repossessed. It’s the chuckle we repress when the kid, whose parents are always bragging about how absolutely brilliant he is, flunks out of college.

Just like those people’s misfortunes don’t actually benefit our lives, neither will Buffett’s plans for our tax system. But for some reason, he doesn’t see that. He just wants to pinch his wealthy peers to cheer up the middle class. It’s nonsensical, and it’s condescending to those who are desperately looking to our nation’s leaders for help during a very rough time. They don’t want someone to play them a happy little song on a ukulele. They want someone who can help turn this economy around! Well, at least the half of the country who voted for Mitt Romney does.

I don’t know if Buffett’s clown show is motivated by guilt over his own success, or what, but he’s wasting a serious opportunity if he honestly wants to help get this country headed in the right direction. He has the ear of the president, and that’s a pretty big deal. Obama tends to ignore most of the business community. If he’s such a respected public figure that our country’s decision-makers turn to him for words of wisdom during a crisis, he has a moral obligation to drop the craziness and actually offer something substantive to the table.

The last thing Americans need right now is a billionaire trying to lift their spirits by sticking it to rich people, and promoting pointless gimmicks. They don’t need a false sense of progress. They need competent leaders making wise, consequential decisions that will serve some positive purpose.

Author Bio:

John Daly couldn't have cared less about world events and politics until the horrific 9/11 terrorist attacks changed his perspective. Since then, he's been deeply engaged in the news of the day with a particular interest in how that news is presented. Realizing the importance of the media in a free, democratic society, John has long felt compelled to identify media injustices when he sees them. With a B.S. in Business Administration, and a 16 year background in software and web development, John has found that his real passion is for writing. His first novel, entitled "From a Dead Sleep", is now on sale! He lives in Northern Colorado with his wife and two children. Like John on Facebook. Follow John on Twitter.
Author website: http://www.johndalybooks.com/
  • http://twitter.com/TheBigOldDog TheBigOldDog

    WB made/makes his money buying family businesses forced to sell to pay death taxes when founder dies. He plays the class warfare game to prevent becoming a target himself. afterall a vulture capitalist who gut 100 year old successful inner city manufacturers who used to employ many minorities would otherwise draw a lot of attention.

    I propse a different version if a WB tax: anybody with a net worth of $1b must pay a flat 75% regardless of the source. see how he likes that the pbony SOB

  • Chris Matthewson

    Mr. Daly’s defense of a crazy tax system, in which enormous wealth is largely untaxed, passive income is lightly taxed and “sweat” income is the most heavily taxed of all, demonstrates how myopic both sides can be in this debate.

    But the most striking aspect of all is the failure of those on this side of the debate to understand that: they lost the election on exactly this issue (taxes); they will ultimately have to significantly compromise their cherished beliefs; and the longer they take to do so, the more they will be ones blamed for any perceived failure to correct our significant economic problems.

    I don’t believe most D’s want the R’s to stubbornly hold fast to their conservative principles, but doing so will actually play right into hands of the liberals. It should be obvious who the nation will blame if an acceptable deal doesn’t get done.

    But, go ahead. Keep yelling into the echo chamber if it makes you feel good. A few liberals will ultimately take great pleasure in your misfortune.

    • John Daly

      Oh brother. Chris, I want the tax system completely reformed! It’s ridiculously complicated right now, and it’s full of the kind of insane loopholes that let Obama’s kazillionaire buddies at GE get away without paying ANY taxes. THAT’s what YOU apparently support, isn’t it? What I’m against are gimmick initiatives like the Buffett Rule that is only being proposed to publicly shame rich people in a goofy, fruitless attempt to rise the spirits of the middle class. It serves no other purpose whatsoever, so what’s the point of burdening job creators and investors with it during a terrible economy? Let’s be honest Chris… Republicans didn’t lose the election on tax issues or ANY issue related to the economy, because the Obama campaign and the media successfully made the election about everything BUT the economy. The national polls ALWAYS gave the edge to Romney when it came to the economy, all the way up to the election. You see, Chris,..The biggest misconception people like you have about people like me is the assumption that our beliefs are expressed as a political defense of the Republican party. That might be the case with you and the Democrats, but not with me, and not with most conservatives. I have young children who I want to have the same opportunities to succeed that I had growing up. I don’t agree with every Republican party platform (I support gay marriage, and am more of a libertarian on social issues) but they’re right on the economy, so I support them standing in the way of a president whose economic policies are the most damaging in my lifetime. Such policies are pulling the future right out from under my kids, so when I see people with Buffett’s clout repeatedly following the president’s lead of turning what should be a serious national debate over the economy into a circus-act, it tends to get me a little worked up… as it should anyone who figures out that what we’re seeing right now in Greece is the future of our country.

      • Chris Matthewson

        Thank you, John, for your thoughtful response. I think we can at least agree that the tax code needs a complete overhaul, yet that is unlikely to happen anytime soon. However, you are wrong on almost everything else.

        You are incorrect to assume I would favor GE or any other corporation receiving preferential tax treatment. (The fact many do blows holes in your already obtuse and misleading “double taxation” argument for lightly taxing capital gains and dividends.) Another misconception you have is that I’ve assumed your beliefs are a defense of the R’s. I make no such assumption. I merely state that you (and others who share your views) are wrong.

        Did you support Bush and his war in Iraq? Did you support raising taxes to pay for such a war? Those who did have jeopardized our children’s future far more than those now seeking a compromise to achieve a more balanced budget. Do you also support the ever-expanding military industrial complex?

        You are further mistaken in your assertion that the recent election was not a national referendum on the economy and taxes. Your rant sounds a lot like sour grapes, as you grope for an alternative justification for why the majority of the country has rejected your ideas. I do assume you are, in fact, “being honest” when you opine “Republicans didn’t lose the election on tax issues or ANY issue related to the economy.” Yet, how can you deny the economy was the dominant issue in the campaign? Those same national polls you cite overwhelmingly support Obama’s position on taxes!

        Certainly, there were other issues that gave Obama a convincing electoral victory. As I wrote in response to Bernie’s 11/6/12 column (http://forum.bernardgoldberg.com/viewtopic.php?f=14&t=33788 ), wherein I predicted the week prior to the election that Obama would win:

        “We can never know for sure, but the President’s bailout of the auto industry, combined with his perceived effective response to the recent hurricane tragedy (and Gov. Christie’s approval of same), probably carried the day for Mr. Obama in Ohio and, when all the votes are counted, in Florida, too. More generally, signs of an improving economy and bin Laden’s execution convinced enough of the electorate that we shouldn’t be switching sea captains mid-ocean, particularly when our current helmsman is attempting to navigate between a domestic Scylla and an international Charybdis while simultaneously trying to fend off a McConnell-led mutiny by half the ship’s crew.

        “Unfortunately, Bernie, who has written eloquently in the past about media bias, is letting his own biases cloud his objective analysis of the election. Similarly, in groping to understand how they lost again this time around, conservatives (on this website and elsewhere) denigrate the majority of the country who chose the President’s vision over that of his opponent. Many of them will quite erroneously believe the lesson of this election is that their candidate didn’t tack far enough to the Right.

        “At some point, those who consider themselves political pundits, as well as those who consider themselves statesmen, should remember that politics is the Art of Compromise. While the nation is basically evenly divided on ideology, a clear majority of its citizens want their leaders to conduct themselves according to this basic truth.”

        • John Daly

          Why AREN’T the tax codes going to be overhauled, Chris? The Republicans are ready to do it. Romney ran on it. The Republicans in congress have put it on the table in the fiscal cliff discussions. They aren’t going to be overhauled for one reason: Obama refuses to. Plain and simple. So why isn’t your beef with him? Tax reform brings additional revenue, which is what you seem to want, yet Obama stands in the way. Who’s “seeking a compromise to achieve a more balanced budget”? The Democrats aren’t. To suggest so is completely insane. In the past four years, they’ve never presented a plan to balance the budget or anything remotely resembling that. All they’ve put forth is massive spending, new taxes, removing the debt limit, etc. I freely admit that war is expensive (you know, those wars supported by Joe Biden, Hillary Clinton, and numerous other high ranking members of Obama’s administration), but as expensive as they’ve been, they account for a very small fraction of our overall spending. The major drivers of our debt don’t include our military. As Obama said himself two years ago, it’s our broken entitlement programs. Reforming them is the only thing that can save us, but Obama refuses to. He challenges people to give him ideas for how to fix it, then when they do, he demagogues the issue. The notion that Obama has any interest at all in a healthy, sustainable economy is beyond ludicrous. Anyone too blind to see that can’t be taken seriously.

          • Guest

            Why aren’t the tax codes going to be overhauled? Because not since Wilbur Mills’ Argentine bombshell took a plunge into the tidal basin has anyone in Congress really completely understood the code.

            What the vast majority of the American public (in the abstract) wants is a sweeping compromise: a significant increase in revenue and dramatic reductions in expenditures. What I personally believe we need are radical measures that would go BEYOND the modest increases in revenues suggested by our timid administration, along with far greater draconian cuts in expenditures. The Simpson-Bowles recommendations don’t go far enough, although I admit they are probably the most we could expect from our political system.

            Since our politicians and the people who elect them now are firmly entrenched in an unholy sy

          • Guest

            Why aren’t the tax codes going to be overhauled? Because not since Wilbur Mills’ Argentine bombshell took a plunge into the tidal basin almost 40 years ago has anyone in Congress really completely understood the U.S. tax code.

            What the vast majority of the American public now wants (at least in the abstract) is a sweeping compromise that includes both a significant increase in revenue and dramatic reductions in expenditures. What we actually need, however, are more radical measures that would go BEYOND the modest increases in revenues suggested by our timid administration, and the tepid cuts in expenditures suggested by the R’s. The Simpson-Bowles recommendations don’t go far enough, frankly, although they are probably the best possible outcome we could hope for in this fractured political climate. Actually, we will be lucky just to get to get “talked down” from the impending cliff.

            Our politicians, and the people who elect them, are now firmly entrenched in a symbiotic march towards an inevitable outcome. We have gone far beyond the situation warned against by de Tocqueville’s (“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”) The public and both political parties are greedily engaged in the fiscal emasculation of generations yet unborn.

            I suspect that the increasingly massive “can” will inevitably be kicked yet again down the road, but in decreasing distances, like a Zeno’s Paradox march toward our own fiscal doom.

          • Chris Matthewson

            Why aren’t the tax codes going to be overhauled? Because not since Wilbur Mills’ Argentine bombshell took a plunge into the tidal basin almost 40 years ago has anyone in Congress really completely understood the U.S. tax code.

            What the vast majority of the American public now wants (at least in the abstract) is a sweeping compromise that includes both a significant increase in revenue and dramatic reductions in expenditures. What we actually need, however, are more radical measures that would go BEYOND the modest increases in revenues suggested by our timid administration, and the tepid cuts in expenditures suggested by the R’s. The Simpson-Bowles recommendations don’t go far enough, frankly, although they are probably the best possible outcome we could hope for in this fractured political climate. Actually, we will be lucky just to get “talked down” from the impending cliff.

            Our politicians, and the people who elect them, are now firmly entrenched in a symbiotic march towards an inevitable outcome. We have gone far beyond the situation warned against by de Tocqueville (“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”) The public and both political parties are greedily engaged in the fiscal emasculation of generations yet unborn.

            I suspect that the increasingly massive “can” will inevitably be kicked yet again down the road, but in decreasing distances, like a Zeno’s Paradox march toward our own fiscal doom.

  • http://twitter.com/NJNuke Brian Gutherman

    I agree with most of this piece except the assertion that cap gains are double-taxed. If I earn $1000 after taxes and invest that in stocks, then sell the stock for $1200, I don’t pay tax on the original $1000 again, just the $200 gain. That’s why it is called cap gains tax, right?

    • John Daly

      I should have been more specific. For the people who make more than a million dollars a year, that Buffett is talking about, the tax code layers taxation of dividends and capital gains on top of the CORPORATE tax rate. For people like me, and presumably you, the corporate tax rate doesn’t apply. But then again, neither does the Buffett Rule. Here’s an article in the Wall Street Journal that explains it pretty well: http://online.wsj.com/article/SB10001424052970203806504577183250095478594.html?mod=googlenews_wsj

  • Switchlight13

    It’s simple, like most leftists, deep down inside Buffet suffers from White Guilt. Obama, Holder, Jarrett and the rest of the corrupt Chicagoans in the White House own Buffet. White Guilt is the epidemic that got us where we are today. It’s ignored while it spreads like wild fire among the sheep. The USA ia a declining empire as is Westren Europe. Welcome to the Chinese Century.

  • Wheels55

    Easy for Buffett to say he favors larger tax rates when he already has more money than what he can even count. I agree that he may feel guilty, but I think it has more to do with him craving the spotlight as an elder-wiseman. If Buffett said no to higher tax rates, he would just be another old white guy.

  • tim ned

    What’s not clear in Buffett’s income is how he earns his capital gains. He has never clarified that. John Daly is absolutely correct in that the capital gains tax is profit from investments typically invested from income that was also previously taxed. However I believe that Buffett could be skirting this law. If he is taking income through stock options, rather than normal payroll, he could be earning income that would fall under the lower tax rate. Mitt Romney is retired so his income is actually capital gains.

    Buffett should clarify how he earns his income before he makes a case for increasing the capital gains tax. The vast majority of my income is through payroll and sub-chapter S distributions. My investment income was previously taxed and I pay the lower capital gains tax when I make money in my stocks. That’s the way it should work.

  • http://www.facebook.com/phil.silverman.9 Phil Silverman

    Yes, we should have let Romney run the economy. 20% tax break for all, incl. zillionaires. double the defense budget so we can start two new wars. Nice goin’, Bern’. Say hi to all the fear-mongers and Obama hate robots at Fox.

    • John Daly

      Philip, First of all, there’s a name at the top of every column on this website. If it’s not Bernie’s name, that means he didn’t write the column. I know it’s complicated. Secondly, I have yet for anyone on the left to explain to me why raising tax rates, as opposed to broadening the tax base and removing deductions, is preferable when the same amount of tax revenue is on the line? Please explain to me why it’s so incredibly important to raise millionaires’ tax rates (encouraging less investment, fewer jobs, slower economic growth, etc) when removing deductions allows everyone’s tax rates to be lowered and encourages stronger economic growth? The ‘evil rich people’ aren’t paying any less to the government. If the point of raising tax rates is purely punitive, my argument has been made.

  • artlouis

    John, I think Buffett advocates higher tax rates, which wouldn’t hurt him much, because he is trying to stave off something that really chills his bones: a “wealth tax,” which some Dems are starting to promote. This is the concept that all the money you have kept after taxes also is fair game for the government. It would be sort of a death tax while you are still alive. You might be required to cough up, say, 2 percent of your assets every year to pay for Obamaphones, or whatever.

    • John Daly

      Honestly, I doubt the wealth tax is even on his radar. I think it’s more of a guilt complex or something.

      • http://www.facebook.com/phil.silverman.9 Phil Silverman

        I guess Buffett is lying about his desire to have the very weathy and the middle pay about the same income tax rate. :)

        • John Daly

          He’s being willfully dishonest, as much to himself as anyone else. If he’s sincerely losing sleep at night because the government’s not taking enough of his money, he’s more than welcome to give more, rather than using some lame gimmick to take his guilt out on others.

          • deny916

            That’s what we keep saying John! Write the check Buffet and shut the h*ll up!

      • Mona Saunders

        Nothing excites Buffett more than buying stocks at low prices and he missed doing a lot of that in 2008-09 by his own admission. It could be possible that Buffett keeps asking Obama to take the US over the so called fiscal cliff because he thinks that may cause stock prices to drop, which could help Berkshire put much of its $50b in cash to work.