LA Economist Explains Warren Buffet's Super-Rich Tax Plan

Warren Buffet's New York Times op-ed arguing that the super-rich do not pay enough taxes has heated up the debate over how to fix our economy.

The question is, how much revenue would taxing the super-rich really bring in? Remember, Buffet is worth more than $45 billion. Buffet proposes raising taxes on those people making $1 million or more a year. He suggested he would raise rates on "on taxable income of excess of $1 million, including of course, dividends and capital gains." For those making more than $10 million, the rate would be higher.

"They'd have two choices if they'd go and tax the rich," John Blank, deputy chief economist with the LA Economic Development Corporation, said Monday on Nonstop News LA. "One, [an] income tax increase through the income tax brackets. That could be 2 to 3 percent of a person's income."

Blank said what he thinks Buffett was "alluding to is the rise on long-term capital gains on investment. Because most wealth that gets created beyond a quarter of a million dollars comes in the form of investment income, and that gets taxed at 15 percent."

"He's thinking of people who own companies, or have sold companies and sit on a large piece of investment capital," Blank said. "He's saying people who own these massive amounts of the American wealth and can step up to a 20-percent capital gains tax rate, not the 15 percent, and I can throw off $100 billion to the United States and cover the deficit."

"It's been a philosophy of government for last 15 to 20 years, to basically make the argument that if you tax wealth less strongly, you would leave more investment capital in the system. That would create more business, which creates more jobs," he said.

"He's saying just raise the investment tax rate people are going to look at is secondarily, they don't invest to it, towards it or about it," Blank said.

According to the California Budget Project, people in different income brackets pay taxes differently:

The share of income California's families spend on state and local taxes is a function of the state's relatively progressive personal income tax and regressive sales and excise taxes. Higher-income families pay a larger share of their income in income taxes. Lower-income families pay a greater share of their income in sales and property taxes. Families also indirectly pay a portion of the taxes imposed on business through higher prices and reduced corporate earnings. Higher-income families pay a greater share of the corporate income tax, whereas lower-income families pay a greater share of the sales and excise taxes paid by businesses.

In California, 42.8 percent of personal income tax revenues were paid by the top 1 percent, the Sacramento Bee reported.

"There's a labor and capital income in an economy," said Blank. "Right now in the U.S., we've had the highest percentage in decades of profits earned by investment income versus wages earned from labor; and that is one of the factors that is depressing spending, which is slowing down job growth."

"We have to raise incomes, not investment income, but actual wage incomes to get spending up, to get jobs up," said Blank. "With budget negotiations, we have to put the burden somewhere, either on bond holders, on labor income or investor income…the obvious choice is to go this direction [Buffet's] talking about."