Warren Buffett, the multi-billionaire who was the darling of Democrats because of his support for higher taxes on the rich, has learned a painful lesson: Good opinion from that quarter lasts only as long as you sing their song.
Turns out that, unlike President Barack Obama, the savvy, high-stakes investor known as “The Sage of Omaha” favors a small-to-moderate-sized government. The president’s supporters are not pleased.
Recently Mr. Buffett called for federal revenue averaging 18.5 percent of Gross Domestic Product and government spending of 21 percent of GDP as a long-range solution to the nation’s fiscal problems. As he explained in a New York Times op-ed, our national debt would grow no faster than the economy and government finances would be stabilized.
Last year, federal revenues were held down to 15.7 percent by the sluggish economy. But the same tax code — the so-called Bush tax rates — produced revenues of 18.5 percent of GDP in 2007, when the economy was strong. In other words, Mr. Buffett prefers a Bush-like revenue figure to the higher level sought by Mr. Obama, who hasn’t fully explained how high he wants to see taxes go.
But it was Mr. Buffet’s suggestion on a spending cap that really galled the advocates of bigger government. Barely a day passed before liberal pundits were suggesting that Mr. Buffet was suffering from the vicissitudes of old age at 82. Washington Post columnist Matt Miller took issue with the spending level of 21 percent of GDP, a figure he suggested that Buffett had just borrowed from the Simpson-Bowles Commission and hadn’t thought through on his own.
“Solvency,” Mr. Miller wrote, “is not an adequate national goal. ... What we need is an agenda for national renewal.”
That can’t be done at the historical federal spending average of 21 percent of GDP, he claimed, because the elderly population will double, teachers need higher salaries, the government has to build roads and subsidize research, much larger “wage subsidies” are needed for the working poor, and the government has to pick up the health care costs of all Americans. Mr. Miller wrote: “Add it all up, and ... we’re probably talking around 28 percent of GDP” if the economy is strong, more if it is not.
That big vision would inflict a big cost. Closing the deficit to within 3 percent of GDP, as Mr. Buffett suggests, let alone balancing the budget, would require federal revenues to reach at least 25 percent of GDP. Measured in today’s dollars, that would add over $12 trillion dollars to government coffers in 10 years.
That money would not be invested by entrepreneurs in new jobs or used to meet family bills. It would be used to swell government payrolls and increase the power of decision-makers in Washington.
And you don’t have to be a world-renowned financier like Warren Buffett to know how foolish that investment would be.