Does capitalism need to evolve?
Buffett remains a big proponent of capitalism and believes the market system still works — but says it needs to accommodate more folks and broaden the distribution of wealth.
“You want to keep a system where the goose lays more golden eggs every year — we've got that,” he says. “Now the question is, how do those eggs get distributed? And that is where the system needs some adjusting.”
For example, the top 10% of households by wealth boast $7 million on average and collectively hold 69% of America’s total household wealth, according to St. Louis Fed data.
In comparison, the bottom 50% held around $51,000 on average per household, adding up to just 2.5% of the total household wealth.
There’s a major racial wealth gap as well, with Black and Hispanic families owning about 24 cents for every dollar of white family wealth.
The economy in more recent years has only seen the unequal distribution of wealth become more exacerbated. Folks who purchased homes before the COVID-19 pandemic or during the years when mortgage rates were between 2% and 3% have seen their equity soar, while those who haven’t bought yet are no longer sure they’ll ever be able to.
And young people are bearing the brunt of the fallout — saddled with student loan debt and confronted with rising prices during a time when they should be kick-starting their careers and building wealth.
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Buffett has two solutions
More Americans are getting creative outside of their 9-to-5 jobs in order to make ends meet, like taking on side hustles for some extra cash.
But Buffett, who’s self-admittedly a “card-carrying capitalist,” told CNBC in 2020 that he doesn’t believe somebody who’s willing to work 40 hours a week and has a couple kids should need to work a second job in order to support their family.
“I believe in having a higher income for people — not necessarily a higher minimum wage,” he says. “I do not think it’s at all unreasonable that the income tax credit produces at least $15 an hour, maybe higher in certain areas.”
The earned income tax credit gets low- to moderate-income workers a much-needed tax break, and in 2023, ranges from $600 to $7,430 based on your family size and income.
Buffett has advocated for an expanded version of the earned income tax credit as the best way to put more funds into the pockets of deserving Americans who don’t fit into the traditional market system.
In a 2015 piece for The Wall Street Journal, he wrote raising the minimum wage in America — which is $7.25 an hour — to $15 an hour “would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills,” while smaller increases would still leave plenty of Americans entrenched in poverty.
Of course, earning even $15 an hour isn’t enough today. The Massachusetts Institute of Technology’s Living Wage Calculator puts the living wage for a family of four at just over $25 an hour before taxes — but notes the cost of living can be significantly higher depending on where you live.
The other solution, Buffett has said, comes down to raising taxes on the wealthy.
“This country has the productive capacity to let people like me live extraordinarily well — or sports stars, or entertainment stars, all kinds of good managers — and still make sure that nobody is really left [behind],” he told Yahoo Finance in 2020.
“We can do it. We have the resources to do it.”
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