Warren Buffett Ready to Take Republicans’ Tax Challenge

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Mark Seliger for TIME

Updated, 6:10 p.m. E.T.

Warren Buffett is ready to call Republicans’ tax bluff. Last fall, Senator Mitch McConnell said that if Buffett were feeling “guilty” about paying too little in taxes, he should “send in a check.” The jab was in response to Buffett’s August 2011 New York Times op-ed, which made hay of the fact that our tax system is so unbalanced, Buffett (worth about $45 billion) pays a lower tax rate than his secretary. Senator John Thune promptly introduced the “Buffett Rule Act,” an option on tax forms that would allow the rich to donate more in taxes to help pay down the national debt. It was, as Buffett told me for this week’s TIME cover story, “a tax policy only a Republican could come up with.”

Still, he’s willing to take them up on it. “It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that [the deficit] can’t be solved by voluntary contributions,” he says with a chuckle. So Buffett has pledged to match 1 for 1 all such voluntary contributions made by Republican members of Congress. “And I’ll even go 3 for 1 for McConnell,” he says. That could be quite a bill if McConnell takes the challenge; after all, the Senator is worth at least $10 million. As Buffett put it to me, “I’m not worried.” (See below for a statement from McConnell’s office.)

Listen to Buffett’s retort to McConnell’s contribution theory:

(PHOTOS: The Life and Career of Warren Buffett)

Buffett doesn’t want to sound ungrateful, especially since McConnell and other Republicans have lobbied to keep taxes low for the über-rich, saving him between $6 million and $7 million this year. Oddly, though, conservatives can’t seem to make up their mind about taxes. On Wednesday in the Wall Street Journal, supply sider Arthur Laffer bashed Buffett for, among other things, shielded income, because he doesn’t pay taxes on unrealized capital gains (currently taxed at 0%) or charitable contributions (which are tax deductible). “Well, I had a net unrealized loss in 2011,” says Buffett. “But if Arthur has a plan for how he wants to tax unrealized capital gains, I’d love to hear it — it’s an interesting thing for a Republican to put forward!”

If Buffett had his way, he’d pay more than the 17% rate he currently forks over on his net adjusted income — and he’d have the government put that additional money to work by making sure that whatever portion of the 99% that isn’t thriving in the market economy gets some help. As Buffett wrote in Fortune a few years back, “I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions.”

Listen to Buffett discuss why a capitalist system should take care of good citizens:

Buffett doesn’t want to hobble capitalism. He just wants to give it a heart. And he says the way to do that is to change our tax policy to ensure that people who earn their money from investments rather than by working for a paycheck contribute their fair share. “We need a tax system that takes very good care of people who just really aren’t as well adapted to the market system and to capitalism but are nevertheless just as good citizens and are doing things that are of use in society.” Note to bond traders: your higher taxes should help subsidize the building of bridges and the running of state-sponsored day-care centers.

Buffett has plenty of other prescriptions for America — from more progressive consumption taxes to penalties for errant corporate directors to an overhaul of health care. He’s also got a few choice words for the Republican field and their ideas about bootstrapping and “merit” economies: “This whole business about [Newt] Gingrich going down to Occupy and saying, ‘They ought to be getting a job,’ that’s just … you know, maybe they can be historians for Freddie Mac too and make $600,000 a year.” When I ask whether Mitt Romney is a job creator or destroyer, Buffett says that while businesses shouldn’t keep people they don’t need, “I don’t like what private-equity firms do in terms of taking out every dime they can and leveraging [companies] up so that they really aren’t equipped, in some cases, for the future.”

(SPECIAL: See Warren Buffett in TIME’s List of the People Who Mattered in 2011)

Listen to Buffett explain why education can’t solve all the U.S.’s problems:

Despite Buffett’s disenchantment with conservatives and partisan politics, he’s more than ever a bull on America’s future. What would Warren do to get the U.S. back on track? Read TIME’s cover story this week, available Thursday morning online and Friday on newsstands, to find out.

Listen to Buffett talk about why housing will bounce back:

(MORE: What Politicians Have to Lose — and Gain — from the “Buffett Rule”)

Listen to Buffett discuss the tensions between the U.S. and China:

UPDATE: Don Stewart, a spokesman for Senator McConnell, provided the following response to Buffett’s remarks:

Sen. McConnell says that Washington should be smaller, rather than taxes getting bigger. And since some, like President Obama and Mr. Buffett, want to pay higher taxes, Congress made it possible for them to call their own bluff and send in a check. So I look forward to Mr. Buffett matching a healthy batch of checks from those who actually want to pay higher taxes, including Congressional Democrats, the President and the DNC.