Skip to comments.Why Warren Buffett is wrong (singling out the super-rich for more taxes is misguided)
Posted on 08/16/2011 10:50:29 AM PDT by SeekAndFind
-- In a recent New York Times op-ed article, Warren Buffett asserts that the super-rich do not pay enough taxes. He suggests that any new budget deal should raise rates on the super-rich, especially on their "unearned" income from interest, dividends and capital gains.
Buffett is wrong. Bad government policies play a major role in generating inappropriately high incomes, but singling out the super-rich is misguided. And the policy Buffett criticizes most -- low tax rates on capital income -- should be expanded, not eliminated.
The first problem with Buffett's view is that the number of super-rich is too small for higher rates to make much difference to our budget problems.
In 2009, the income earned by the 236,833 taxpayers with more than $1 million in adjusted gross income was about $727 billion. Imposing a 10% surcharge on this income would generate at most $73 billion in new revenue -- only about 2% of federal spending. And $73 billion is optimistic; the super-rich will avoid or evade much of the surcharge, significantly lowering its yield.
Focusing on the super-rich also fosters a counterproductive attitude toward material success. The way to promote a hard-working, entrepreneurial and innovative society is to celebrate great wealth so long as it has been earned by legitimate means. When this is not the case, policy should target the wrongdoing directly, not demonize everyone who hits it big.
Most importantly, singling out the super-rich distracts from the real problem: the myriad policies that make no sense in the first place because they inhibit economic growth and that simultaneously redistribute from low-income households to the middle and upper classes.
(Excerpt) Read more at cnn.com ...
What keeps Warren Buffett from paying more if he wants to?
Had a friend who set out to become the best woodworker anywhere. Extraordinary talent, hard worker. Never made much money. Loved boats, though, so he got into the “yacht-building business.” Eked out a living (38K/yr) for himself and his family...
Until the “Yacht Tax.”
Then, he was out of work.
What could be more perfect that a Yacht tax, right? After all, only rich, fat industrialists profit from “yachts.”
Fortunately there was a rescue:
Have YOU ever worked for a poor person?
Whatever extra taxes Buffett may pay will be more than offset by the favorable government treatment his companies will gain as his payoff for shilling. That’s how ‘crony capitalism’ works.
Well, he can always pay more if he feels compelled, but why does he take it upon himself to speak for other people with his kind of money? It is their money, not the government’s.
Realistically speaking, this is what Buffet wants -— He is saying that If you want to deal with the deficit, you need to cut spending AND raise revenue. Cutting without raising revenue is like having a meal without the vegetables. Yes, you can get by, but it doesn’t promote a healthy body if your not taking all the right steps ( I think this was his analogy ).
One of Warren’s main talking points was that taxation has never stopped investors from buying a good deal.
He argues that if you even raised taxes among billionaires by 4% and dropped taxes for the middle class by 2-4%, you’d still raise revenue while giving people money back in their pockets to do direct investing, buying, and following a standard circular flow of money. In fact it’d be better for business because that 2-4% would go back into companies instead of a bank account where it then might not get touched again for years and is essentially dead money to our active economy.
That is his argument not mine. You are free to rebut him and in fact, this is what this thread is for.
As regards Buffett, by saying that taxes need to be raised on certain people, he is in effect, volunteering someone else's money. My take is that Buffet should contact other people and see if they agree to have their money taken before he suggests that it be taken. Otherwise, as others have noted, nothing is stopping him from sitting down and writing a check to the U.S. Treasury for 30 billion dollars instead of giving that money to the Bill Gates foundation.
Not only that but this tax the rich scheme never seems to do what it sets out to do: namely tax the rich as the term “rich” is often defined to include upper middle class - middle class folks. I think Buffet should ease his conscience by voluntarily giving more of his money to the State if he so desires but he has no right to mandate that anyone else do the same as that’s just State sanctioned theft.
Buffet is a stupid arse moron.
Our payment on the debt is $4BILLION per day...so, let him and another 364 Billionairs (if there are the many in the USA...) divide up the interest on our debt and pay it off for a year...
FUBO and the horse you rode in on...
Warren Buffet can afford to be wrong.. I cannot...
No doubt Warren has some of his portfolio in hard gold..
He already has his fortune.. he can experiment..
BUT OBAMA??... Warren defaults to OBAMA!!>>>
He knows something thats suspicious.. about Obama..
Is martial law in our future?... or some other gambit?..
I’m not ready to account Buffet as being senile YET!!!..
Billionaires going for Obama is very suspicious..
Obama is the Wily E. Coyote of Capitalism..
The Daffy Duck of free market trading...
The Yosemite Sam of American socialism..
Something doesnt add up.... actually many things do not add up..
Did anyone else see Stusrt Varney on FoxBusiness this morning? I didn't quite catch his argument, but he was saying Berkshire Hathaway's core business relies on selling instruments (insurance? bonds?) that act as tax shelters and the higher the taxes go, the more demand for their services. Can anybody flesh this out?
It reminds me of the Soros scam, funding all the US groups that weep over drilling for oil in poor Mother Earth (keeping US production constricted) while investing big-time in overseas producers (Petrobras and Hess).
Brainless. How can anybody fall for this?
So the money that he'll have to pay to the IRS he was going to otherwise bury in a back yard in Omaha? Is Buffett having brain failure? He says he would invest exactly the same amount exactly the same way. He's a liar.
I have never been employed by a poor person. In fact, I think the term "poor person" is itself despicable. Those who have low incomes can always increase their wealth through diligence, smarts and good old ingenuity.
That said, I will grant that there are two major obstacles standing in the way of a person bettering himself.
1). The minimum wage: This vile invention of the corrupt Roosevelt administration (1936) deprives a worker of individual freedom and liberty. The artifice of the minimum wage prohibits a worker from negotiating a wage with an employer since a threshold has been established by the government.
2). Labor unions: The evil wrought by labor unions merits an entire thread unto itself. Suffice it to say, unions are largely responsible for the loss of American economic might. The goons, thugs and bosses from Big Labor have saddled the producers of jobs with burdensome work regulations and vastly inflated wages, crippling American business.
Warren Buffet has totally missed the boat (or yacht, in keeping with the crux of your point). The so-called "super rich", which is a patently obscene term, are the job creators who have obtained their wealth by dint of providing products and services that have excelled in the free market. These are the last people who need the additional burden of taxation. They stoke the engine of our economy and should be praised not punished!
If he were using his brains and truly cared about our country, Warren Buffet would be using his influence to call for the abolition of the minimum wage and to advocate for right-to-work laws across the land.
What a lame excuse.
Then why not reduce taxes on the super rich, since the number of super-rich is too small for lower rates to make much difference to our budget problems.
Actually, I just want to deal with Buffet’s arguments which are these :
1) He pointed out that he pays a lower tax rate than anybody in his office, including the secretary.
Well, what Buffet does not tell us is WHY this is so.
When Buffett receives dividends and capital gains, it is true that he pays only 15 percent of that money on his tax return.
Companies that have made a profit can do one of two things with the excess cash. They can (1) take the money and reinvest it to earn even more money, or (2) take the excess funds and divide them among the company’s owners, the shareholders, in the form of a dividend.
If the company decides to pay out dividends, the earnings are taxed twice by the government because of the transfer of the money from the company to the shareholders. The first taxation occurs at the company’s year-end when it must pay taxes on its earnings. The second taxation occurs when the shareholders receive the dividends, which come from the company’s after-tax earnings. The shareholders pay taxes first as owners of a company that brings in earnings and then again as individuals, who must pay income taxes on their own personal dividend earnings.
So, dividends and capital gains are both forms of double taxation. So if Buffet wants honest effective tax rate numbers, he needs to show the 35 percent corporate tax rate that has ALREADY BEEN PAID.
2) Buffett also completely ignores the impact of the death tax, which will result in the federal government seizing 45 percent of his assets. To be sure, Buffett may be engaging in clever tax planning, so it is hard to know the impact on his effective tax rate, but it will be significant.
BTW, didn’t Buffet try pledge most of his money into the Bill and Melinda Gates Foundation? Well, this is simply a way of NOT giving to the government.
If he wants the government to take more of his money for “fairness”, why does he not just leave it alone so that when he dies, the government will take close to half of it to make him happy?
3) Buffett says that he doesnt consider the tax implications for his investments.
I call BS on this. one of the major tenets of the value investing practice Buffett follows, which he wrote in his book, is to hold equities as long as possible to minimize the impact of taxes and therefore maximize internal returns.
WHY DOES HE WANT TO MINIMIZE THE IMPACT OF TAXES AND MAXIMIAZE INTERNAL RETURNS IF HE WANTS THE GOVERNMENT TO TAKE MORE OF HIS MONEY?
Buffet might be a different breed of investor ( although as I said, I can’t believe him here ), but the rest of the investing world is solely concerned with after-tax returns to their investments. Tax rates including the capital gains rate, dividends rate, corporate income tax rate, and individual tax rate are major determinants of after-tax returns.
DING! DING! DING! DING! DING! DING! DING! DING! DING! DING! DING! DING! DING! DING!
Buffet is a sick old Democrat. Brainless but just lucky.
Warren Buffet is wrong just about everything except picking stocks. He can run my portfolio but I do not want him anywhere near my checkbook. The opposite is true. The best way to control spending and cut the deficit is to tax the 46 per cent who do not pay taxes. It will broaden the tax base. But more importantly, once someone has to pay Federal taxes they are less prone to push for more spending once they realize it will affect their pocketbook.
Gifts to the United StatesGiven that Buffet knows full well that he can donate and given that he has not made an announcement of a billion dollar donation, we must assume he has an ulterier motive.
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 622D
Hyattsville, MD 20782
“that 2-4% would go back into companies instead of a bank account where it then might not get touched again for years and is essentially dead money to our active economy”
Ah, the old Keynesian matress theory. Save us from the big, bad savers, Washington.
Whosoever believes the wealth of the rich sits idly is not qualified to speak on economic matters.
Yes. Exactly. A flat tax / Fair Tax would do just that.
“One of Warrens main talking points was that taxation has never stopped investors from buying a good deal.”
Of course it has. Or, rather, it has stopped investors from buying more of a good deal. I suppose Warren is correct if he means that so long as a single penny remains to be spent by private entities, we can still buy into a good deal. Which is true but trivial. The real debate, as always, is over how much or how little of our national wealth the government ought control. Buffet typically evades the issue altogether and leaves unspoken his clear preference for continued government aggrandizement.
What kind of person thinks like this?!?! Answer:
a) someone who believes in the general beneficence of government “investment,” over and above private disposal of private stores of wealth; and
b) someone who stands to personally benefit from continued and expanded governmental disposal of private wealth.
“Those who have low incomes can always increase their wealth through diligence, smarts and good old ingenuity.”
Yes, people too seldom realize the “poor” and “rich” of social science statistics often characterize the same person at different times in his life. The poorest among us are typically teenagers, and the wealthiest the elderly. Talk of a permanent underclass is either lies or loose talk, with the exception of dependents of the Welfare State.
“Buffett also completely ignores the impact of the death tax, which will result in the federal government seizing 45 percent of his assets”
Obama sold Buffet some snake oil, which Buffet believes will allow him to live forever. So the Death Tax is a non-issue.
You sure don’t hear Ted Turner, Peelosi or Jane Fonda chimining in with him. Guess they’re not all as sh-theaded.
Here’s a question for Warren Buffett: Suppose hypothetically that many years ago, I founded an investment company called... let’s call it Hathaway-Berkshire (”HB”), which pays me $1 per year as president and CEO. Let’s assume that HB is so successful that the price per share has risen over the years from $10 to $125,000 and as a result, I as the larget shareholder of HB have a net worth of $40 billion. Let’s also assume that to reduce the income tax liabity of the HB investors, HB doesn’t pay a dividend or make capital gains distribution, rather the profit to the shareholder is the capital appreciation of the shares, which produces a long term capital gain, taxable at 20%, if and when the shares are sold, subject to an offset for capital loses and other investment expenses.
Since I only pay myself $1 a year, I need another source of money to live on, but I don’t want to sell my shares in HB because I don’t want to pay taxes on the capital appreciation. Instead, I go to my friendly bank, and borrow $5 billion, secured by my HB stock, at preferred interest rates, and then use part of what I borrow to pay the interest on the loan and invest the balance of the loan in double tax free municipal bonds. I then live comfortably off the tax free income from the borrowed money.
Thanks to HB, I am now one of the wealthiest men in the world, but I pay very little taxes on ordinary income because I only make a $1 a year in salary. I don’t pay any taxes on dividends or capital gains because as president and CEO of HB, I decided not to declare a dividend or distribute capital gains, and I haven’t sold any shares in HB in decades and therefore, I haven’t had to pay any capital gains taxes on the capital appreciation. Instead, I have borrowed money to invest in double tax free muni’s, which allows me to write-off as an invesgtment expense at least part of the cost of borrowing the money to shelter thelittle bit of taxable income or capital gains that slips through the cracks.
I can scream all I want about why the wealthy should pay more income and capital gains taxes, but none of this will affect me personally, because I have spend millions and millions of dollars on tax lawyers, accountants, and political campaigns to make sure that I have no taxable income or capital gains, and therefore, increasng the income tax rate and/or capital gains rate on the wealthy will mean nothing to me because I, as one of the wealthiest people in the world, have little if any taxable income or investment gains. I
Yours is a very good analogy here. But I think I am trying to understand Warren Buffet’s “Tax-me-more” mentality...
First, let’s talk about the issue of -— “He can always write a check to Uncle Sam”. I don’t think the man got to be Billionaire because he is stupid and doesn’t know that he can donate his money to Uncle Sam anytime he likes. HE KNOWS THAT, sohe does not need anyone’s advise.
Anyone calling for him to write a blank check to the government can’t see the forest through the trees.
Buffet knows that a “donation” to the US government (which is effectively what most FReepers are asking him to do) won’t even make a ripple in the government revenue stream.
But I think that he’s thinking -— If he asks everyone of the “super-rich” to do it with me (which is exactly the point of his article), then it makes more sense because of the COLLECTIVE amount.
So, if his Collective Amount is viewed from his own lenses, then, Buffet’s “I’m only going to do it if you make me” argument would make perfect sense.
He’s waiting to donate his money to the Gates Foundation because he knows that the best way to make an impact is for compounding to continue to work until he no longer has any control over it (aka death). The Gates Foundation is well funded until then, and probably has no immediate use of the money.
Anybody who has followed the career of the man will begin to understand his thinking -— Spending is an issue, but so is income inequality and THAT is what Buffet thinks he is trying to address... FAIRNESS ( misguided as he is ).
Buffet believes that sooner or later the income gap will shrink - either by choice or by force. I’m pretty sure he doesn’t want the latter (not that he would be around to see it.).
Just trying to go into the mind of the man folks, to find out why he’s asking to be taxed more.