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.