ERICOPOLY

And that person isn't going to be me. Out of altruism I would vote for a VAT system because that's the only way you can extract my fair share of taxes going forward. Speaking from experience, I know the rest of these taxes are easy to game. But the VAT can't be avoided, unless you just leave the country entirely. You practically gave me a hardon when you suggested corporate taxes be eliminated because that's the only real tax I pay on my owners' earnings. I have enough money in my taxable account where I can park it solely in stocks like FFH and L (which for the most part I've done, weighted to FFH). These dividends will give me enough income that... after my deductions for property tax and mortgage interest, will land me at about 15% tax bracket on the personal income tax scale. Then I have my income paying dividend and REIT stocks in my RothIRA which is practially 50% of my net worth. My strategy is to live off of margin loans in my taxable account, and let the dividends and interest accumulate in my RothIRA. I will have a margin liability offset 100% with a cash pile in the RothIRA. If the market selloff and I need to sell some FFH to raise margin, then I will sell the FFH and simultaneously buy it back in my RothIRA. I can't take a tax loss for that because I'm buying it in my RothIRA, but my cost basis on the FFH is low so what I'd really be doing is just paying less capital gains tax than I otherwise would have been. In the event of no crash, after maybe a decade I will sell off some FFH to pay down the margin significantly and buy the same amount of FFH using the accumulated cash in the RothIRA. You can probably see where I'm going with this... my margin interest is deductible against my FFH dividends, yet my RothIRA dividends continue to compound in things like CDs tax-free. So, I will be paying little to nothing in dividend taxes. If I pay any meaningful tax at all, it will come in the form of capital gains or if I get a job consulting. But that consulting job I can put 45k out of the first 100k I earn (I won't work enough to make more than that) into a tax-deferred IRA (and self-employed 401k), so don't expect me to be helping you with your tax burden. So, ALTRUISTICALLY I offer you the VAT tax which is pretty much the only way I'll pay any tax of consequence. Yet you guys are so distrustful that you think I'm trying to rig the tax code for my self interests. Nothing could be further from the truth. And Myth you thought my margin loan example was ridiculous -- it happens to be exactly what I plan to do which is why I had it so readily available. I didn't have my laptop last night so I didn't feel like thumb-typing this explanation on my blackberry which is what I used to post everything else.

My current profession is that I change diapers. Today I was out flyfishing on the Bogachiel river in Washington state's Olympic Peninsula and I hooked four steelhead fresh out of the ocean and landed 3 of them. Largest was 12 pounds. A steelhead is a sea-run rainbow trout. I just got back and read bedtime stories to my two year old boy. Reason why I quit my job was because #1 I hated it. #2 I could afford to. #3 I won't get these years back with the little kids Now that tax season is almost past, my accountant will have time to meet with me. I plan on setting up a software consulting business. I will earn $65 dollars an hour (I already have a company interested in signing me, I just need the legal entity set up). The company isn't even in the same state as me so I could pretty much do the job on a sailboat as long as I have internet access. The difference here is that I will be working for myself and not for Microsoft where I had to commute 2 hours each way and set career goals and all kinds of corporate BS that they subjected me to.

Kawihako you asked me what my point is, so let me gently remind you that you know people who lost millions trading stocks in the market . Go back and read that post of yours and it will explain why I needed to remind you that every entrepreneur bears that risk too.

Yes their housing situation is a clear bubble if you ask me. I agree they depend on China too much. Most of my cousins have their children in public schools so I'd say it's like here where differences are local.

The personal savings accounts that Bush proposed was a very elegant solution. You could put in as much as you want and it would grow tax deferred. Withdrawals could be made at any time and only then were you taxed -- it in effect gives the individual control over paying his own dividend and would be taxed as regular income. This solves the unfairness issue of being taxed on income you are merely reinvesting and on capital gains that you are merely reinvesting. It is stupid that if I sell Berkshire I need to pay tax when I reinvest it only moments later. Before you get outraged by my attitude on this, first ask yourself why you do not get riled up by the fact that real estate investors can make a tax-deferred exchange?

Kawihako... People get devastated all the time trying to start their own businesses -- should we try to discourage entrepreneurship simply because they might wipe out their savings?

You guys are not seeing the beauty of the dividend franking system in Australia. The whole point of the system is to provide an incentive for corporations to pay the 30% tax. If they pay the tax then their dividend only gets taxed at 9%. If the corporation pays a dividend that exceeds the corporation's taxable income, then the dividend will be taxed at 48%. So there is no benefit to sheltering all corporate income from taxes. Here in the US Buffett points out that it's unfair how some companies pay no tax or little tax. The trick is to reward the companies that pay taxes by reducing their dividend tax rate.

As long as Buffett doesn't sell any wholly owned business, then people will trust him as the man they want to sell to. However, those same people I bet could care less if he trades out of COP and JNJ. Therefore he could most certainly have sold KO. He even says he should have sold it. It is one of his mistakes.

I was initially a psych major. After calculating that I would likely wind up being a barista with a masters making $20k, I then chose to major in math and be a statistician. A few months into that major I realized that if I could learn programming then I would make a lot more money early on and invest it. It was very calculated. I took the harder road because it payed more. Psych major was easy and those people sat around socializing while I labored in the computer lab on Saturday nights. This is like arguing that surgeons are just "fortunate" to make more money, as if med school graduates deserve no more than a psych major. My total payout from stock options was $80k roughly, before tax. At the rate I was saving money it amounted to 3 years savings.

I'm also biased due to my extensive ties to Australia where the top marginal tax rate is 48% and it's assessed on earned income over $50k. Then they have a very high regressive GST (govt sales tax). But you know what? People there seem happier and better taken care of than here. You say a VAT is regressive, but so are property taxes... Can we agree to get rid of that tax? But Australia has avoided being completely socialist by being very capital friendly. And it works... They have less social unrest and lower unemployment. Despite the higher tax the people get more of the really important things like better education and guaranteed health care. I think they pull this off because the government just takes it out of their paychecks instead of letting them collectively waste it on stuff they want but don't need. My relatives there are a mix of teachers, engineers, entrepreneurs, and people without degrees who just scrape by. But none of them are unhappy.

I'll bet a plumber makes more than I made. My peak salary was 104k. Even policemen perhaps, counting overtime. At Microsoft I worked so much more than 40 hrs, but that's included in the salary.

I have to admit that my attitude is influenced by the fact that I earned my paycheck just like everyone else, but I made different decisions with what was left over. I chose math and computer science even though I was in way over my head intellectually. I slugged it out at UCLA with computer science geeks who wrote their own operating system in Montessori,, even though I had only ever used a computer for writing term papers. From this I put up with 10.5 sanity testing years at Microsoft. I feel like I am not the ruling elite. I am living proof of social mobility despite what the media says. The system isn't rigged to keep people earning 36k in the hole -- that was my starting salary. If you raise cap gains and dividend taxes, you make it harder for somebody to follow in my footseps. You create a barrier to social mobility.

I'm not complaining about unrealized gains not being taxed, I'm pointing out that companies that retain earnings win the class war just as handily. You point out that the VAT is highly regressive but then so are dividend taxes. People will only hold enough income paying stocks to fund their spending needs, and then put the rest in vehicles like Berkshire or is they own their own business they will just retain the earnings. They will pay the same as under the VAT if managed correctly. They are both regressive.

The dividend is a distribution of the owners' post-tax earnings. Why doesn't Buffett's secretary pay a dividend tax when she withdraws her already-taxed earnings from her account?

The best solution I can think of is a value added tax. It taxes people in proportion to their lifestyle and encourages them to send less to the landfill. We would be getting environmental benefits in addition to simplicity. Even a 50% dividend tax wouldn't touch men like Buffett much because he so cleverly manages it like a shelter from individual taxation.

Buffett is talking a shell game. Look, low tax rate under shell #1 compared to my secretary. He has fooled you because the bulk of his earnings are taxed at 35% under shell #2 which is Berkshire. It's a word game that plays well in the media.

Suppose you have one billion dollars and nothing else. And it is all in Berkshire shares and nothing else. You never pay taxes if you spend 1m a year and finance it with margin loans. The scale is such that your margin debt will not be a risk. If you suggest cutting corporate tax Myth, then people will still find a way to completely avoid tax.

In Australia the corp only pays 30 in tax on that 100 of earnings and the individual then only pays 2.70 in tax. That leaves 67.30 in earnings for the owner. Australia is not the one with the budget crisis. They have better social programs too.

You agree with Buffett. And how much dividend does Buffett collect on his Berky shares? Is he going to get rich at a slower rate with a higher tax? No. The other thing people will do is put their millions into variable annuities which are effectively mutual funds that compound tax-deferred like IRA accounts. There are no restrictions on contributions.

Next buybacks will be banned as tax evasion.

Mohnish has stated in the past that it's not worth his while investing unless he thinks he can make 20%. He said that in an interview where he was talking about MSFT. He didn't want to buy it because he didn't think he could make 20%. I wonder if he has lowered his hurdle rate now that he has muck more money under management, and now that his long term record has fallen short of his hurdle rate. The way the market behaves if you are buying something for 38% of value and it increases value by 14.4% a year you are going to see a huge gain in the early years relative to what you see in the latter years. You'll probably make like 50% compounding for the first couple of years, then 40% then 30%, or something along those lines to quickly close the discount, then followed by much lower returns after that largely driven by the 14.4% IV gains -- it may average out to 28% when seen over 10 years... but those latter years will be a huge drag on the record of your early years. But if I could be promised a "mere" 14.4% for the next decade I would sign the paperwork immediately.

It's a complete waste of societal resources for smart people to be concocting these schemes. What's with this country? We are paying one person (a tax collector) to collect a tax that our legislators have created, and then we have the very same legislative body creating a crafty tax code that provides for rich people to help them get around the traps. This is just appeasement so that the ignorant masses believe the rich are being taken to the woodshed. If the rich plan it right, when they get behind the woodshed it becomes clear that it's just a facade and really there is a picnic table with a punchbowl. This is obvious based on how few people actually pay the tax. Either get serious about actually collecting it or just abolish it. Australia has no tax on this stuff and it's a vastly friendlier society. So I'm dubious of the theory that decay and ruin would soon follow if we abolished the tax here. In January I called up the Warringah council (Sydney) when my garbage can wasn't picked up from the curb, they apologized and arranged for the truck to come back on a special pickup the next day... just for me! I suppose I could try it out here but in my experience it wouldn't be worth the bother of asking.

I haven't checked, but don't you think that public universities (using tax dollars) are teaching courses to prepare young people for careers in estate tax planning? Publicly provided education for the very purpose of helping the dynasties avoid this very tax! Like I said, I haven't checked... but I figure it's probably the case. Tax money well spent. And think of all the bright minds employed in these careers that could instead have been doing something productive for society?

I think the number is understated. You are not taking into account all the people who drastically reduce their taxable estates by all kinds of crafty means (which is extremely wasteful by the way if you consider all the legal advisers and estate planners you have to pay). It does not include the people who give money into a trust. You can give $1m into the trust under the gift tax exemption (it reduces your estate tax exclusions but if you give it early then it will grow big outside of your estate to save a huge tax bill later) and then give another $52k a year (if you have 2 kids) free of gift taxes. My beef is that I don't want to give up control of the money before I know how the kids will turn out, and I'd rather keep it a secret until my dying day. But the tax code incentives us to turn the children into a bunch of spoiled bums who find out too early how much is in their trust. You are concerned about people getting a horrendous amount of money and lazing around making everybody else feel like the slaves of a dynasty. But that's completely ridiculous to worry about when somebody is only inheriting $850k. It's not how big the estate is that matters, it's how much each individual person inherits that matters. Put it this way, if I give a $10m estate to 20 people (I have 17 cousins for example) what's the worry about a dynasty? $500k dynasty... woo hoo! I could just see the new TV show, ghetto style edition. A bunch of middle aged cousins of mine with fancy $500k townhouses acting like they rule the world.

It's not a bad idea to turnover your portfolio during a severe market crash because you can come out ahead by taking tax losses and reinvest in new holdings even if the prospects are identical. He might have been doing some of that too.