Buffett says cut taxes for all but the rich

[omagh]

http://finance.fortune.cnn.com/2010/10/05/buffett-says-cut-taxes-for-the-poor/

 

Warren Buffett said it's time to raise taxes on the 'very rich' -- and perhaps cut them for the rest of the population.

[Guest Bronco]

No more tax arguments from me.  As the resident tax expert on the board, I have stated my case.

 

Funny how Buffett does everything in his power to avoid estate and capital gains tax.

 

Nevertheless, we either need to raise more revenue or spend less, or both.  I would start on the Kennedy tax policies and also change social security, disaster that it is.

 

 

[Myth465]

No more tax arguments from me.  As the resident tax expert on the board, I have stated my case.

 

Funny how Buffett does everything in his power to avoid estate and capital gains tax.

 

Nevertheless, we either need to raise more revenue or spend less, or both.  I would start on the Kennedy tax policies and also change social security, disaster that it is.

 

Bronco I admire your restraint. I know this issue is near and dear to your heart.

 

I was going to start a post against free trade but didn't want to give you a heart attack. I heard a very intriguing interview by a Conservative Economist advocating against free trade.

 

 

With regard to taxes, you can be for higher taxes and work to minimize your tax burden legally. I would say that's smart, not hippo-critical.

[omagh]

I would imagine that Buffett read the recent Moody's study from this article.  Does anyone have a pointer to the Moody study or an abstract?

http://www.bloomberg.com/news/2010-09-13/rich-americans-save-money-from-tax-cuts-instead-of-spending-moody-s-says.html

 

-O

 

No more tax arguments from me.  As the resident tax expert on the board, I have stated my case.

 

Funny how Buffett does everything in his power to avoid estate and capital gains tax.

 

Nevertheless, we either need to raise more revenue or spend less, or both.  I would start on the Kennedy tax policies and also change social security, disaster that it is.

 

 

[stahleyp]

I'll agree with Buffett on this.

 

The standard of $250,000 for household income is what I'm not sure about.

 

Here is my thought process, I'm more than willing to listen to others as I'm always wanting to learn.

 

One example and very small portion of the population, but let's look at hedge fund manager. Some of these fellow make over $1 billion dollars a year and pay 15% on most of that. I don't see how that's fair or how anyone could think this is a good use of economic resources. The other year Paulson made about $4 billion. He paid about 15% on most of this since most of it was from the performance fees side. For easy math, I'm assuming all of this is taxed at 15%. So he's paying about $600 million in taxes and get's to talk away with $3.4 billion. How about we tax him at 90% (the same margin tax rate was the norm in the '50s). Now, he'll pay $3.6 billion in taxes and walk away with $400 million. A common argument is that if we tax the rich they'll stop working so hard. I don't really think I'd work any harder for $3.4 billion as I would $400 million. If we then funnel that $3.4 billion into things like drug research, education, etc, that would have huge impacts for the long term economy. I'd say society would benefits from the resources being spent in this way than on something like buying a suspened shark like hedge fund manager Cohen did.

 

People also claim that it's their money and they can do what they'd like. While, that's technically true. I believe that if those are fortunate enough to have those abilities, they owe society something back. For instance, Alex Rodriquez of the Yankess makes something like $30 million a year. As silly as it is, society values his skills highly. What if Arod were born 500 years ago? His talent of hitting balls would not pay him nearly as much as it does today. He can enjoy a life style that most people would envy and still give back to society to help others who weren't as lucky.

 

 

[Guest Bronco]

15% only applies to LT capital gains.

 

If the laws change, what is to stop the hedge funds to allocate the 15%back to the partners and take a management fee - income to the manager at ordinary rates and deductible (at some level) to the partners?

 

 

[ERICOPOLY]

The tax rate could be 99% and it still would't hurt Warren.  So I don't really see why his opinion as a wealthy person is surprising.  He demonstrates how income taxes create merely a barrier to becoming wealthy through saving after tax income, but someone who already has billions need not care.

[ubuy2wron]

Bronco, "funny how he "Buffett" does everything in his power to aviod estate taxes" It seems to me that all but the extremely depressed or suicidal follow Buffetts avoidance policy re estate taxes...LOL.

[stahleyp]

15% only applies to LT capital gains.

 

If the laws change, what is to stop the hedge funds to allocate the 15%back to the partners and take a management fee - income to the manager at ordinary rates and deductible (at some level) to the partners?

 

 

 

Can you do something with numbers as an example please? My mind works better that way.

 

The earning would come off the of returns and the manager's income would be taxed at FICA levels, state, federal at higher rates. I think it would be nice to increase the marginal tax rate to 1950s levels for the extraordinary high earners.

[stahleyp]

The tax rate could be 99% and it still would't hurt Warren.  So I don't really see why his opinion as a wealthy person is surprising.  He demonstrates how income taxes create merely a barrier to becoming wealthy through saving after tax income, but someone who already has billions need not care.

 

If we set a marginal tax rate of 90% after someone makes, let's say $50 million in a year or $100 million, I still think they'll  have much better lifestyles than 99.9999999% of the history of man. I also agree with shalab. There needs to be much, much more accountability and wiser moves. I don't see why someone can work for the public, earn more than the private sector, and still get something like 80% pension benefit!

[bookie71]

In the 1960's tax rates went to 90% and were graduated, so the effective rate was usually somewhat lower.  Many folks would work to a point, then literally stop working.  I believe it was JFK who started lowering the top rates and it has continued. I'm not sure what is right, BUT social security and medicare are huge anymore aond often higher than the individual taxes (especially if you add in the employer match).  It is really obvious on the self employed where they get to pay both parts of ss and medicare.

[Guest Bronco]

Say a hedge fund makes $100 LT Cap Gains.  No other income.  Say the incentive plan gives the manager 10% of that.

 

He will report $10 of LT gains at 15% tax rate.

 

 

What I am suggeting is that if laws change, so will the hedge funds.  In this example, the partners will get $100 of LT cap gains and $10 of management fee expense.

 

The hedge fund manager will get $10 of ordinary income.

 

The rub is how the partners report the $10 management fee expense.  If this is report against ordinary income, the government gets no benefit by changing the laws.

 

 

 

I have done several hedge fund returns in my day - everyone does things differently.  Just some thoughts.

 

 

[stahleyp]

Say a hedge fund makes $100 LT Cap Gains.  No other income.  Say the incentive plan gives the manager 10% of that.

 

He will report $10 of LT gains at 15% tax rate.

 

 

What I am suggeting is that if laws change, so will the hedge funds.  In this example, the partners will get $100 of LT cap gains and $10 of management fee expense.

 

The hedge fund manager will get $10 of ordinary income.

 

The rub is how the partners report the $10 management fee expense.  If this is report against ordinary income, the government gets no benefit by changing the laws.

 

 

 

I have done several hedge fund returns in my day - everyone does things differently.  Just some thoughts.

 

 

 

Bronco, you have a lot more tax expertise than I do, so I greatly appreciate hearing your side of things.

 

Couldn't they tax it like a mutual fund? For instance, the expense ratio is just subtracted from the returns. The manager pays the full amount, up to limits, on fica, regular taxation levels, etc?

 

That way the shareholders are only receive a "benefits" from lower overall returns and the manager pays regular income. Also, I would think the hedge fund universe would be a lot smaller if people were pay 10% of their investment as definite expense than the performance fee.

 

[twacowfca]

The WSJ has an interesting op ed today by Arthur Laffer (google WSJ Arthur Laffer Oct 5 2010). The 11 states that instituted an income tax in the last 50 years have all experienced a substantial decline in important measures, compared to other states, declines in per capita income, population, economic growth and, GET THIS, taxes collected.  The other main outcome is increased growth in undesirable characteristics such as increased unemployment, relative to the other states.

[Myth465]

The WSJ has an interesting op ed today by Arthur Laffer (google WSJ Arthur Laffer Oct 5 2010). The 11 states that instituted an income tax in the last 50 years have all experienced a substantial decline in important measures, compared to other states, declines in per capita income, population, economic growth and, GET THIS, taxes collected.  The other main outcome is increased growth in undesirable characteristics such as increased unemployment, relative to the other states.

As a Texan, I dont believe in state income tax. The very idea of it bothers the hell out of me. But this is a poor argument inmo.

[twacowfca]

The WSJ has an interesting op ed today by Arthur Laffer (google WSJ Arthur Laffer Oct 5 2010). The 11 states that instituted an income tax in the last 50 years have all experienced a substantial decline in important measures, compared to other states, declines in per capita income, population, economic growth and, GET THIS, taxes collected.  The other main outcome is increased growth in undesirable characteristics such as increased unemployment, relative to the other states.

As a Texan, I dont believe in state income tax. The very idea of it bothers the hell out of me. But this is a poor argument inmo.

 

In a more or less free economy the more productive and innovative people generally have above average income; some of the most productive have dramatically higher income.  Yes, there are some nonproductive people with high income, and these get a lot of press, but generally: more productive = higher income.

 

These extraordinary producers pull the rest of us upward with them.  If they become billionaires, they often give most of their wealth away.  In the meantime, their wealth often is invested in very productive companies, while their spending on themselves is quite low in relation to their income.  

 

If these producers are hit with increased taxes, they will produce less, and they will pull their savings out of productive uses to invest in nonproductive uses such as tax free municipal bonds.

 

Then, the whole country will tend to become less prosperous than it would be with lower taxation.

[Myth465]

twacowfca I just dont buy that logic. Its a partnership between the worker and owner class. They need each other and should work out an equitable agreement which allows the country to finance itself. Where that agreement works is a moving / debatable target but as of now the country cant finance itself and that has to change. Its going to require spending cuts and tax raises.

 

Everything else is just ideology and theory (theory mostly based on ideology).

[twacowfca]

twacowfca I just dont buy that logic. Its a partnership between the worker and owner class. They need each other and should work out an equitable agreement which allows the country to finance itself. Where that agreement works is a moving / debatable target but as of now the country cant finance itself and that has to change. Its going to require spending cuts and tax raises.

 

Everything else is just ideology and theory (theory mostly based on ideology).

 

 

Generally agree, but the fact remains that higher taxes, especially on income, have unintended consequences that drag the whole economy down. The current system of high tax rates combined with countless legal tax dodges and subsidies has a disproportionate adverse affect on those who are disadvantaged.  

 

A much more equitable scheme, in my opinion, would be to cut out the subsidies, tax breaks ,entitlements and unnecessary, regulatory perks that mainly benefit those who are better off.  Then many of the subsidies, entitlements etc received by lower income people could be rolled up into a much more efficient and therefore bigger piece of pie as a negative income tax.  Then, the important functions of government could be funded entirely by a lower tax rate on only the more substantial producers in our economy.

 

This perspective is of course idealistic, but low taxation schemes have worked extremely well in the few countries that have tried them.  Lower income people in these countries have made huge gains with more cash income and fewer subsidies where the value received is often much less than the cost of the subsidies.

[Guest Bronco]

It is ideologic when you let non citizens become a majority and let a majority vote away personal freedoms.  Issues like personal property rights are a distant memory.  Obviously, the super rich can avoid certain tax traps but the us is now a country with big promises, big obligations, a debasing currency, and a debasing mindset on freedoms.  Very sad. 

 

The world has a problem with overpopulation and declining resources - energy water etc. 

It is very difficult to juggle these issues with the financial tornado in Washington.  I wouldn't want to be President, despite my superior solutions.

[stahleyp]

To me, the true innovators don't do things for money. I believe that most people who are truly wealth never imagined they'd be that wealthy when they started out. When the Google guys were in their garage, do you think images of being worth $10 billion or whatever each really crossed their minds? I don't.

 

With Myth's argument that if the wealthy are taxed too much, they'll simply just move money to munis. I can't say i'd buy that. If this were to occur, instead of earning 3% on a long term muni, demand would push that close to 0%. A 90% tax rate after $50 million or whatever is still a lot better than .5% with the risks of the muni. I think people should be rewarded for what they do.

 

The US had tremedous growth during the times the tax rates were up. The growth has actually been terrible since rates were cut in 2001 or so. Many times people say "if we tax the rich too much, they'll stop working." I say, if we don't tax them much, they'll stop working.

[oec2000]

The WSJ has an interesting op ed today by Arthur Laffer (google WSJ Arthur Laffer Oct 5 2010). The 11 states that instituted an income tax in the last 50 years have all experienced a substantial decline in important measures, compared to other states, declines in per capita income, population, economic growth and, GET THIS, taxes collected.  The other main outcome is increased growth in undesirable characteristics such as increased unemployment, relative to the other states.

 

Is he saying that those states that went from NO income taxes to SOME income taxes experienced a decline in income taxes? How can that be? If he is referring to all forms of taxes (incl sales tax for e.g.), the discussion is unclear unless we also know what changes there were in the rates of other taxes.

[Myth465]

A much more equitable scheme, in my opinion, would be to cut out the subsidies, tax breaks ,entitlements and unnecessary, regulatory perks that mainly benefit those who are better off.  Then many of the subsidies, entitlements etc received by lower income people could be rolled up into a much more efficient and therefore bigger piece of pie as a negative income tax.  Then, the important functions of government could be funded entirely by a lower tax rate on only the more substantial producers in our economy.

 

This perspective is of course idealistic, but low taxation schemes have worked extremely well in the few countries that have tried them.  Lower income people in these countries have made huge gains with more cash income and fewer subsidies where the value received is often much less than the cost of the subsidies.

 

I actually agree with this and I am a progressive. As I said in another thread I would support Paul Ryans plan or something like it. A simple tax skim, no deductions with 2 or 3 different tiers. I would also add an appropriate exemption to protect the poor / partially protect the middle class.

 

I would be ok with testing a negative income tax on a state by state basis. I would make entitlements state driven.The states would have to spend the money on the mandate but could do so anyway they want. Of course your liberal states would have armys of social workers and bleeding hearts and the red states would have a negative income tax or some other right wing solution. We would see what worked better in time, but the budget would be balanced.

 

It is very difficult to juggle these issues with the financial tornado in Washington.  I wouldn't want to be President, despite my superior solutions.

 

I am convinced that its one of the worst jobs for a wealthy person to have. I can now see why Buffett laughs when asked about him running and says he has the job he wants. I thought his take on Obama and expectations was insightful and I really admire the fact that he stays so optimistic regardless of how bad things look.

 

When I discuss the future and look at Washington, its tough to stay on the up and up.

 

 

With Myth's argument that if the wealthy are taxed too much, they'll simply just move money to munis. I can't say i'd buy that. If this were to occur, instead of earning 3% on a long term muni, demand would push that close to 0%. A 90% tax rate after $50 million or whatever is still a lot better than .5% with the risks of the muni. I think people should be rewarded for what they do.

 

I think you mean TWA.

[stahleyp]

 

 

With Myth's argument that if the wealthy are taxed too much, they'll simply just move money to munis. I can't say i'd buy that. If this were to occur, instead of earning 3% on a long term muni, demand would push that close to 0%. A 90% tax rate after $50 million or whatever is still a lot better than .5% with the risks of the muni. I think people should be rewarded for what they do.

 

I think you mean TWA.

 

You are correct, kind sir. I am wrong, but that happens frequently, so....yeah. :)

[twacowfca]

 

 

With Myth's argument that if the wealthy are taxed too much, they'll simply just move money to munis. I can't say i'd buy that. If this were to occur, instead of earning 3% on a long term muni, demand would push that close to 0%. A 90% tax rate after $50 million or whatever is still a lot better than .5% with the risks of the muni. I think people should be rewarded for what they do.

 

 

I think you mean TWA.

 

You are correct, kind sir. I am wrong, but that happens frequently, so....yeah. :)

 

Guilty as charged.  My example of shifting investments to munis was oversimplified.  The point I wanted to make was Economics 101.  If there is an incentive for a behavior, it will tend to increase.  If something is taxed or taxes increased, the related behavior will tend to decrease.

[Myth465]

Buffett is a Genius because he is advocating doing whats right, and also advocating whats in his best interest. I think ideology is very interesting. Its blinding almost. Sane people become insane when they become wedded to ideology. Eventually things break down and there will be a revolt, if the top class refuses to drop down a few crumbs. The last thing economic Darwinism types want is real Darwinism, and I think thats where things will go, should they push there policy mantra to its illogical conclusions. I probably sound a bit like Value Carl now.

 

Anyway I thought the bit below was interesting.

 

-----

 

 

The Problem with Inequality

from Econo View by Mark Thoma

 

Steven Pearlstein on inequality:

 

    The biggest problem with runaway inequality, however, is that it undermines the unity of purpose necessary for any firm, or any nation, to thrive. People don't work hard, take risks and make sacrifices if they think the rewards will all flow to others. Conservative Republicans use this argument all the time in trying to justify lower tax rates for wealthy earners and investors, but they chose to ignore it when it comes to the incomes of everyone else.

 

    It's no coincidence that polarization of income distribution in the United States coincides with a polarization of the political process. Just as income inequality has eroded any sense that we are all in this together, it has also eroded the political consensus necessary for effective government.

 

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/05/AR2010100505535.html

 

If you asked Americans how much of the nation's pretax income goes to the top 10 percent of households, it is unlikely they would come and here close to 50 percent, which is where it was just before the bubble burst in 2007. That's according to groundbreaking research  by economists Thomas Piketty, of the Paris School of Economics, and Emmanuel Saez, of the University of California at Berkeley, who last week won one of this year's MacArthur Foundation "genius" grants.

 

----

 

But you are right, the rich / productive will take there ball and go home should we mention taxing them 1 cent more.