Buffett says cut taxes for all but the rich

[twacowfca]

The problem with taxation of the rich through high rates of income tax is that this drives the most valuable thing, human resourcefulness, into unproductive uses.  The most ironic thing about the current situation of high, progressive tax rates is that so many adjustments have been made through the influence of various interest groups that the net tax burden typically doesn't fall disproportionately on the rich.  Buffett really does pay less as a percentage of his income than his laundry lady.

 

Making the official tax rate steeper won't ultimately collect more from the rich.  If the marginal rate went up from the current level to a higher level approaching 99%, most assets of the rich would be shifted wastefully from productive uses in great businesses to assets that produce nothing such as gold or vacant land.  New, innovative businesses would lack entrepreneurial support.  Increased taxation on income shielded in corporations would drag existing companies down too.  Productivity gains would decline.  Income tax collections paradoxically would fall.  Incremental increases in the marginal rate to something less than confiscatory rates would have the same effect to a lesser extent.

[stahleyp]

The problem with taxation of the rich through high rates of income tax is that this drives the most valuable thing, human resourcefulness, into unproductive uses.  The most ironic thing about the current situation of high, progressive tax rates is that so many adjustments have been made through the influence of various interest groups that the net tax burden typically doesn't fall disproportionately on the rich.  Buffett really does pay less as a percentage of his income than his laundry lady.

 

Making the official tax rate steeper won't ultimately collect more from the rich.  If the marginal rate went up from the current level to a higher level approaching 99%, most assets of the rich would be shifted wastefully from productive uses in great businesses to assets that produce nothing such as gold or vacant land.  New, innovative businesses would lack entrepreneurial support.  Increased taxation on income shielded in corporations would drag existing companies down too.  Productivity gains would decline.  Income tax collections paradoxically would fall.  Incremental increases in the marginal rate to something less than confiscatory rates would have the same effect to a lesser extent.

 

I don't think I can agree with this. Let's look at the '50s as an example.

 

We had the highest marginal tax rates of around 90%+ and we still had plenty of growth.

 

If you look throughout history, the best economic growth happened during periods of high margin rates. Now

 

http://www.truthandpolitics.org/top-rates.php

 

Now, since the rates started going down in the '80s, the stock market has gone up a ton, but middle class income has been fairly stagnant.

[Guest longinvestor]

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

This is probably one of most fact based articles in recent times. Now, the current debate is centered on taxation and surely that is a lynchpin of rising income inequality. However, there are several other issues raised in the article like the hold Wall Street has had on corporarations and entities over the past 2-3 decades. The dysfunctional behavior brought about by this was, is real and unfortunately institutional.

Take for example the fixation over Quarterly results and what that has done. Pernicious behavior like holding checks back from suppliers @ QE, pulling forward revenues, earning smoothing etc are no longer the exception. This is the norm, just ask around in your own circles if this is not happening. In truly lemming ways, everyone appears to be reading the same book. I used to work for a US corporation (a darling of Wall Street) where such behavior was so institutionalized that the company re-wrote it's Values to include a blurb about satisfying stock holders. The behavior change that came along was as predictable as the rising Sun.

And then when companies like BRK don't go along with this morass, they are sidelined as "old fashioned".  I say bring 'em on. The world needs such old fashioned companies. There are so few of them around.

 

 

[twacowfca]

The highest bracket for income taxes was set at an extremely high level when the modern income tax bill was first passed.  The level was so high that it was said that only one person in the US would be caught by the highest rate: JD Rockefeller.

 

Inflation, except for a brief period after WW II was low, so the impact of the progressive income tax structure was still quite muted by the 1950's.  The chilling effect only impacted the richest of the rich.  A more relevant period for study of the impact of steep progressive taxation would be the 1970's through the early 1980's after inflation was beginning to bump upper middle income people toward the highest bracket.  The economy took off dramatically after the Reagan tax cuts took effect in 1983.

 

There is very solid evidence for the virtuous effect of income tax cuts.  Please google for Laffer Curve and Arthur Laffer.  :)

[twacowfca]

Warren's strongest motivation is wanting people to think well of him.  At this stage in life, a change in the marginal individual income tax rate will have almost no effect on how he allocates most of his capital.  It 's also true that cuts in the lower brackets will get spent for the most part and have more impact in getting us out of the recession than cuts for higher brackets.

 

In the long run, increases in the higher income tax brackets will be a drag on the economy because "rich are us", the numerous upper middle class.

[Myth465]

Warren's strongest motivation is wanting people to think well of him.  At this stage in life, a change in the marginal individual income tax rate will have almost no effect on how he allocates most of his capital.  It 's also true that cuts in the lower brackets will get spent for the most part and have more impact in getting us out of the recession than cuts for higher brackets.

 

In the long run, increases in the higher income tax brackets will be a drag on the economy because "rich are us", the numerous upper middle class.

 

I think you misread Buffett, why does everyone think its a personal issue. Why cant he just have a progressive ideological base? I agree with Chomsky that consent is largely manufactured. The middle class has been kept fat, dump, and happy for most of the last 30 - 40 years, and that is breaking down. I think Buffett wants to keep it that way. I would say he would prefer to give a bit, vs having alot taken via Democracy. This is my theory but its all speculation. I also think he is pragmatic and wants a balanced budget, and you wont get there by taxing that broke fella behind the tree.

 

Its politically very smart but no one says its works but Laffer. Not the CBO or anyone who isnt dogmatic about it. I dont think you are going to change your thoughts on it so its a pointless debate, because I am not going to take Authurs word on it. Tax cuts dont pay for themselves. They do what they do, reduce revenue, and increase the amount of money people can hold on to. Its a simple premise.

http://blogs.ft.com/martin-wolf-exchange/2010/07/25/the-political-genius-of-supply-side-economics/

 

I kind of think Laffer is an idiot, which may be a bit unwarranted and kind of mean. I also think supply side economics is idiotic. I think this is a straw man argument and one I wont engage in. I am not advocating a 90% - 99% tax rate, and don't really care to argue the merits of one. Also taken to its illogical conclusion you would like a zero tax rate, because it would really maximize production.

 

I am advocating a progressive tax system, and a balanced budget which will require higher tax rates for all but those with no money and spending cuts. Or similar tax rates and dramatic draconian spending cuts.

 

 

[Guest Bronco]

On a purely philosophical issue, does anyone here think the original framers of the constitution would have been happy with a government seizing half your assets when you die?

[txlaw]

I think some psychologists or "behavioral economists" need to debunk this notion that increasing marginal tax rates will cause all high income earners to work less.  That doesn't fly with reality.  Most people don't have a choice to work less if their tax rates go up.  That's just not how jobs are structured.  Furthermore, people are motivated by more than just money.

 

And why do people assume that taking money on income above a certain level will necessarily be allocated to unproductive uses?  Imagine a CEO who makes $40 million dollars a year and that the highest tax bracket changes so that you pay 95% on any annual income over $20 million to the federal government instead of 40%.  First, does the CEO quit his job because of the tax increase?  Second, why wouldn't the corporation say that, hey, this $20 million a year that is effectively $1 million in the pockets of the CEO, can be used to employ more people (200 employees at $100K) or to buy more equipment?  Those resources could possibly be put to more effective use because of the tax increase. 

 

The Laffer curve is as crooked as Dick Cheney's smile, and Arthur Laffer is a quack, in my opinion.  He seems to be one of those economists that is really pushing a political agenda rather than well thought out social science.  That op-ed in the WSJ is a perfect example of his quackery, as he comes up with this crazy connection between state income tax rates and state GDP.

 

Here's a quote from Munger on Laffer:

When I talk about this false precision, this great hope for reliable, precise formulas, I am reminded of Arthur Laffer, who’s in my political party, and who is one of the all-time horses’ asses when it comes to doing economics. His trouble is his craving for false precision, which is not an adult way of dealing with his subject matter.

 

And please see this video of Laffer arguing with Peter Schiff:

http://www.youtube.com/watch?v=IU6PamCQ6zw

 

I'm no fan of Peter Schiff (I think he's sort of crazy), but he totally called out Arthur Laffer and all the other Pollyannish economists who were spouting drivel before the bubble burst.

 

I also have to take issue with this notion that people who are most productive make the most money.  Labor markets are complex beasts, and just because someone makes a low wage or income does not mean that they are less productive than high income earners.  Some of the most vital jobs to society are low income jobs. 

[Myth465]

On a purely philosophical issue, does anyone here think the original framers of the constitution would have been happy with a government seizing half your assets when you die?

 

The things they were comfortable with scares me a bit more  ;D.

I was kinda 3/5s of a person back then, and considered chattel in large parts of the country.

 

Constitutional arguments always slightly annoy me. I dont care what someone from the 1800 thinks / thought.

 

---

 

With that said, I doubt it most of the Framers were from the monied classes. I hope to join you guys in the "rich" class, but I fear you guys are going to ruin it for us younger guys. You guys will cause a revolt. Luckily I can blend in should things go South.

 

----

 

TX where you been, your thoughts mirror mine, and you are more eloquent. I thought the same about Laffer, remembered the same Schiff video, and didnt want to bring it all up because I think Schiff is crazy as well.

 

As Buffett said a teacher gets an apple and he gets billions. He doesnt think its fair but doesnt want to change much, except for throwing that dog a bone. You want to take away the bone, what do dogs do when you take away the bone?

 

http://www.youtube.com/watch?v=tpog1_NFd2Q&feature=related

[stahleyp]

The highest bracket for income taxes was set at an extremely high level when the modern income tax bill was first passed.  The level was so high that it was said that only one person in the US would be caught by the highest rate: JD Rockefeller.

 

Inflation, except for a brief period after WW II was low, so the impact of the progressive income tax structure was still quite muted by the 1950's.  The chilling effect only impacted the richest of the rich.  A more relevant period for study of the impact of steep progressive taxation would be the 1970's through the early 1980's after inflation was beginning to bump upper middle income people toward the highest bracket.  The economy took off dramatically after the Reagan tax cuts took effect in 1983.

 

There is very solid evidence for the virtuous effect of income tax cuts.  Please google for Laffer Curve and Arthur Laffer.  :)

 

Have you seen any studies about economic growth decade by decade? I've searched and can't find much of anything. I can't argue that the stock market has grown by leaps and bounds since '83. But, I'd bet most of that growth has gone to the wealthy and not the middle class.

[Guest Bronco]

Myth- I would simply say the country has evolved on the slavery front and fallen down on personal property rights.  Not saying things are perfect but you get my gist.

 

I would also like to see the US stop acting as policeman for the world.  Let Europe and japan step up.  We are all so interconnected, I don't think many powerful countries want to start war on the simple basis it will destroy our economies.

 

Not thrilled with the government taxing 15 percent of my money without me having a say where it goes.

 

As this is an investment board, i will reiterate that I believe there are too many people in the world chasing too few resources.  Water and oil come to mind.  Think there are ways to make money on this.

 

 

[txlaw]

TX where you been, your thoughts mirror mine, and you are more eloquent. I thought the same about Laffer, remembered the same Schiff video, and didnt want to bring it all up because I think Schiff is crazy as well.

 

I've been quite busy with work, moving, and getting other things in order.  Hopefully, I'll be able to participate more in after a month or so.

[twacowfca]

On a purely philosophical issue, does anyone here think the original framers of the constitution would have been happy with a government seizing half your assets when you die?

 

The things they were comfortable with scares me a bit more  ;D.

I was kinda 3/5s of a person back then, and considered chattel in large parts of the country.

 

Constitutional arguments always slightly annoy me. I dont care what someone from the 1800 thinks / thought.

 

---

 

With that said, I doubt it most of the Framers were from the monied classes. I hope to join you guys in the "rich" class, but I fear you guys are going to ruin it for us younger guys. You guys will cause a revolt. Luckily I can blend in should things go South.

 

----

 

TX where you been, your thoughts mirror mine, and you are more eloquent. I thought the same about Laffer, remembered the same Schiff video, and didnt want to bring it all up because I think Schiff is crazy as well.

 

As Buffett said a teacher gets an apple and he gets billions. He doesnt think its fair but doesnt want to change much, except for throwing that dog a bone. You want to take away the bone, what do dogs do when you take away the bone?

 

http://www.youtube.com/watch?v=tpog1_NFd2Q&feature=related

 

Myth, I love your comments.  Keep 'em coming.  :)

[twacowfca]

The most ironic thing about the progressive income tax is that . . . shhh . . . this is a big secret . . . don't tell anyone, especially not the "little people" who are easily fooled . . . it really isn't a tax on the rich; the rich are among the least affected by the income tax . . . it's a tax on those who want to be rich.

 

Remember the thread showing the impact of a 2 & 20 hedge fund rake off on an investment in BRK over 45 years.  The result was that the hedge fund would have accumulated the great majority of the increase in assets during that normalized lifetime of investing.

 

Now, imagine the US government as being the hedge fund but getting an even bigger rake off profits = wages.  That's a huge drag.  It would gobble up perhaps 90% of the potential wealth accumulation of an excellent investor over a lifetime ( unless that investor were invested in a very long term hold ).  An investor who began with nothing more than savings from income after social security taxes (including the hidden employer paid portion), Medicare taxes, and income taxes had been deducted would be especially disadvantaged.

[Myth465]

twacowfca you are correct. The Bronco's of the world are getting screwed. Those in the bottom to middle pay no / little in the way of taxes. Those at the top like Buffett pay little on a percentage bases and none on accumulated wealth, and the working rich at $250k to $2 million pretty much carry the load.

[netnet]

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.

 

 

 

Currently hedgies can report what is clearly income as LT gains.  So having that income as ordinary does in fact increase the tax rate on the general partners and often the limiteds are tax free entities anyway, i believe it may even be a majority.  So your argument does not hold.

[twacowfca]

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.

 

 

 

Currently hedgies can report what is clearly income as LT gains.  So having that income as ordinary does in fact increase the tax rate on the general partners and often the limiteds are tax free entities anyway, i believe it may even be a majority.  So your argument does not hold.

 

 

Did not the recently passed financial reform bill change this?  Or were the hedge funds able to get

That provision pulled from the final version?

[KinAlberta]

At about 9 minute mark Cooperman talks about Buffett and his 'tax the rich' idea. 

 

He talks about philanthropy, mentioning the fact that Buffett is giving his money to the Bill and Melinda Gates Foundation.  I remember thinking how I thought that was not at all typical and infant almost unheard-of.  From my experience, rich and super rich people stick their own name on a foundation - often even leaving off their spouse's name - and pass their wealth out that way. I think Cooperman is saying the same thing here.

 

 

Anyway, for this thread, here's his tax the rich discussion:

 

Leon Cooperman Says Omega Has Bought Google Shares

 

Leon Cooperman, founder of Omega Advisors, talks about Federal Reserve policy, financial markets and his hedge fund's investment in Google Inc. Cooperman also discusses leveraged-buyout funds, the oil market and the record and philanthropy of Warren Buffett. He speaks with Erik Schatzker and Stephanie Ruhle on the sidelines of the Skybridge SALT Conference in Las Vegas on Bloomberg Television's "Market Makers." (Source: Bloomberg)

 

http://www.bloomberg.com/news/videos/2015-05-07/leon-cooperman-says-omega-has-bought-google-shares

[Aberhound]

Since it looks like cash will soon no longer be allowed why not move from income tax to a resource utilization tax to be more consistent with the rest of the new age beliefs like sustainability? As you spend some amount, say 10% or 20% would be instantly remitted as tax. All spending would be resource utilization whereever in the world it is spent. That way untaxed income like criminal income or money piling up in tax havens would all get taxed as it is spent as would spending outside US be taxed equally with spending in the US. Corporations, free of corporate income tax might keep more money at home and might use less resources as resource utilization incurs the tax expense. We do the reverse now. Many people and corporations spend money wastefully to avoid paying tax by creating expenses. How many corporations and people never pay any tax? The richest guy in my city pays almost no tax as almost all his spending is a taxable deduction and he intentionally grows his business so that he pays little tax. The IRS could be closed down because it no longer matters what people make. The NSA could focus on spies etc. instead of helping the hunt for unreported income. Compliance costs disappear. IRS Blackmail dissappears. All the silly exemptions, tax credits, incentives related to income or expenses should be eliminated at the same time to keep the rates low. For the poor each person would have an exemption of say, 20,000.00 spending before the tax is imposed on the spending. This creates progressiviity. Congress could focus on governing instead of changing the tax laws every two minutes. My job would mostly disappear as there would be little need for tax structures.

 

 

 

 

 

 

 

[Jurgis]

That's not a bad system, but unlikely to happen.