Buffett secretary to attend State of the Union

[limbacmf]

Obama has frequently cited Buffett's complaint that the tax code is unfair because he pays a lower tax rate than his secretary.

 

http://www.cbsnews.com/8301-501708_162-57364702/buffett-secretary-to-attend-state-of-the-union/

 

 

[txlaw]

So it's safe to say that Obama will point out the contrast between a certain GOP candidate's effective tax rate and the effective tax rate for WEB's secretary.

 

It will be interesting to see the reaction from the crowd on that one.

[Parsad]

So it's safe to say that Obama will point out the contrast between a certain GOP candidate's effective tax rate and the effective tax rate for WEB's secretary.

 

It will be interesting to see the reaction from the crowd on that one.

 

The thing is what will people say?  How can you make an argument that Bosanek pays "X" amount, which is significantly higher than Romney's 13.9%, and that is ok for the system and people in general.  There is no argument that can be made if you are touting a progressive tax system and not a regressive one.  Cheers!

[Tim Eriksen]

Obama has frequently cited Buffett's complaint that the tax code is unfair because he pays a lower tax rate than his secretary.

 

http://www.cbsnews.com/8301-501708_162-57364702/buffett-secretary-to-attend-state-of-the-union/

 

It continues to amaze me how Buffett comes to his conclusion and how few people spend the time to see its absurdity.  He has to use a non-representative example of the rich.  His 17% rate is much lower than the average 27% effective rate those with incomes over $10 million pay.  In addition he has to attribute both the employee and employer share of payroll taxes to the employee, use taxable income instead of gross income, and completely ignore the corporate level taxes that are paid on his investments. 

 

We have a progressive system.  The more you make the higher your rate.  There are good reasons why dividends and capital gains are treated differently than income.  They have already been, or will be, taxed at a 35% rate. 

 

Does Buffett really believe that the rich should pay for the retirement (social Security and Medicare) of the middle class?   

[Parsad]

Does Buffett really believe that the rich should pay for the retirement (social Security and Medicare) of the middle class?

 

Yup.  And so do I.  Not saying that the middle class should not pay their fair share, but the rich are rich because of the system, not because of some intellectual capacity they possess that others don't.  How do you equate a teacher working 12 hours a day, five days a week getting paid $50K a year, and a hedge fund manager working the same amount making $1.5M a year?  The system is not perfect.  As Buffett says, the system will benefit certain people because of the way they are wired. 

 

The right wing want to equate equitable taxation with the rich paying for everyone else.  Often it gets characterized as paying for those that don't want to work as hard as others.  I'm guessing Debbie Bosanek works as hard, if not harder, than Buffett.  She's not asking for more pay...she's not even asking for Buffett to pay more in tax...she's just saying that she would like her overall rate to be more comparable to Buffett's...be it short-term or long-term capital gains, ordinary income, or anything else.  The combined rate should be equitable.  Cheers!

[Tim Eriksen]

Does Buffett really believe that the rich should pay for the retirement (social Security and Medicare) of the middle class?

 

Yup.  And so do I.  Not saying that the middle class should not pay their fair share, but the rich are rich because of the system, not because of some intellectual capacity they possess that others don't.  How do you equate a teacher working 12 hours a day, five days a week getting paid $50K a year, and a hedge fund manager working the same amount making $1.5M a year?  The system is not perfect.  As Buffett says, the system will benefit certain people because of the way they are wired. 

 

The right wing want to equate equitable taxation with the rich paying for everyone else.  Often it gets characterized as paying for those that don't want to work as hard as others.  I'm guessing Debbie Bosanek works as hard, if not harder, than Buffett.  She's not asking for more pay...she's not even asking for Buffett to pay more in tax...she's just saying that she would like her overall rate to be more comparable to Buffett's...be it short-term or long-term capital gains, ordinary income, or anything else.  The combined rate should be equitable.  Cheers!

 

I have never read where Buffett has said that he believes the rich should pay the social security taxes of the middle class.  I would note that he as an owner already pays half of it through payroll taxes.  Of course Buffett somehow argues that his Secretary pays that portion too.  Buffett completely ignores that his investments are actually taxed at 45% once you include corporate taxes.  I am pretty sure his secretary doesn't want to pay at that combined rate.     

 

There is so much to challenge in what you wrote but most are related but separate issues.  What does it mean for the middle class to pay their fair share?  What is their fair share?  Why do you imply that they are already paying that amount or more?  Do they have an inherent right to education and healthcare?

 

I am a middle class person.  I fully realize that I benefit from the wealthy paying such a high amount.  I come nowhere near covering the education costs of my children, let alone public safety and roads.  I am thankful for it but do not believe for one second that I am entitled to that.

 

Whether we like it or not, effort is not what is taxed in this country nor what compensation is based on.  Is it perfect?  No. 

 

To say that Debbie is not asking for Buffett to pay more may be true.  Although it appears likely that she is a "prop" that the President will use tonight to gain support (votes) in order to be re-elected in order to raise taxes on Buffett.  So in a way she is being used to do that very thing. 

 

 

[tooskinneejs]

"He has to use a non-representative example of the rich.  His 17% rate is much lower than the average 27% effective rate those with incomes over $10 million pay."

 

So then are you ok with having those who fit into your "non-representative example" category (i.e., those who pay much less than a 27% effective rate) pay higher rates?

 

"In addition he has to attribute both the employee and employer share of payroll taxes to the employee"

 

Are the employee's share of payroll taxes not taxes?  And as long as he counts the employee's share for both himself and his secretary, isn't the comparison fair?  With regard to the employer's share of payroll taxes, are they also not taxes?  Isn't that an added cost of employing someone for the employer that, if not paid in taxes, might be able to be paid as compensation to the employee (and is there any difference in substance between the employer paying the 'employer share' of taxes or paying the employee that amount as additional compensation and then withholding that same additional amount as additional 'employee share' of payroll taxes?)?

 

"There are good reasons why dividends and capital gains are treated differently than income.  They have already been, or will be, taxed at a 35% rate."

 

Is that true of carried interest?

[scorpioncapital]

Only those who are long-term financial investors pay the low 15% rate. Therefore, Buffet's argument is to raise taxes on LONG-TERM investors, not short-term investors or millionaire entrepeneurs who pay the standard, higher rate. I find it interesting - does he believe that long-term investment in America is taxed too little and short-term investment in America is taxed just right? In all his other interviews, he claims that short-term investors should be TAXED MORE than long-term investors. Or maybe he's just talking about billionaire long-term investors only which is a limited pool but somewhere to start.

[Tim Eriksen]

"He has to use a non-representative example of the rich.  His 17% rate is much lower than the average 27% effective rate those with incomes over $10 million pay."

 

So then are you ok with having those who fit into your "non-representative example" category (i.e., those who pay much less than a 27% effective rate) pay higher rates?

 

"In addition he has to attribute both the employee and employer share of payroll taxes to the employee"

 

Are the employee's share of payroll taxes not taxes?  And as long as he counts the employee's share for both himself and his secretary, isn't the comparison fair?  With regard to the employer's share of payroll taxes, are they also not taxes?  Isn't that an added cost of employing someone for the employer that, if not paid in taxes, might be able to be paid as compensation to the employee (and is there any difference in substance between the employer paying the 'employer share' of taxes or paying the employee that amount as additional compensation and then withholding that same additional amount as additional 'employee share' of payroll taxes?)?

 

"There are good reasons why dividends and capital gains are treated differently than income.  They have already been, or will be, taxed at a 35% rate."

 

Is that true of carried interest?

 

Buffett already pays a higher rate he just refuses to acknowledge it.  His old annual letters used the concept of look-through earnings to detail what the true earnings value of BRK was.  In the same way he pays taxes on a look-through basis at the corporate level and personal level. 

 

To raise Buffett's rates would just make him pay even more than his secretary.  If Buffett were to propose eliminating corporate taxes and then tax dividends and capital gains at the same rate as income that might have some merit.

 

The point on the payroll taxes is that he attributes the employer portion to the employee.  The employee did not pay it, nor was it included in her "taxable income".  One can argue who effectively pays it.  At best it is a split.  Regardless, Buffett's secretary will get it all back (both portions) and more if she lives to normal life expectancy.  I believe it is deceptive to include the payroll tax impact in the calculation while completely ignoring the benefit side.  His Secretary will collect nearly $30,000 a year for the rest of her life once she hits 67.    In other words her "tax rate" will likely be significantly negative due to the social security payments.  If you argue they are a tax when paid they must be a benefit when received.  Buffett is using a snap shot in time that helps his argument when he should be looking at it over a lifetime and a look-through basis. 

 

I am not going to sidetrack into carried interest.  There is a great deal of misunderstanding there too. 

[ERICOPOLY]

You can just own Berkshire stock and tax-exempt munis if you don't want to pay taxes.

 

None of his proposals change this.

 

Hint:  don't directly own the JNJ stock.  Utilize a holding company that doesn't distribute dividends.  But make sure you hold the equities in insurance subs so as not to trigger the Personal Holding Company rules on distributing earnings.

[shalab]

Eric - not sure what you are talking about; BRK paid 5.6 billion in income taxes in 2010, MSFT paid 4.9 billion in fy 2011 and I believe GE paid 0.

 

 

[ERICOPOLY]

Eric - not sure what you are talking about

 

Personal income taxes!

 

[tooskinneejs]

Tim said: "In addition he has to...completely ignore the corporate level taxes that are paid on his investments."

 

I'd like to better understand your argument for why corporate taxes shouldn't be ignored.  After all, taxation of an entity affects its net income and cash flow.  Net income and cash flows available for distribution to the owners of the entity affects the purchase price the owners are willing to pay for the entity.  Reducing net income and cash flow due to taxation therefore reduces the purchase price you would otherwise have to pay to own the entity (or a partial interest therein).  Which leads me to these questions:

 

Given the above, doesn't the lower purchase price offset the effect of 'double taxation' and still provide the investor with the same earnings yield as had the entity not been taxed directly?  And wouldn't the return on investment from dividends from an equity security remain unchanged whether the entity paying those dividends was taxed prior to payment or not?

[Tim Eriksen]

Tim said: "In addition he has to...completely ignore the corporate level taxes that are paid on his investments."

 

I'd like to better understand your argument for why corporate taxes shouldn't be ignored.  After all, taxation of an entity affects its net income and cash flow.  Net income and cash flows available for distribution to the owners of the entity affects the purchase price the owners are willing to pay for the entity.  Reducing net income and cash flow due to taxation therefore reduces the purchase price you would otherwise have to pay to own the entity (or a partial interest therein).  Which leads me to these questions:

 

Given the above, doesn't the lower purchase price offset the effect of 'double taxation' and still provide the investor with the same earnings yield as had the entity not been taxed directly?  And wouldn't the return on investment from dividends from an equity security remain unchanged whether the entity paying those dividends was taxed prior to payment or not?

 

Good questions.  Does the lower purchase price (due to corporate taxes) offset the effect of double taxation and still provide the investor with the same earnings yield?  You could argue that the earnings yield would immediately adjust to be the same if there were no corporate taxes.  I think it might be higher given reinvestment opportunities, regardless, I would not argue that that fact means that double taxation can be eliminated from consideration.

 

Look at it this way.  What if Buffett had taken BRK completely private forty years ago.  Would you attribute the corporate taxes to him?  I certainly would.  If not, what if he changed BRK from a C-corp to a S-Corp or LLC?  He would then pay at individual rates, would you argue that he suddenly started paying more taxes than before?  When an owner decides structure he/she (in addition to liability risks) looks at after-tax rates - currently corporate rate plus dividend taxes versus personal rates.  They don't look at just dividend rate versus individual income tax rates, or else everyone would incorporate to save taxes.

 

         

[SouthernYankee]

"The right wing" - Parsad, when you write those 3 words, something tells me that you won't see it differently, no matter what the argument someone would make.

Tonight, when Obama gives his State of The Union address, whenever he says fair, or fairness, or fair share, make a donation to your favorite charity, it will help many people. Or, better yet, donate to the US Treasury. We may put a sizable dent in that deficit tonight!

[ERICOPOLY]

What if Buffett had taken BRK completely private forty years ago.

 

He might have run afoul of the Personal Holding Company rules if he were to own it outright.

 

He'd then be hit with the tax penalty on undistributed profits.

[Parsad]

"The right wing" - Parsad, when you write those 3 words, something tells me that you won't see it differently, no matter what the argument someone would make.

Tonight, when Obama gives his State of The Union address, whenever he says fair, or fairness, or fair share, make a donation to your favorite charity, it will help many people. Or, better yet, donate to the US Treasury. We may put a sizable dent in that deficit tonight!

 

Well I could write that "my views have nothing to do with parties, political affiliation, etc, etc" like Tim Thomas when he refused to visit the White House.  But the fact that I support Buffett's view would give me away pretty quickly...just like Thomas' desire to have dinner with Glenn Beck.  If didn't hate Boston already, boy do I have a hate on for Thomas now!  ;D

 

If you want my real views...the less tax for everyone, the better!  In the mean time, let's make it equitable.  Cheers!

[ERICOPOLY]

This is a great quote (but it doesn't seem accurate.  When were capital gains taxed the same as labor income?):

 

Actually, Romney's own business career makes the point better. No one seems to have noticed it, but Romney worked those long hours and made those risky bets mostly during a decade-long period when capital gains were taxed at the same rate as labor income. For a brief shining moment, the 1986 Tax Reform Act that Romney's icon Ronald Reagan supported interrupted the steady decline of capital gains taxes and restored the simple idea that all income should be taxed equally. That is to say, Romney's own success suggests that low capital gains rates aren't necessary to encourage the kind of entrepreneurship that Romney now celebrates.

 

http://www.cnn.com/2012/01/24/opinion/hacker-pierson-romney-taxes/index.html?hpt=hp_c2

[Parsad]

This is a great quote (but it doesn't seem accurate.  When were capital gains taxed the same as labor income?):

 

Actually, Romney's own business career makes the point better. No one seems to have noticed it, but Romney worked those long hours and made those risky bets mostly during a decade-long period when capital gains were taxed at the same rate as labor income. For a brief shining moment, the 1986 Tax Reform Act that Romney's icon Ronald Reagan supported interrupted the steady decline of capital gains taxes and restored the simple idea that all income should be taxed equally. That is to say, Romney's own success suggests that low capital gains rates aren't necessary to encourage the kind of entrepreneurship that Romney now celebrates.

 

http://www.cnn.com/2012/01/24/opinion/hacker-pierson-romney-taxes/index.html?hpt=hp_c2

 

Reagan would get run out of office faster than Obama today!  Cheers!

[Tim Eriksen]

This is a great quote (but it doesn't seem accurate.  When were capital gains taxed the same as labor income?):

 

Actually, Romney's own business career makes the point better. No one seems to have noticed it, but Romney worked those long hours and made those risky bets mostly during a decade-long period when capital gains were taxed at the same rate as labor income. For a brief shining moment, the 1986 Tax Reform Act that Romney's icon Ronald Reagan supported interrupted the steady decline of capital gains taxes and restored the simple idea that all income should be taxed equally. That is to say, Romney's own success suggests that low capital gains rates aren't necessary to encourage the kind of entrepreneurship that Romney now celebrates.

 

http://www.cnn.com/2012/01/24/opinion/hacker-pierson-romney-taxes/index.html?hpt=hp_c2

 

The rates were only the same from 1988 to 1990 per this source http://www.ctj.org/pdf/regcg.pdf

 

It is really hard to take seriously an article where the authors cannot even spell Buffett's name correctly.  Just as annoying they argue that the loss of $18 billion in tax revenue from the super-rich results in higher taxes for everyone else.  Patently false.  One it is not zero sum.  Two, the middle class enjoyed a tax cut too.  While not a huge amount per person it is huge in terms of the overall budget. 

 

[Cardboard]

We should never put Reagan and Obama in the same sentence.

 

One has put pressure on communism and ended up tearing it apart, turned around a demoralized country thinking that only Japan could do well and planted the seed of an economy that created benefits for nearly 30 years.

 

The other one... what has he done? Oh yeah, planting the seed of civil unrest and dividing the country more than ever.

 

Cardboard 

[Tim Eriksen]

 

Reagan would get run out of office faster than Obama today!  Cheers!

 

I think you would find a majority of people that would disagree with you on that one.  The whole reason Republicans are dissatisfied with the existing candidates is that they compare them to Reagan.   

[ERICOPOLY]

This is a great quote (but it doesn't seem accurate.  When were capital gains taxed the same as labor income?):

 

Actually, Romney's own business career makes the point better. No one seems to have noticed it, but Romney worked those long hours and made those risky bets mostly during a decade-long period when capital gains were taxed at the same rate as labor income. For a brief shining moment, the 1986 Tax Reform Act that Romney's icon Ronald Reagan supported interrupted the steady decline of capital gains taxes and restored the simple idea that all income should be taxed equally. That is to say, Romney's own success suggests that low capital gains rates aren't necessary to encourage the kind of entrepreneurship that Romney now celebrates.

 

http://www.cnn.com/2012/01/24/opinion/hacker-pierson-romney-taxes/index.html?hpt=hp_c2

 

The rates were only the same from 1988 to 1990 per this source http://www.ctj.org/pdf/regcg.pdf

 

It is really hard to take seriously an article where the authors cannot even spell Buffett's name correctly.  Just as annoying they argue that the loss of $18 billion in tax revenue from the super-rich results in higher taxes for everyone else.  Patently false.  One it is not zero sum.  Two, the middle class enjoyed a tax cut too.  While not a huge amount per person it is huge in terms of the overall budget.

 

The main takeaway though is that Romney himself still worked hard even when capital gains rates were as high as income.

 

Common sense would dictate that 65% of a 20% gain is better than 0% of a 0% gain!  As much as I hate paying higher taxes, I agree that taxing capital gains the same as income will not kill capitalism.  The only argument I firmly believe in is that the stock market in the aggregate does not appreciate much more than inflation.  Maybe the price level beats inflation by 1% real rate over time.  The rest of the "real" gains come from inflation (edit: dividends).  So once you lower capital gains rates to account for inflation, the corporations tend to buy more stock back for tax laundering motivation.  So it's kind of a whack a mole thing. 

 

 

[ERICOPOLY]

Maybe Obama should just bring the tax rates back up to the Reagan years if Reagan "does it for you":

 

After all, for seven of Reagan’s eight years in office, the top tax rate was higher than the current 35 percent. In six of those years, it was 50 percent or more. And every year that Regan was in office, the bottom tax bracket was higher than the current ten percent.

 

http://thinkprogress.org/economy/2011/06/01/233526/taxes-lower-reagan/?mobile=nc

 

[Packer16]

I think this cherry picking of Regean's position on taxes misses the point of his overall impact.  His tax rates were lower than past history and this led to more dollars being in folks hands to invest, spend etc.  Today doing this in isolation (which is what I think Obama's proposal is) is just raising more revenue to sustain more spending on projects the gov't thinks are better than folks spending their own money (high speed rail, biofeuls, etc).  If this was linked to a serious cost cutting proposal (Simpon-Bowles) including reductions in low impact high cost porjects like high speed rail and biofuels, I think it would hard to refute but it is not.  Obama has painted himself into a corner because in his mind he cannot make these nice to have but uneconomic project cuts.  I have a hard time seeing how Buffett thinks Obama is effective but he backed Jimmy Carter to so maybe in politics he is not as objective as he is in investing.

 

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