Warren Buffet: stop coddling the richest Americans

[Vladimir]

You're telling me that it's going to take 2 years (if you earn 300k that is) instead of 20 to pay back that house?? Omg, that's horribly poor. Woe those poor souls earning nothing.

Yes, that's it . The people buying that house wouldn't have but a third of that money. That's not taking income taxes and cost of living into account. We're talking vs. 100,000 for the same house in Indiana.

I can't figure out if you are agreeing or diagreeing with me. Indiana was just an example. If you make a 300k per year salary then you are not middle class.

But for your last sentence I would add...... "and denying that they are rich."

Sorry, poking a little fun of Indiana. Your suggestion is impossible because people are leaving Midwest states and high salary jobs rarely exist in low cost of living states.

[Ironside]

Yes, that's it . The people buying that house wouldn't have but a third of that money. That's not taking income taxes and cost of living into account. We're talking vs. 100,000 for the same house in Indiana.

Right, forgot about income taxes. Teh horror. And overcharged housing isn't exactly unique. The difference is that for normal people, this can be a significant payback problem when the prices are high.

300k-30% (overcharging a bit by the simplification) = 210k.

Median household income (that stuff 50% of America lives on, I think that's enough)= 45k-5k (taxes)=40k (and that's even more since owning your house drops living costs quite a bit, and no since it's no mansion the cost will be the same as for normal people).

Oh no, only 170k left!!!! It will take 2,35 years with this! This kind of child abuse beats even Germany!

For normal people, payback time of 10 years is quick and probably puts you in upper middle class.

Oh, and since our CEO knows how to shift his income to divends, he'll be dropping down to 15% income tax, so he can still easily get those 200k to spare.

Really, dragging in housing shows with perfect clearity how much these kind of people are earning compared to the majority. No, they won't really suffer anything by getting taxed more, even if they are "only" rich and not superrich.

[Seamus Fermanagh]

Nice post, MRD.


There are quite a number of rich persons in the USA, with the latest data suggesting roughly 29,000 persons with a net worth of $20 millions or more. While not a small number, this figure means that fewer then one person in a thousand has this kind of wealth.

Some points to remember about taxation and revenue:

1. We are NOT talking about a wealth tax or a consumption tax -- both of which MIGHT generate more revenue from the truly wealthy since you would be directly taxing that wealth or taxing the purchases it makes. INSTEAD, we have the income tax. The more "progressively" this is structured, the more it is difficult to become rich...but this means little to those who already are as they often have relatively little "income" per se and hire excellent shysters to recategorize any that they must report so as to minimize the portion taken as tax. Talking about taxing the "wealthy" using an income tax is silly. By the time you had a tax code that closed every "loophole" in which the money growth of the wealthy was hidden so as to not be classified as income, you would have....a wealth tax. So enact one or get over this platitudes and move on.

2. Any income tax that will generate meaningful revenue must put the burden of that taxation on the middle class and upper middle class or it will generate little revenue at all. Let's assume that each of those 29k rich folk were actually making $20 million a year as an average (they're not, but let's just stipulate it). Jack the tax on such incomes to 90% like it was in the late 1950s. Those 29k persons would then generate $522 millions in revenue. Then tax the lowest half of our population a flat $10 head tax regardless of income and you get $1.505 billions in revenue. If you seriously wish to generate revenue through an income tax, create an alterative minimum tax of $1000 for the 47% of the USA that pay no tax whatsoever and watch revenues jump.

"Tax the rich" doesn't generate the revenues needed -- but it sure let's the voter stick it to the person who was luckier/smarter/chose the right parents. Principal result? The politico who gives them their periodic **** the rich voting opportunity gets to stay in power and enjoy the perks and privileges thereof.


3. Corporations do not pay taxes. They collect them from consumers for the benefit of those running the government. At BEST, some of those customers are foreigners, thus allowing the government to dip its hands into the back pockets of people who are not even their own citizens, but any notion that the corporations themselves are going to pay the tax by cutting the profits to their shareholders/investors is patently fatuous.

4. Progressive Income taxes, in practice, do NOT beget the social "leveling" that might have been their sole value (assuming you accept the premise involved). What you get is not equalized wealth, but government dependency. Since the dependents usually have the right to vote themselves more largess -- by electing representatives who promise to fill their troughs/not take as much away as those other jerks -- you end up with electoral power concentrated among government dependents...whose only self-interest would be to increase their benefits at the expense of those still paying. Does the phrase inmates running the asuylum come to mind for you too?

Rome believed in Panem et Circum....but the Head Count did not get to decide the amounts.

[Montmorency]

Jack the tax on such incomes to 90% like it was in the late 1950s. Those 29k persons would then generate $522 millions in revenue.

522 billions.

[PanzerJaeger]

It seems to me that Mr. Buffett is making a stronger case for reforming and simplifying the tax code than soaking the rich. The biggest issue is not the rates themselves, but the ability to count short term gains as long term ones. That's a one page bill if I've ever seen one.

Interestingly, he also seems unaware that in 2013, the current rates will be raised both on short and long term gains to an individual's income bracket and 20% respectively. Or maybe he's worried about the current president's job prospects.

[Vladimir]

Nice post, MRD.

etc

Excellent, but poor people will disregard everything in your post and still spout uneducated comments.

As an aspiring rich person I concur with your statements.

[Centurion1]

What I am taking away from this thread is that Europeans are poor.

[Montmorency]

What I'm taking away from this thread is that the forces of reaction will soon overwhelm the pathetic leftist experiments in social democracy. :)

[Ironside]

1. We are NOT talking about a wealth tax or a consumption tax -- both of which MIGHT generate more revenue from the truly wealthy since you would be directly taxing that wealth or taxing the purchases it makes. INSTEAD, we have the income tax. The more "progressively" this is structured, the more it is difficult to become rich...but this means little to those who already are as they often have relatively little "income" per se and hire excellent shysters to recategorize any that they must report so as to minimize the portion taken as tax. Talking about taxing the "wealthy" using an income tax is silly. By the time you had a tax code that closed every "loophole" in which the money growth of the wealthy was hidden so as to not be classified as income, you would have....a wealth tax. So enact one or get over this platitudes and move on.

Wealth taxes (like inheiritence tax) seems to drav alot of ire though, making them unpopular. Property taxes is another example (my house just went up in value thanks to a market bubble. Thanks for the extra taxes). So taxing income is much, easier.
Closing the loopholes keeps the wealth distribution from going more unequal though.

I approve of VAT.

2. Any income tax that will generate meaningful revenue must put the burden of that taxation on the middle class and upper middle class or it will generate little revenue at all.

Bush's tax cuts reduced state income by about 10%. While certainly not the entire budget, it's not exactly small either.

3. Corporations do not pay taxes. They collect them from consumers for the benefit of those running the government. At BEST, some of those customers are foreigners, thus allowing the government to dip its hands into the back pockets of people who are not even their own citizens, but any notion that the corporations themselves are going to pay the tax by cutting the profits to their shareholders/investors is patently fatuous.

Passing it on to the costumer only works if the competition also agrees to it. Take company profit vs company goes around. Company goes around doesn't pay taxes (since it doesn't make profit) so there no exta cost to pass to the costumers, while company profit has to reduce profits or lose market shares to company goes around.

The costumers lost nothing on this.

4. Progressive Income taxes, in practice, do NOT beget the social "leveling" that might have been their sole value (assuming you accept the premise involved). What you get is not equalized wealth, but government dependency. Since the dependents usually have the right to vote themselves more largess -- by electing representatives who promise to fill their troughs/not take as much away as those other jerks -- you end up with electoral power concentrated among government dependents...whose only self-interest would be to increase their benefits at the expense of those still paying. Does the phrase inmates running the asuylum come to mind for you too?

Rome believed in Panem et Circum....but the Head Count did not get to decide the amounts.

I think you got a point here, but not the way you think. The US got a very progressive system, while having low social mobillity for a western nation. While less progressive systems (Scandinavia, Germany), but with a higher total tax ratio do better in social mobillity.

Since the total tax ratio are making more people "dependant" on the goverment (as in more people will get payed in some way from the goverment), either your anology is flawed or the lunatics are running the asylum better than the shrinks.

What I am taking away from this thread is that Europeans are poor.

So is 99% of the Americans.

Come to think about it. How large (as in % of the population) do you expect the upper class to be?

[HoreTore]

What I'm taking away from this thread is that the forces of reaction will soon overwhelm the pathetic leftist experiments in social democracy. :)

With countries like Brazil, India and China set to dominate this century, I find that rather unlikely.

[Vladimir]

With countries like Brazil, India and China set to dominate this century, I find that rather unlikely.

Brazil will forever be the world's next economic superpower. A shame really. I would like to see them succeed.

[HoreTore]

Brazil will forever be the world's next economic superpower. A shame really. I would like to see them succeed.

Sounds like someone haven't paid attention to what has happened there since the social democrat Lula took power




But of course, that does not in any way mean that they can't revert to their old habits of tanking when the future looks the brightest... Only time will tell, I guess. Though that applies to all the major economies of today really. The US, EU, China, India, Russia and Brazil can all either go all in and win, or crash and burn spectacularly...

[jirisys]

or crash and burn spectacularly...

I'm up for that, makes life interesting.

~Jirisys ()

[Papewaio]

Yes because social democracy clearly isn't working for Sweden, Norway, Denmark, New Zealand or Australia.

Just look how crap Australia's economy is going at the moment. Income taxes two or more times those in America, a Goods and Service Tax of 10% on everything we buy, a 9% pseudo tax called superannuation on top of our income (for every $1.09 dollars we earn the first 9c goes into super, then the rest is considered taxable income), medicare of at least 1%, flood levy ~ .1% & a Carbon Tax coming soon with an increase of the tax free threshold from $6k to $18k Aus.

Our economy is clearly stalling: Unemployment has shot up in the last month 0.1% to 5.1%, interest on government debt is around 0.4% of GDP and it's going to take 2, two, TWO! years at least to get back into surplus. It's terrible the pain a social democracy is going through and clearly investors are avoiding here like the plague because of the high income tax rates...

[Centurion1]

Yes because social democracy clearly isn't working for Sweden, Norway, Denmark, New Zealand or Australia.

Just look how crap Australia's economy is going at the moment. Income taxes two or more times those in America, a Goods and Service Tax of 10% on everything we buy, a 9% pseudo tax called superannuation on top of our income (for every $1.09 dollars we earn the first 9c goes into super, then the rest is considered taxable income), medicare of at least 1%, flood levy ~ .1% & a Carbon Tax coming soon with an increase of the tax free threshold from $6k to $18k Aus.

Our economy is clearly stalling: Unemployment has shot up in the last month 0.1% to 5.1%, interest on government debt is around 0.4% of GDP and it's going to take 2, two, TWO! years at least to get back into surplus. It's terrible the pain a social democracy is going through and clearly investors are avoiding here like the plague because of the high income tax rates...

Well investment doesn't necessarily have any anything to do with you said. And start up business and middle class people are who suffer in Australia.

[HoreTore]

Do you by any chance have some tales of middle class woes from Australia?

I'm rather interested in reading the tale of the down-trodden Australian lawyer, for example...

I'll give you a nice example of how start-ups are doing in Norway though: Kiwi, a grocery store chain, had one store in my town, Drammen, in the late eighties. It passed 500 stores in 2000. And it's not just them either. We have four chains which owns basically every grocery store(except for immigrant stores and its like). All of them consisted of just a couple stores in the 80's. How's that for being start-up friendly?

[a completely inoffensive name]

Considering that Warren Buffett has already pledged to give 99% of his wealth to charity when he dies, I am willing to throw out any doubt on the motivations behind this opinion piece (sorry Xiahou).

To be honest, I really don't see how America is at risk for losing its investors or its "job creating" class by raising personal income rates. Europe goes above and beyond at "punishing" the job creators and they are in the same situation we are in, more or less.

[Major Robert Dump]

You guys are picking on me.

I never called for any higher taxes on a specific.

I am making fun of people who like to pretend they are middle class when raking in 6x the average salary. And no, it's not "impossible" to work in the high-cost area and live in the low cost area, because I know plenty of people who live in Oklahoma and work in Dallas, to include myself. The traveling sucks, but its a tax write off.

I've always been a fan of more of a flat, consumption based tax, but what do I know?

I like how 90% of the Fox News Commentators are asking why Bufftet isn't just donating money to the government?

[PanzerJaeger]

The morality of imposing higher taxes on the rich is certainly up for debate, but the effect of such proposed hikes on the budget is pretty clear... and pretty microscopic.

But would the Buffett Tax really help the country’s finances?

Yes, but not as much you might think.

In 2008, there were 236,883 tax filers reporting income of $1 million or more. The Patriotic Millionaires, a group advocating the repeal of the Bush tax cuts on tax filers making $1 million or more a year, estimated that their plan would raise $500 billion to $600 billion over 10 years. That sounds like a lot.

But only $100 billion of that is projected savings from lower government debt costs. So the tax would actually raise $40 billion to $50 billion a year: equal to about 3% of the annual federal deficit.

Granted, it’s something. And if you hiked the rates higher than the Clinton levels, and added another level for $10 million earners, it would be more.

As Erica Payne of the Patriotic Millionaires told me:

“There are two issues here. One is the actual dollar amount to meet our financial obligations. And the other is what is the fair way to allocate expenses across our society.” She added that the millionaire-earners make more from “lazy money,” i.e. capital gains and dividends. “They’re not working for that money. They’re sitting on the couch and having money come to them.”

Millionaires who earned their money from starting and building companies would disagree, of course. And more wealth today comes from earned income than at any point in history.

But one thing is certain: While raising taxes on millionaires might be emotionally and politically satisfying for some, it would only begin to fill the nation’s budget hole.

3% huh... Even with a rate higher than the 39% Clinton era top bracket, additional taxes on those making over $1 million, and changes to the short term gains and other loopholes, would soaking the rich even break 10% of the deficit? Seems doubtful, which highlights how disproportionately tilted our debt problem is towards spending.

I'm sorry, I support reforming the tax code to ensure that people (of all brackets) pay closer to their stated rates, but this clamor for soaking the rich is pure populist garbage propagated by a political ideology and its captive political party that is desperately looking for a scapegoat to explain why it's vote-buying schemes are bankrupting the nation.

[Papewaio]

Well investment doesn't necessarily have any anything to do with you said. And start up business and middle class people are who suffer in Australia.

Um, like, er the argument is that higher taxes makes an anti-investment environment... which clearly is not the case in Australia.

In fact I would argue the opposite... since income tax is higher then the US it makes it far more attractive to own a business as they get taxed less and only on the profits... so it means people who earn a lot look for investments to put their money into... some as tax credits, some to earn more via capital gains.

So income tax both funds the government ie defence, firefighters, police, hospitals, fibre to the home, etc and makes it a bigger incentive to invest in other profit vehicles that get taxed less.

BTW
My wife has a start up business and I would be in the middle class wage earner bracket.

[Montmorency]

Why not raise taxes and reform entitlements? Speaking of taxes, why not just force the corporations to pay up?

http://www.nytimes.com/2011/05/03/bu...ates.html?_r=1

No one is certain how much creative accounting costs the federal government in lost revenue, but most estimates say it easily exceeds $50 billion a year. Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.

Why do corporate taxes look like this anyway?

Spoiler Alert, click show to read: 

[a completely inoffensive name]

Um, like, er the argument is that higher taxes makes an anti-investment environment... which clearly is not the case in Australia.

In fact I would argue the opposite... since income tax is higher then the US it makes it far more attractive to own a business as they get taxed less and only on the profits... so it means people who earn a lot look for investments to put their money into... some as tax credits, some to earn more via capital gains.

So income tax both funds the government ie defence, firefighters, police, hospitals, fibre to the home, etc and makes it a bigger incentive to invest in other profit vehicles that get taxed less.

BTW
My wife has a start up business and I would be in the middle class wage earner bracket.

I like this. If the job creators are supposedly taking their money and reinvesting it why not hold them to their word? If they simply want to keep their own money, then they admit that they not really job creators and as such they have no economic imperative to lower taxes.

I also wish that the tax brackets were more specific. 100,000-500,000 is upper middle to lower upper. I want the 1,000,000+ to be taxed at an extremely high rate because to me, those that fall between 10^5 and 10^6 are the real hard workers who got to where they are through education and hard work. Those that make over 10^6 are mostly bankers manipulating money, celebrities, or sports players.

[PanzerJaeger]

Why do corporate taxes look like this anyway?

Spoiler Alert, click show to read: 

I'm not sure what you're specifically referring to. Tax rates are lower on the left side of the chart because small businesses create most of the jobs in the US economy. You'll note that as you move to the right, rates are not all that different from their historical levels. I definitely agree that government should not be subsidizing some companies through the tax system, though.

[Montmorency]

I was specifically referring to the 39% on $100000-338000 vs. 38% on above $18,333,333.

Not significantly different? They're lower by a third (from the peak).

[HoreTore]

To me, tax rates should be linked to risk more than actual income.

When someone is starting up a business, they usually take on a lot of debt to get things started. That debt is also the big obstacle for people, as it represents a significant risk. That people shun starting up something because they'll be taxed hard should they succeed sojnds absurd to me. It's far more likely that people don't start up something because they're afraid of the risk they take in the first few years. Thus, I want a lower tax in that situation.

People with little risk, on the other hand, can be taxed harder. That means the people who have succeeded and those who have a comfy wage but does not take on the risk of creating something. For the former, it can be seen as a payback. We helped them with lower taxes in the beginning, now that things are going smoothly they can pay a little more. For the latter, it also creates an incentitive to take on risk.

But is this communism?

[Sarmatian]

To me, tax rates should be linked to risk more than actual income.

When someone is starting up a business, they usually take on a lot of debt to get things started. That debt is also the big obstacle for people, as it represents a significant risk. That people shun starting up something because they'll be taxed hard should they succeed sojnds absurd to me. It's far more likely that people don't start up something because they're afraid of the risk they take in the first few years. Thus, I want a lower tax in that situation.

People with little risk, on the other hand, can be taxed harder. That means the people who have succeeded and those who have a comfy wage but does not take on the risk of creating something. For the former, it can be seen as a payback. We helped them with lower taxes in the beginning, now that things are going smoothly they can pay a little more. For the latter, it also creates an incentitive to take on risk.

But is this communism?

Everything except 0% taxes on the rich is communism.

[Papewaio]

Company tax rates are a flat 30% on profit in Aus (there are some special case exceptions base do industry not profit margin).

It therefore makes sense for most people running a small business to give themselves an income upto the point they would hit more then 30% (which is 80k in Aus)... and reinvest the rest in the company.

[Strike For The South]

300k in Texas is king money, no matter where you live

I have an idea, How about we print money but don't tell anyone. Clear our debts and ride off into the sunset. Bernanke can make his runs from the Fed to the medicare office in the dead of night and when they employees arrive to work the next day money will be stashed under the water cooler like some bizzaro Xmas morning.

I know plenty of people who live in Oklahoma and work in Dallas

I would rather import all the Mexicans than 1 Okie HARUMPH

[PanzerJaeger]

I was specifically referring to the 39% on $100000-338000 vs. 38% on above $18,333,333.

Not sure on that one. Ice is our resident tax expert. Maybe he'll chime in.

Not significantly different? They're lower by a third (from the peak).

That chart begins rather arbitrarily, don't you think? A fuller picture of historic corporate tax rates shows that the rather high post-war rates were more of an anomaly than those that are currently in place.

[Montmorency]

Well obviously taxes were lower in the early 20th century. Heck, personal income taxes topped out in the single digits. You think that's appropriate?

Edit: The high tax rates lasted longer than the low ones, and therefore are not anomalous (41 years of 40% or more highest).