ERICOPOLY

Yes. One thing that Myth pointed out is that my margin loan strategy would avoid taxes but is inefficient -- that I could probably do better. That's what capital gains taxes and dividend taxes lead too. Inefficient deployment of capital and stupid decisions. Berkshire has held onto overvalued shares because after selling them and paying the tax the gap to exploit between market price and intrinsic value is eroded by a wide margin on the shares he's got a very low cost basis on. This lack of interest selling (for tax reasons) coupled no doubt with corporations buying back shares at those prices to avoid a dividend distribution (for tax reasons) leads to distortion and is general not a very good result -- an unintended consequence of the tax code.

You just said "dick" in two successive posts. What were you expecting after the first time? Maybe if you had instead written "asshole" instead of "dick" in the first post it would have been more polite.

Even I laughed out loud on that. Must have been Amy Goodman or something. --- Ericopoly - Well I dont even think we are talking about the same thing. You are talking about the American dream and the fact that people can make decisions right now which would increase their income in the future. Everyone else seems to be talking about averages and numbers. I can understand your point if I had $1million in salary each year and $100 million in net worth. I would feel underpaid, and not too rich. Its all relative I guess. I however would still know that I was doing better than most. At this point we can agree to disagree. You're right, I am talking about the American dream -- class mobility. I told you in the beginning not to believe what the media says about class mobility being dead in America. Then I provided an anecdote about how I did it -- and that path to the American dream would be threatened by much higher taxes on investment capital. I have been dropping all sorts of examples about how people from all wallks of life with the right mindset, drive, and initiative can scrap together the means to do what I did, if money and the freedom it brings is really important to them. For most people it's not worth pursuing, perhaps they value other things and don't pursue the money as much as they could if they were as hungry as I was before I started studying programming. You don't need a university education -- you can start your own plumbing business and work your way to my income level if you are successful. You can work a second job in an upscale restaurant in the evenings and make excellent tips instead of watching TV -- the government statistics don't show this. Not every waiter is in an upscale restaurant -- perhaps Kawihako didn't make the cut... I have no idea. He was, after all, only in college with little experience. There are a lot of other servers there who didn't do very well and he says they were there for 10 years... well, why were they not working at the places where you can't get a reservation and where the tips are very generous? Against this you talk about how the government statistics say that the average person doesn't make that much. Which is talking past each other, as you indeed recognize. I am talking about people who are driven to succeed and what they can hope to make if they apply themselves in their line of work, in return I just get back the same tired line about what average people earn. The important thing is in my job I wasn't making enough to raise a family and retire early unless I took a lot of initiative -- I would often for weeks on end in my early years come in at 9am, leave at 11pm, and then work weekends as well. I could have instead had a normal 9-5 daytime job paying $25k, then pulled in another $30k at least working evenings earning tips as a waiter. Same number of hours worked... and I would have actually had more money to invest the first few years with that approach because Microsoft started me so low in 1997 at $36k. I was a base-level software tester. Working that many hours per week, there was no room for a second job and Microsoft has an anti-moonlighting policy. The only "second job" I would have was buying businesses on a fractional basis... passive investing. Even assuming you have the stamina to work two jobs as a young single person instead of being out in bars running through your paycheck, working those nights and weekends as the waiter still won't make you rich. You need to invest it and compound at a high rate after-tax. In order to do that you need a tax code that is capital friendly. Remember when I said that high investment taxes are a barrier to social mobility? Ever since then you guys have been running this game of attacking a straw man over whether or not 100k is what an average worker in a number of industries can make. So what... with the hours I worked a person with two jobs could have made roughly the same that I did for the first 4 years.

I'll let you have your little victory that at $100k I was living wealthy in america -- it's a stupid thing to argue about... *Cough* *cough* dick *ack* *cough* :) The straw man is dead. Well done.

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement. It would be almost reasonable if you knew you would get full-time style work, but that isn't reality. A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it. They charge a lot less in China you see. The stuff I do telecommuting can just as easily be contracted out to people there. They don't outsource plumbing to China. How much do you pay for a visit from your plumber? I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor. I don't know what kind of work you do in IT, but outsourcing programming to China and India is not quite the same as consulting. Companies looking for consulting work still want people local and on site. I will be working for a former manager of mine who started his own company with a few other partners. He lives in Montana, his company is based out of Florida. I will not be traveling or going onsite anywhere. I will be doing programming and code reviews out of the office that I rent here on Bainbridge which I maintain anyway -- this office is cheap space I rent to get out of the house when I want to research investments. I will not be working with any other companies. This is a specific thing. It's a bit like being a loosely coupled employee, only I don't have to be bored when there are no projects to work on. Regardless, I will be making $65 an hour and I think it's an excellent wage. Full time, it's $130k a year but it won't be full time because the work won't be continuous. Just like a plumber... I'm not so different from a plumber. A plumber can make $100+ per hour if he has his own business (mine is a sole-proprieter)... it was his fathers' business (he was the sole proprieter too). My wife's family has been using them for a couple of generations (her family has been here on the island in the same house for four generations). Point being, he doesn't work for anybody else, he only does plumbing work, and for every hour that he spends fixing my sink I will need to work nearly 2 hours. It is what it is.

You'll find that I don't make any such claims. I do claim that a real go-getter can accomplish this. You are arguing that averages are far less than 100k. Well, so are the averages for IT workers. I busted my ass and made much more than average. I was in Forks, Washington yesterday chatting with my fishing guide. The town is full of people on welfare. Most of the kids in town join the military and many wind up in Afghanistan (my guides son is in Afghanistan now). There are not enough jobs and most are low paying government jobs. An out of town lady with very little capital started a business there last year and is now making $80,000 a month out of her "Twilight" store and running "Twilight" tours of the town. It turns out that somebody wrote a book about the town called Twilight (vampires) and a movie was made. So there are all these people coming in as "Twilighters" -- tourists. Explain to me why the locals in that town didn't have that opportunity? The point is... you can piss and moan or you can have initiative. You seem to imply that because I made $100k I am the only kind of person that can make it in America. My friend at Microsoft (won't reveal his identity) was in only his second year on the job, had maybe not quite $20k to invest (two years of savings), but swung hard at those FFH options in 2006 and quit his job later that year. He hasn't been employed since and is now worth enough money to trigger the inheritance tax next year. I think he made about $3,500% after-taxes leading up to the bottom of the market last year, then in Chinese microcaps has made another 7 bagger on top of that. Point being, you can turn $20k into $4.5m after-tax in just four years if you are determined instead of arguing about how you're poor if $20k is your life's savings. The difference is this... he believed he could do it and he put in the homework and risked his own capital. I'll let you have your little victory that at $100k I was living wealthy in america -- it's a stupid thing to argue about... I could be retired now even if I only made $60k during those years.

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour. If they can only make $50k per year maybe they are playing golf half the week. I can only make $65 an hour for my labor if I start my own consulting business. $100+ > $65 Distortion of facts. http://www.bls.gov/oco/ocos211.htm#earnings You should rely on your eyes more. What price do you pay when you call the plumber? Further, college workers get paid shit. So your college wage has no value to this discussion. When I was in college, I worked an IT job for $10 an hour. My wife and I go out to dinner every week and the bill is about $100. I pay a 20% tip and the server is making $20 from my table alone. She probably averages 3 tables at least per hour, so we're talking about some serious compensation. Your government statistics website... man, you can lie with statistics can't you? How much do they say that I made in my IT job? Was it $100k average?

rmitz, I earned $35 an hour cash compensation at Microsoft for the amount of time they ultimately required of me. Perhaps it's as much as $45 if you include benefits. I think people waiting tables (at a busy restaurant) do better than that -- better, than can pocket most of their income in cash (tips) and not report it to the IRS. Consulting at $65 is better than Microsoft at $45. Even after the self-employment tax it works out better.

I don't know what you do in IT, I work in the field too, but $65 seems pretty low to me for a consulting arrangement. It would be almost reasonable if you knew you would get full-time style work, but that isn't reality. A rule of thumb I used to calculate what I'd need for a consulting rate would be to take your current rate, slap on 33% for benefits (true where I work), and then adjust it for a 50% utilization ratio, i.e. double it. They charge a lot less in China you see. The stuff I do telecommuting can just as easily be contracted out to people there. They don't outsource plumbing to China. How much do you pay for a visit from your plumber? I only pay the pizza delivery person a few bucks, so I know it isn't the onsite visit alone that costs money -- it's the labor.

He supports his argument with Japan beginning at 1989 -- another terminal point where a massive bubble collapse could instead be the cause of the slower GDP growth. He would be more convincing if he used an example that involved an increase in government spending but did not use a massive bubble collapse as it's terminal point. Otherwise he muddies the issue.

observation: Our GDP was growing at 4.8% ten years ago, and today we are staggering out of recession. conclusion: Thus, contrary to conventional wisdom, monumental government spending produced less growth, His analysis begs the question: Did the bursting of a massive bubble of overinvestment slow GDP growth, or was it the government spending that slowed GDP growth? In other words, did the 4.8% GDP growth of 10 years ago... did that in any way reflect the bubble? So as the bubble unwinds and GDP growth slows, should we ignore that and instead conclude that GDP growth is slowing down because of the government spending?

Of course they're not taxed and of course they shouldn't be. That's not the point. Think about Buffett's teaching for a minute here. Focus your mind on "owners earnings". I am the owner, those are my earnings. Those are the earnings I should be taxed on. Thinking about the dividends as my earnings is ridiculous. Dividends are a declared distribution of my earnings. There are other forms of distribution of earnings, like share buybacks. Share buybacks fortunately are not taxed -- people haven't yet recognized that this is how we tax evaders return cash to shareholders without people noticing that we are taking a distribution of our earnings. This forces the share price up at an above-average rate over time (relative to paying dividends) which is why it's possible to tap those earnings via margin loans. Stick to taxing owner earnings if you are trying to fill holes in the budget. I wish Mr. Buffett would mention that he is taxed on his owner earnings at a much higher rate than his secretary. He talks about owner earnings when he's thinking about how he buys shares, and he encourages every shareholder to think of their shares as pieces of the business as if they were wholly owned. But then sadly he carries on with this idea that his earnings are taxed at a lower rate than his secretary. Mr Buffett -- are these owners' earnings really your earnings or not?? Which is it?

The plumbers who work where I live (Bainbridge Island) charge more than $100 per hour. If they can only make $50k per year maybe they are playing golf half the week. I can only make $65 an hour for my labor if I start my own consulting business. $100+ > $65

our rates are historically *extremely* low, certainly relative to the taxes the middle class pays. When does history begin? There was no income tax prior to... 1913 I think? I might be getting the year wrong. Somewhere in there, I may be off by 10 years.

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

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

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

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

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

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

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

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

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

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

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