ERICOPOLY

I have to admit that my attitude is influenced by the fact that I earned my paycheck just like everyone else, but I made different decisions with what was left over. I chose math and computer science even though I was in way over my head intellectually. I slugged it out at UCLA with computer science geeks who wrote their own operating system in Montessori,, even though I had only ever used a computer for writing term papers. From this I put up with 10.5 sanity testing years at Microsoft. I feel like I am not the ruling elite. I am living proof of social mobility despite what the media says. The system isn't rigged to keep people earning 36k in the hole -- that was my starting salary. If you raise cap gains and dividend taxes, you make it harder for somebody to follow in my footseps. You create a barrier to social mobility.

I'm not complaining about unrealized gains not being taxed, I'm pointing out that companies that retain earnings win the class war just as handily. You point out that the VAT is highly regressive but then so are dividend taxes. People will only hold enough income paying stocks to fund their spending needs, and then put the rest in vehicles like Berkshire or is they own their own business they will just retain the earnings. They will pay the same as under the VAT if managed correctly. They are both regressive.

The dividend is a distribution of the owners' post-tax earnings. Why doesn't Buffett's secretary pay a dividend tax when she withdraws her already-taxed earnings from her account?

The best solution I can think of is a value added tax. It taxes people in proportion to their lifestyle and encourages them to send less to the landfill. We would be getting environmental benefits in addition to simplicity. Even a 50% dividend tax wouldn't touch men like Buffett much because he so cleverly manages it like a shelter from individual taxation.

Buffett is talking a shell game. Look, low tax rate under shell #1 compared to my secretary. He has fooled you because the bulk of his earnings are taxed at 35% under shell #2 which is Berkshire. It's a word game that plays well in the media.

Suppose you have one billion dollars and nothing else. And it is all in Berkshire shares and nothing else. You never pay taxes if you spend 1m a year and finance it with margin loans. The scale is such that your margin debt will not be a risk. If you suggest cutting corporate tax Myth, then people will still find a way to completely avoid tax.

In Australia the corp only pays 30 in tax on that 100 of earnings and the individual then only pays 2.70 in tax. That leaves 67.30 in earnings for the owner. Australia is not the one with the budget crisis. They have better social programs too.

You agree with Buffett. And how much dividend does Buffett collect on his Berky shares? Is he going to get rich at a slower rate with a higher tax? No. The other thing people will do is put their millions into variable annuities which are effectively mutual funds that compound tax-deferred like IRA accounts. There are no restrictions on contributions.

Next buybacks will be banned as tax evasion.

Mohnish has stated in the past that it's not worth his while investing unless he thinks he can make 20%. He said that in an interview where he was talking about MSFT. He didn't want to buy it because he didn't think he could make 20%. I wonder if he has lowered his hurdle rate now that he has muck more money under management, and now that his long term record has fallen short of his hurdle rate. The way the market behaves if you are buying something for 38% of value and it increases value by 14.4% a year you are going to see a huge gain in the early years relative to what you see in the latter years. You'll probably make like 50% compounding for the first couple of years, then 40% then 30%, or something along those lines to quickly close the discount, then followed by much lower returns after that largely driven by the 14.4% IV gains -- it may average out to 28% when seen over 10 years... but those latter years will be a huge drag on the record of your early years. But if I could be promised a "mere" 14.4% for the next decade I would sign the paperwork immediately.

It's a complete waste of societal resources for smart people to be concocting these schemes. What's with this country? We are paying one person (a tax collector) to collect a tax that our legislators have created, and then we have the very same legislative body creating a crafty tax code that provides for rich people to help them get around the traps. This is just appeasement so that the ignorant masses believe the rich are being taken to the woodshed. If the rich plan it right, when they get behind the woodshed it becomes clear that it's just a facade and really there is a picnic table with a punchbowl. This is obvious based on how few people actually pay the tax. Either get serious about actually collecting it or just abolish it. Australia has no tax on this stuff and it's a vastly friendlier society. So I'm dubious of the theory that decay and ruin would soon follow if we abolished the tax here. In January I called up the Warringah council (Sydney) when my garbage can wasn't picked up from the curb, they apologized and arranged for the truck to come back on a special pickup the next day... just for me! I suppose I could try it out here but in my experience it wouldn't be worth the bother of asking.

I haven't checked, but don't you think that public universities (using tax dollars) are teaching courses to prepare young people for careers in estate tax planning? Publicly provided education for the very purpose of helping the dynasties avoid this very tax! Like I said, I haven't checked... but I figure it's probably the case. Tax money well spent. And think of all the bright minds employed in these careers that could instead have been doing something productive for society?

I think the number is understated. You are not taking into account all the people who drastically reduce their taxable estates by all kinds of crafty means (which is extremely wasteful by the way if you consider all the legal advisers and estate planners you have to pay). It does not include the people who give money into a trust. You can give $1m into the trust under the gift tax exemption (it reduces your estate tax exclusions but if you give it early then it will grow big outside of your estate to save a huge tax bill later) and then give another $52k a year (if you have 2 kids) free of gift taxes. My beef is that I don't want to give up control of the money before I know how the kids will turn out, and I'd rather keep it a secret until my dying day. But the tax code incentives us to turn the children into a bunch of spoiled bums who find out too early how much is in their trust. You are concerned about people getting a horrendous amount of money and lazing around making everybody else feel like the slaves of a dynasty. But that's completely ridiculous to worry about when somebody is only inheriting $850k. It's not how big the estate is that matters, it's how much each individual person inherits that matters. Put it this way, if I give a $10m estate to 20 people (I have 17 cousins for example) what's the worry about a dynasty? $500k dynasty... woo hoo! I could just see the new TV show, ghetto style edition. A bunch of middle aged cousins of mine with fancy $500k townhouses acting like they rule the world.

It's not a bad idea to turnover your portfolio during a severe market crash because you can come out ahead by taking tax losses and reinvest in new holdings even if the prospects are identical. He might have been doing some of that too.

They have a dividend franking system. My cousin informed me that if you own Australian shares and receive a fully franked dividend, then your tax rate will only be 9%. A fully franked dividend is one that is paid out of a corporation's already-taxed earnings. They don't believe in double taxation of dividends, and rightly so in my opinion.

Suppose I'm not married but I have 4 kids. I can only leave them $875,000 each next year before inheritance taxes kick in. That's not the kind of obscene wealth you are talking about is it?

I enjoyed the interview -- the only critical thing I have to mention is that early on in the interview he stated that you could have pretty much thrown darts and done well. At the end of the interview he started attributing his recent string of successes to a checklist: We made a huge number of investments, more than any other period, any other 18-month period in our history. So with more activity so far, and it's a very short period, we have a much lower error rate.

I think if you want to give your child some money without taking away any motivation, offer to reimburse them for their tax bill. They pay no tax and therefore get no money from you if they do not get a job. They get little money if they choose to work 3 nights a week as a ski bum. However if they choose to work full time the extra money gets them a vacation, daycare for their kids, etc...

Page 41 actually explains an "alternative tax regime" for the 10 yr period following renouncement of US citizenship: http://www.jct.gov/x-44-08.pdf Essentially, during that 10 yrs it looks like you still fall under full income tax and estate and gift tax rules if you spend more than 30 days in any calendar year in the US. If you spend less than 30 days, you fall under partial tax rules to the extent that the taxable assets or income are based out of the US. It's really complicated/confusing. But again, it looks like the provision does not apply to me since I've been a dual citizen since birth and if I am a resident of Australia for at least 5 of the prior 15 yrs prior to renouncing my US citizenship.

No, it was Bush that did this to "us". Bush signed it into law. But notice I put the "us" in quotes -- it doesn't apply to me because I was born with my dual citizenship! I merely have to live as a resident of Australia for at least 5 of the 15 years prior to renouncing my citizenship. It seems to be aimed at people who came to the US for a time, made their fortune, and then intend to leave with that fortune. And it only makes it a capital gain taxable event (requires them to pay any tax on capital gains as if sold) and gives them a $600,000 capital gain exemption. http://www.withersworldwide.com/news-publications/324/exit-tax-u-s-expatriates-to-become-law.aspx Here is the part that makes a special exception for me: The Act contains two exceptions, which are broader than those contained in current law. An individual is not a ‘covered expatriate' if he certifies compliance with US federal tax obligations as specified in item (iii) above, and: (i) he was at birth a citizen of the U.S. and another country, provided that (a) as of the expatriation he continues to be a citizen of, and a tax resident of, such other country, and (b) he has been a resident of the U.S. for no more than 10 of the 15 taxable years ending with the taxable year of expatriation; or (ii) he relinquished U.S. citizenship before reaching the age of 18 ½, provided that he was a resident of the U.S. for not more than 10 taxable years before relinquishment.

Crap, I didn't know of any exit tax but you're right! The stock market plunge of late 2008 and early 2009 may also have played a role in the spike in expatriations. Since 2008, Americans with net worth greater than $2 million have had to pay an exit tax assessed on their assets. With gains reduced or wiped out by the market collapse, those seeking to give up their U.S. citizenship had an opportunity to do so with less exit tax required. http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201004050814dowjonesdjonline000053&title=more-americans-give-up-citizenship-as-irs-gets-aggressive-overseas

I was there a few months ago -- spent all of January in Palm Beach (a beach a little bit north of Sydney). It was not just a vacation from winter (middle of summer there), but a vacation from the financial doom and gloom. Australia has not even entered a recession yet despite the global financial crisis. They will feel a lot of pain if China implodes.

Prior to roughly 1980, they didn't even have a capital gains tax. Today, they have a capital gains tax but they (I'm not sure exactly) only tax you on 1/2 of your gain (the theory being that some portion of your gains are due to inflation, and thus not "real" gains). They also have a system of dividend "franking". This system acknowledges that your dividends were already taxed on the corporate level. After speaking with my Australian cousins, I discovered that if you hold Australian shares and earn dividends, your tax rate will be roughly 9% or so. They all live in Sydney. Their property taxes are really "land taxes". The tax is based strictly on the land itself, ignoring the value of the improvements! Further, your primary home gets a $1m valuation tax-free. So if you have a $5m house on land only worth $1m, then you pay no tax at all! You only pay tax if the land value exceeds $1m. So to sum it up: 1) 9% tax on dividends 2) reduced capital gains rate 3) no gift taxes 4) no inheritance taxes 5) no property tax on your home if land worth less that $1m. Australia is WAY MORE capital friendly than the US. There are other intangibles: 1) friendly people 2) health care affordable (an emergency room visit in Sydney is only $75 -- less than it costs us to have a scheduled preventive care visit in US) 3) beautiful weather 4) beaches 5) Australia's government is in good financial shape

I've been both an Australian citizen and US citizen since birth (mymother was an Australian citizen but I was born in California). Australia has no similar requirement -- I've never once reported my income to them nor have I ever disclosed any bank balance to them. But you think the US would require this of me even if I live overseas and get residency in Australia? I suppose I could give up my US citizenship and just get travel visas. I like Australia more anyhow... but we live here in the US today because our parents (my wife's too) still live in the US.

I just think that our inheritance tax is really dumb. Next year, the inheritance tax threshold will be $3.5m per person ($7m for a married couple). But you talk about family dynasties... well, if you have 10 kids a "dynasty" is $350k per child, or $700k per child per married couple? And if you have 1 kid he can get either $3.5m or $7m? What does it matter if its a "family" dynasty, isn't the real point here HOW MUCH each person (as in individual) stands to inherit? Why do my kids only get 1/2 of the amount tax-free compared to an only-child situation? I forget where I read it but things like family "ranches" get special exceptions and far greater wealth can be passed down this way -- way in excess of the typical $7m maximum. The moment I read that I thought "OH, that explains what the Bush family is doing with the Crawford ranch". I've heard Buffett on this issue, and Gates. I'm reading the Andrew Carnegie biography right now (richer in his day than Gates and Buffett put together), who clearly predates Buffett on this matter and Carnegie spend the latter days of his life giving his wealth away (at age 50 he publicly declared that he would no longer attempt to grow his wealth but rather focus on giving it all away). Carnegie pleaded with his fellow millionaires to follow him. Carnegie believed that a man should be ashamed if he died with his wealth.