Stop Coddling the Super-Rich

[txlaw]

Just watched the interview.  It was one of the best I've seen of him in a while.

[marlinls]

I agree that the super rich should pay a higher tax rate.

Of course this would affect all those on this message board.

Marlin

[Liberty]

I agree that the super rich should pay a higher tax rate.

Of course this would affect all those on this message board.

Marlin

 

I wish! Maybe some day..

[txlaw]

I agree that the super rich should pay a higher tax rate.

Of course this would affect all those on this message board.

Marlin

 

I wish! Maybe some day..

 

Me too.

[meiroy]

I'm really going to miss the old guy the day he's gone.  Another great interview, and after all these years, I'm still in awe of the man's humility.  Cheers!

 

*cough* he is still alive and kicking... my 100 year old grandpa would call him a young man (if you're 60 he'd call you a kid, seriously).

 

There's one point in the interview where is asked what would happen if things won't turn around, he then goes all solemn and says it will be very bad. In two seconds, though, he catches himself and mentions the USA will overcome it as it usually does.

 

At another segment he states that he does not predict a second dip, yet then says that it might happen if the EURO mess spills over, though he doesn't know if that will happen.  Meaning that in fact a second dip can happen and that he has no way of judging the situation.

 

Pardon me for saying this, but it seems a bit like a motivational speech. I really want to be happy listening to it but I do find the above two points somewhat concerning.

 

[Valuebo]

Looks to me that he just says he doesn't expect a recession but that there is always a possibility that it does happen because external factors can influence things greatly.

 

That said, Buffett probably feels he has a responsability towards society not to feed fear and to keep optimism alive. Aside from that, you just really have to be optimistic and have faith if you run a $200b company with more than 250,000 employees. Self fulfilling prophecy leads nowhere.

[dcollon]

Here's the WSJ's response to Mr. Buffett's Op-ed

[alwaysinvert]

A good rebuttal imo. I find it hard to take any argument seriously that neglects the fact that taxes on dividend and capital gains are not only double taxation for the absolute majority of people, but triple taxation when accounting for the corporate tax. All taxes are taxes on people, to say otherwise is pure newspeak and intellectual dishonesty. I don't find any other explanation for that but a political agenda.

 

I mean, if you want the rich (in a relative sense) to pay more taxes percentage-wise, just say so and we could have that debate in an honest way. Don't twist the numbers just to make your argument more palatable.

[tooskinneejs]

dcollon - thanks for posting the WSJ op ed.

 

I didn't think it was a good rebuttal at all, for a few reasons.

 

First, a good portion of the "rebuttal" to Buffett's position is spent knocking the President's position rather than Buffett's.  Buffett clearly stated his belief that taxes should be raised on those making more than $1 million (0.3 percent of taxpayers).  The WSJ then goes on at length saying how it is unfair to the middle class to raise taxes on those making more than $200,000, ignoring the fact that Buffett didn't suggest that.  This is a classic "straw man" argument, and a particularly obvious one at that.

 

Second, the WSJ argues that increasing that capital gains and dividend tax rates would "make America less attractive for investment."  They give no support to their argument, instead just making the assertion.  Meanwhile, Buffett pretty convincingly stated that he has yet to see someone shy away from a good investment because of the tax rate they'll pay.

 

Finally, the WSJ's claim that Buffett's charitable donation of his shares is a tax shelter, shows ignorance of the basics of taxes.  If Buffett gives away his shares, he never personally realizes a gain from them.  Because our tax system is largely a cash-based system, rather than an accrual-based system, you don't pay taxes unless you realize income.  So for the journal to declare that not paying taxes on unrealized earnings is a "tax dodge" is just plain ignorant in my opinion.

[ERICOPOLY]

I would like to see the tax code give the option of spreading capital gains taxes over a "look back" period of up to 7 years in recognition that just because you take a $1+m gain in 2009, it doesn't mean that it is repeatable every year.  You may have paid no taxes over the prior 7 years, but rather owned something like Berkshire which deferred it all to a single capital gain event over a 7 year period.

 

Your true "income" may just be $150k per year, but simply due to the nature of taking the capital gain all at once you get taxed under Buffett's "SUPER RICH" code.

 

It seems that if you average just $150k per year, you should in all fairness be taxed as such.  Not hit as if you are super-rich in one year out of 7, despite the fact that you had no "income" at all in the other 6.

 

The IRS need only keep record of what you reported as "income" for the prior 6 years.

 

And of course this would only apply to shares that you bought yourself rather than shares that were "gifted" to you.

[tooskinneejs]

Ericopoly - Two things.

 

1.  Many people would consider themselves lucky to have such a 'problem.'

 

2.  I can't imagine that the situation you describe happens all that frequently.

[ERICOPOLY]

2.  I can't imagine that the situation you describe happens all that frequently.

 

I suppose neither does being "super rich" happen all that frequently  ;D

[ERICOPOLY]

In theory are there that many necessary reasons why a corporation needs to hold say, a 10% stake in another company, while being taxed at a super low rate on the distributions?  Often times (as in the case of Berkshire), this becomes a tax convenience for the owners.  And if they do find such a reason, let them go ahead and do it.  But this can very easily become a tax shelter.  

 

EDIT:  I think even a 1% (or less!) ownership gives them a special rate of only 10% or so!  Can anyone seriously argue that a 1% ownership stake is "strategic"?

 

I can see why say a 60% ownership makes sense for a special "corporate" tax rate on dividends -- after all, this is the ownership level where the IRS allows/requires you to consolidate the earnings.  Or is that 80%?  I think it may be 80%.

 

Raise the corporate tax rate on dividends to the same as the personal tax rate on dividends... unless the corporation consolidates the earnings under one tax umbrella.

 

Doing this would then truly bring Buffett's tax rate in line with his secretary (combined with his proposal to raise the tax rates on personal dividends).  Proposing instead to raise the tax rate on Berkshire's distributed dividend (which doesn't exist), won't go far enough IMO.  He'll still be paying a paltry % in tax of his actual "look through" dividends.  

[ERICOPOLY]

One also has to wonder why people investing in real estate can do a "tax deferred" exchange, whereas I can't do one if I sell one stock to buy another.

 

You want to raise taxes on Trump, that's the way to go.  Go after places where there are no taxes at all collected on capital gains before further raising the existing capital gains taxes on stocks.

 

[tooskinneejs]

Ericopoly said: "One also has to wonder why people investing in real estate can do a "tax deferred" exchange, whereas I can't do one if I sell one stock to buy another."

 

I agree completely.  There are so many inequities in the tax code.  Similar to the tax deferred exchange of investment real estate is the ability to sell your primary residence and exclude gains from taxable income if you've lived in and owned the property for 2 of the 5 years prior to sale.

 

If you happen to live in an area where you can build for less than market prices of homes, you can build, live in the house for two years, sell, and repeat.  And it's all tax free.

 

Another huge inequity that gets lots of attention: interest deduction on mortgage debt.  I get the deduction and love it, but at the same time I don't think it makes any sense that a portion of my cost of shelter gets paid for by the US govt when the guy renting the house next door to me doesn't get any govt cheese.  In fairness, I shouldn't get government cheese just for my decision to own.

 

The problem, of course, is that these tax breaks have been around so long, they are extremely unpalatable to politicians (seeking to get re-elected) to take away.  So the inequities continue...

[S2S]

Another huge inequity that gets lots of attention: interest deduction on mortgage debt.  I get the deduction and love it, but at the same time I don't think it makes any sense that a portion of my cost of shelter gets paid for by the US govt when the guy renting the house next door to me doesn't get any govt cheese.  In fairness, I shouldn't get government cheese just for my decision to own.

 

+1. Some argue that eliminating mortgage deduction would cause housing prices to collapse. Well, UK and Canadian taxpayers don't enjoy the free ride, yet last I checked, real estate there is doing just fine.

[ERICOPOLY]

txlaw once argued (back in February or March) that dividends are taxed a second time because corporations are individuals -- so it's a transfer from one individual to another (rather than being truly the "owners' earnings" being taxed twice).

 

So that strengthens my argument that Buffett is underpaying via his holding company Berkshire.  You see, if corps are individuals then WFC is actually a different individual than BRK.

 

Proposal:  if once corporation owns 5% of another corporation, then exclude 5% of the dividend from taxation and tax the other 95% of the dividend as regular corporate income (similar to Buffett's proposal of taxing personal dividends as personal income).

 

Really, that's entirely fair.  It means that his wholly owned subsidiaries don't get taxed twice (he'd get 100% dividend tax exclusion), but when he owns say only 1% of Walmart via Berkshire he doesn't suddenly get his tax rate reduced to only 10.5% via his corporate shelter.  But he gets a 1% reduction in tax in recognition that Walmart is 1% the same individual as Berkshire via their intertwined ownership.

 

I get txlaw's argument that corps are individuals, and I understand (yet disagree with) his point that my dividends received are not being taxed twice due to the fact that we are actually different individuals from corps...  yet if that's the case then Berkshire is not the same individual as WFC or WMT, and so we can tax Berkshire's dividends much more heavily... to the extent that they are different individuals it is really obvious given the ownership rates.  1% ownership rate is obviously not really fair to qualify for say a 70% reduction in taxation vs what an individual would pay on that dividend.

 

Summary:  if corps are individuals then treat them as such when it comes to one "individual" paying a dividend to the other -- the more of that individual you own, the less the tax on the dividend.  But we can get rid of the ridiculous automatic discount down to 10.5% tax rates.

[bargainman]

What I never understood is why capital and dividend taxes aren't taxed progressively. I think having low long term capital gains taxes is a good thing since it does encourage investment.  However why not tax it progressively on individuals.  Your first 100K is 15%, your next 200 is 20%, etc. 

[Liberty]

http://civic.moveon.org/standwithwarren/?rc=standwithwarren_letter.fb.v2.g1

 

Found this. Not an American, so won't sign, but looks like it gathered a lot of signatures.

[txlaw]

Debate over tax reform.  Definitely worth watching.

 

http://www.charlierose.com/view/interview/11847

[Liberty]

http://communities.washingtontimes.com/neighborhood/prudent-man/2011/aug/21/tax-rich-buffett-beclowns-himself-again/

 

Buffett getting no respect = indicator that BRK is undervalued? Hmm..