My Response To Buffett And Obama - WSJ

[Baoxiaodao]

There is just something wrong with the system.

 

My Response To Buffett And Obama

Before you ask for more tax money from me, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely.

Article

Comments (179)

MORE IN OPINION »

Email

Print

Save

↓ More

 

smaller

Larger

By HARVEY GOLUB

 

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit. I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it.

 

Now that I'm 72 years old, I can look forward to paying a significant portion of my accumulated wealth in estate taxes to the federal government and, depending on the state I live in at the time, to that state government as well. Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes. Isn't that enough?

 

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

 

View Full Image

 

Bloomberg News

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

 

Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes, and the 3% who earn more than $200,000 pay almost half. Almost half of all filers pay no income taxes at all. Clearly they earn less and should pay less. But they should pay something and have a stake in our government spending their money too.

 

In addition, the extraordinarily complex tax code is replete with favors to various interest groups and industries, favors granted by politicians seeking to retain power. Mortgage interest deductions support the private housing industry at the expense of renters. Generous fringe benefits are not taxed at all, in order to support union and government workers at the expense of people who buy their own insurance with after-tax dollars. Gifts to charities are deductible but gifts to grandchildren are not. That's just a short list, and all of it is unfair.

 

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

 

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

 

Here's my message: Before you "ask" for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money.

 

Mr. Golub, a former chairman and CEO of American Express, currently serves on the executive committee of the American Enterprise Institute.

[Hawk4value]

Amen, and God Bless you Harvey Golub, could not have said it better myself.

 

[rranjan]

 

They could voluntarily write a check View Full.

 

Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes,

 

These arguments are flawed if anyone thinks logically. I see it being used to distort the main point. It is very simple, an average Joe, who might be working in very harsh conditions, ends up paying higher tax rate than those who earn more than $1 million. Amount paid by individuals in total tax pool is totally irrelevent. Only relevent point is , how much of percentage of their income goes in paying income tax.

 

It might be debatable if rich should pay tax at higher rate or people who can barely afford to eat should start paying some tax. But anyone holding a viewpoint that rich should pay lower  tax rate as compared to middle class is ridiculous. Writing a check by few volunteers is not going to bring tax rate of rich and middle income guy at the same level. Rich not willing to pay income tax at the same rate as middle class untill Gov becomes efficient in using the money defies all logic.

 

 

[oldye]

http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---warren-buffett-vs--wealthy-conservatives

 

http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---the-poor-s-free-ride-is-over

[Myth465]

 

These arguments are flawed if anyone thinks logically. I see it being used to distort the main point. Rich not paying same tax rate as middle class till Gov becomes efficient in using the money defies all logic.

 

http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---warren-buffett-vs--wealthy-conservatives

 

http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---the-poor-s-free-ride-is-over

 

Very funny links. Thanks

[Packer16]

I think you are missing the point.  He does not say that the rich should not pay less than (even on a % basis) less than the less well off.  I see very few if any folks stating this.  Most of the proposals retain a progressive system of taxation (even giving folks money if they don't earn enough).  He states that the tax system needs to be reformed by removal of exemptions, make sure that every pays something (has skin in the game) and better accoutabilty of the money spent.  To argue that you want to increase taxes with current system of expemptions and no additional accountability of results to me appears to be the illogical alternative.  Why is Buffett paying a lower tax rate?  Because he responding to an  incentive to invest long-term with a lower long term capital gains tax.  What would be the logical solution to this problem?  That is the question (not just increase rates with no accountability).

 

Packer

[rranjan]

Packer - 

 

Author did make this point "Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes"

 

This is as flawed as it can get because tax contribution in total pool is useless figure. A rich person should not be having less tax rates than a worker in coal mines under any circumtances. Why not fix this before author/anyone start talking about hundreds of different points. I don't even see these authors acknowledging that this is unfair system.  Most of the time I see them diverting from main point by focusing on total contribution in tax pool.

 

No one will stop investing if tax rate on dividend/capital gain goes up a bit. Rich will always have 99% of their income coming from investments and if you have a system where Rich can get away by paying less than an average Joe then you have a systematic way of favoring the rich.

 

No matter how you look at it, the fact is an average Rich pays lower income tax rate than an average Joe due to majority of income coming from dividend/capital gains. Gulf between rich and poort has widen in last 10-15 years due to this unfair tilt towards rich. I am not arguing for tax rate increase across the board but only ensuring that richest guys in our society are not having less tax rates than an average Joe. I am not an expert but you could have anyone making over 1 Million pay higher tax on capital gain/divident etc.

 

If tilt has to be there then it should be towards an average Joe who works very hard for living not for rich. I am not even arguing for a tilt here.

 

[Guest]

I'm thinking that many, many people worked just as hard, if not harder than the author. The difference is luck. Society has blessed him with riches it is his duty to pay more than his "fair" share.

[rranjan]

I'm thinking that many, many people worked just as hard, if not harder than the author. The difference is luck. Society has blessed him with riches it is his duty to pay more than his "fair" share.

 

Paying the fair share will be a start. Right now due to tax system it's not even fair.

[ERICOPOLY]

My wife and I didn't have much taxable income for the tax years 2003 through 2007 (when we were both working and married filing jointly).  We sometimes made over $200k or so.

 

Normally though, our federal tax rate was a single digit multiple of what we were actually taking home.

 

I would max out my 401k contribution.  I think that was about $16,000 or so of tax deduction.  Then I had some real estate "investments" maxed out to the hilt for tax sheltering purposes generating a loss of about $18,000 ($10,000 roughly was from depreciation, and $8,000 was from negative cash flow -- although these were sold off as the bubble grew, so not taken as a deduction for the entire period under review).  We had about $24,000 a year in mortgage interest deductions from our primary home, and you can add about $5,000 in property taxes.

 

So far:

$16,000 + $18,000 + $24,000 + $5,000 = $63,000

 

Then... and here is the kicker... we opened a "Self Employed 401k plan with profit sharing" in order to defer taxation on my wife's real estate commissions.  We put in about $45,000 during her best year, but about $30,000 in her worst year. 

 

$63,000 + $45,000 = $108,000.

 

So generally speaking, that's about $108,000 that isn't getting taxed at the federal level.

 

So typically we were paying a single digit federal tax rate.

 

The key thing to think about isn't just what the tax rate is, but how much gets excluded. 

 

Now, can anyone present a case why people in their early 30s need to save $61,000 per year free of current year taxation in 401k/IRA for "retirement".  This is on top of social security income that we'll be getting.  My employer also made a $3,000 per year contribution to my 401k and on top of that I always maxed out my after-tax contribution which amounted to about another $7,000 per year.  So we'd be putting away about $71,000 per year in reality.

 

And if you think that's a lot, just imagine if I were self-employed and could put in $45,000 tax-deferred instead of the $16,000 limit that employees get.

 

Why in the hell is it 25% of profits that are allowed to be contributed in addition to the $16,000 you already get automatically?  For a married couple you can easily find yourself sheltering up to $100,000 per year this way! 

 

"Essential" retirement savings, or obvious tax shelter?

 

 

 

[ERICOPOLY]

My new Roadtrek purchase also qualifies as a "second home" because it has a toilet and kitchen.  So this year I can deduct the sales taxes and any interest costs of financing it.

 

Ha.  Ha.  Ha.

 

It's just a van, but I can reduce my tax bill because it's a "second home".

 

You can't make this stuff up.

[Guest misterstockwell]

I'm thinking that many, many people worked just as hard, if not harder than the author. The difference is luck. Society has blessed him with riches it is his duty to pay more than his "fair" share.

 

Total and utter nonsense. Please show me in the Constitution where it says that people who make more money should pay MORE than their fair share.

[Guest]

I'm thinking that many, many people worked just as hard, if not harder than the author. The difference is luck. Society has blessed him with riches it is his duty to pay more than his "fair" share.

 

Total and utter nonsense. Please show me in the Constitution where it says that people who make more money should pay MORE than their fair share.

 

It doesn't say that in the Constitution. With that being said, I think it makes perfect logical sense. If this guy were born mentally handicapped, born in a different country, born in a different time, born to parents who abused him, etc, he would probably have next to nothing. He owes his wealth primarily to luck. Yeah, hard work played a part, but things out of his control were much, much bigger. That's why he should pay his more than his fair share.

 

I do agree the government should have more accountability though.

[Guest misterstockwell]

 

It doesn't say that in the Constitution. With that being said, I think it makes perfect logical sense. If this guy were born mentally handicapped, born in a different country, born in a different time, born to parents who abused him, etc, he would probably have next to nothing. He owes his wealth primarily to luck. Yeah, hard work played a part, but things out of his control were much, much bigger. That's why he should pay his more than his fair share.

 

I do agree the government should have more accountability though.

 

I assume you are joking. Otherwise, that is just nuts.

[Guest]

 

It doesn't say that in the Constitution. With that being said, I think it makes perfect logical sense. If this guy were born mentally handicapped, born in a different country, born in a different time, born to parents who abused him, etc, he would probably have next to nothing. He owes his wealth primarily to luck. Yeah, hard work played a part, but things out of his control were much, much bigger. That's why he should pay his more than his fair share.

 

I do agree the government should have more accountability though.

 

I assume you are joking. Otherwise, that is just nuts.

 

No, I'm not joking. I'm not saying things should all be equal. You would then not give anyone any reason to work harder or improve. However, I do feel that those who are lucky enough, should be more than happy to help those who are not so lucky.

 

For my age, I am fairly well off (again, in relative terms). I know I could not have done it without others helping me.

 

If I were born to an abusive parents who were drunkards, I probably wouldn't have made it to college. If I were born with some type of birth defect, I may not have made it through school or had a job. I have been extraordinarily lucky. Yes, I've worked hard...but there are a ton of people who have worked much, much harder and have less to show for it.

 

My cousin and I grew up in fairly similar socioeconomic situations. However, both of her parents died before she turned 20. She had almost no upbringing and did not attend college. If I were born in her situation, I don't know if I would've turned out any differently. Would it really hurt me to pay a bit extra in taxes to help cover college tuition or what have you? No, not really. If our situations were reversed, would I want help? Yes, I would think so.

 

I did not think this way for a very long time. However, to me at least, it makes a ton of sense.

[Guest misterstockwell]

So let me get this straight---rich people are lucky, so they should redistribute their wealth to those who are unlucky(and thus poor)? What about the lazy, or those who make poor choices?  Maybe they were lucky, but stupid and wasted their luck?

 

In my view, we determine our own fate, and luck has nothing to do with it. Work hard. Make good choices. Don't give more than your fair share to Obama.

[rranjan]

So let me get this straight---rich people are lucky, so they should redistribute their wealth to those who are unlucky(and thus poor)? What about the lazy, or those who make poor choices?  Maybe they were lucky, but stupid and wasted their luck?

 

In my view, we determine our own fate, and luck has nothing to do with it. Work hard. Make good choices. Don't give more than your fair share to Obama.

 

Yes working hard and making good choices are absolutely required for being sucessful but not the only factors. If this same  misterstockwell was born in Afganistan then chances of spending time in this forum would have been nil. More likely case would have been holding an AK-47 as teenager. Need for having a decent environment is often overlooked by lots of people when making statement about hard work/good decisions.

 

I am not disocounting the impact of working hard/good decisions. I do admit that even in Afganistan some will perfrom better than others due to working hard/able to take better decisions. But majority of kids, who are hard worker and also able to take good decisions, will not fare too well.

 

Luck might be a negligible factor if everyone gets the same environment to reap the benefit of taking good decisions and working hard. In reality, you receive certain environment which is totally out of your control and thats called luck. How many of forbes Rich would have been rich if they were born in Afganistan? Or they were born in African-American family 200 years ago?

 

I took some extreame examples here but you can see the similar if not so extreame cases currently within US also.

[S2S]

In my view, we determine our own fate, and luck has nothing to do with it. Work hard. Make good choices. Don't give more than your fair share to Obama.

 

LOL

 

Since this message board is "the Value Investor's Haven", a quote from WEB seems fitting:

 

I’ve had it so good in this world, you know. The odds were fifty-to-one against me born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.

 

Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, “One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one this is born in the United States?” It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, “I did it all myself,” and think of themselves as Horatio Alger – believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.

 

Another one:

 

If you could put your ball back, and they took out, at random, a hundred other balls, and you had to pick one of those, would you put your ball back in? Now, of those hundred balls … roughly five of them will be American. … Half of them are going to be below-average intelligence, half will be above. Do you want to put your ball back? Most of you, I think, will not. … What you’re saying is, “I’m in the luckiest 1% of the world right now.”

[Myth465]

So let me get this straight---rich people are lucky, so they should redistribute their wealth to those who are unlucky(and thus poor)? What about the lazy, or those who make poor choices?  Maybe they were lucky, but stupid and wasted their luck?

 

In my view, we determine our own fate, and luck has nothing to do with it. Work hard. Make good choices. Don't give more than your fair share to Obama.

 

What a nice dream....

But I guess a man has to sleep at night.

[Guest]

Yeah, they are lucky.

 

 

So much any of us have is given to us. Your health is given to you. I went to high school with a girl. She ended up dying of cancer at 19 or so. From what I could tell, she was one of the top students in school, a healthy eater, exercised, etc. It's sad for her, but she was one of the unlucky ones. She had a ton of promise. She did pretty much everything right and still passed away at an awfully young age. 

 

There are some lazy people, but I would say it's rather negligible. People make poor choices based on what they know. If I grew up with a mother who had me at 15 and a father who beat me, I'm quite sure I would make many, many terrible mistakes. I would probably end up in a very similar cycle...and so would my children.

 

I don't know all the specifics to this story since I'm not all that technical with vehicles. Also, I'm not debating the ethics of the following story. It's simply a way to show how luck plays a huge part in wealth creation.

 

However, there is no doubt in my mind that my father worked harder than almost any man around. He would work 60-70 hours at his job and then build houses on the side. He barely contracted any of that work out. He did it through blood and sweat.

 

Growing up, he also knew more about cars than anyone.  He could do just about anything. In fact, one of his friends would frequently come to my dad to help him fix his vehicles. So, my dad's friend who had less knowledge went to work for a guy. The guy had a unique way of coming up with a fix to a certain issue but never patented it. So, my dad's friend decided to take this idea and patent it. He went on to earn about $2 million a year.

 

Here then, we have my dad who was arguably smarter and a harder worker, but because he didn't work for this guy, he never found out this process. Morally suspect or not, my dad's friend was lucky. Yes, I suppose we can give him credit for knowing how an important the item was to patent it...but if he never worked there, he probably would not have come up with it himself.

 

 

[Valuebo]

For most things (like career success, money, a 10-bagger in investing, ...), your chances for so-called luck increase exponentially with the amount of effort you put into it.

 

Most of the time, what people call luck really just is the result of hard work and dedication. The world isn't as random as many would like to believe, at least not when we look at how success is achieved.

 

I also believe the above is only true when comparing people with the same kind of possibilities and background. Your starting point (IQ, EQ, basic health, social environnement as a kid, ..) truly is pure luck. I believe that 99% of the time, the other kind of luck is bullshit that underachievers make up to feel better about themselves.

 

[Guest misterstockwell]

I can go through the graduates in my veterinary class and find many that started with nothing. They got through undergrad on loans and jobs. They moved to our state, worked for a few years to get resident status, and entered the program and graduated. There was no luck involved. They worked their asses off, sacrificed, and still work their asses off. I know because I manage money for several now. So now I work my ass off to increase the money they will have in retirement. Do you understand why someone like that might take offense at what you say?  They weren't lucky. They decided to get off their butt and change their lives.  I would say the number of lazy people is far from negligible, and more the majority. I could go down my list of clients right now and the vast majority of them worked like dogs to get where they are at now. I don't have a single client that lucked into money. I used to have one, but they were so offended that I didn't vote for Obama that they left(thank goodness). True story.

 

Anyway, no need to respond. We are at opposite poles, and there is no way I am leaving my pole!

[Hawk4value]

As Misterstockwell said our Constitution and system does not, and should not care about luck, health, sickness, or type of Parents you have. Our system works best when everyone individually, and yes selfishly, works to the best of his ability for his own success. And yes, there are some people out there that are more talented than others. These are the entrepreneurs that create most of the jobs. These people should be praised and encouraged, not vilified. As far as taxes are concerned, 50% of the population not paying taxes is rediculous. I am all for eliminating deductions and loopholes and creating a flat tax, where everyone pays the same rate. This would broaden the tax base so everyone pays.

[Guest]

So...you guys who work hard...you owe all of your success to hard work? If you were born into less favorable circumstances, you would've still made it? If you were born handicapped, abusive family? I sincerely doubt that.

 

Yeah, no one is not saying that hard work doesn't pay off. What some of us are saying is that luck plays an a big, big part, too.

[Guest misterstockwell]

In my view, we determine our own fate, and luck has nothing to do with it. Work hard. Make good choices. Don't give more than your fair share to Obama.

 

LOL

 

Since this message board is "the Value Investor's Haven", a quote from WEB seems fitting:

 

I’ve had it so good in this world, you know. The odds were fifty-to-one against me born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.

 

Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, “One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one this is born in the United States?” It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, “I did it all myself,” and think of themselves as Horatio Alger – believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.

 

Another one:

 

If you could put your ball back, and they took out, at random, a hundred other balls, and you had to pick one of those, would you put your ball back in? Now, of those hundred balls … roughly five of them will be American. … Half of them are going to be below-average intelligence, half will be above. Do you want to put your ball back? Most of you, I think, will not. … What you’re saying is, “I’m in the luckiest 1% of the world right now.”

 

 

Those are all well and good, but this thread is about living in the USA and paying taxes in the USA. The vast majority were born here and it's a moot point. We are all equally genetically and geographically "lucky" in that regard. The question is whether those who are more successful in the USA should pay more tax that can then be redistributed to those who make less?