WSJ: Buffett's Latest Tax Break

[ERICOPOLY]

However, the question remains whether you believe that there should be any investment vehicle to defer tax for the individual?  Forget the fact that the corporate form is in some cases being used to defer the realization of personal income for the mega rich in a way not accessible to the mere rich or the normal schmuck.  I always thought you were an advocate for a no-limit savings/investment account that could compound tax free so long as you did not tap the account for consumption. 

 

I'd prefer it if we could all put after-tax dollars into an investment account where it could be left compounding tax deferred until withdrawn. 

 

I'm just beating on old Warren because he holds himself out as if he is voluntarily raising his tax bill for the good of the nation...  but hey, I can see that over 90% of his look-through dividends are taxed lower than my present 15% rate.  Any idiot can see that Warren isn't discussing the main source of his dividends, and that he is the one pulling the levers on when that dividend gets paid (if ever).

 

 

 

[ERICOPOLY]

 

when you say "passive investments," I take it you really mean investments that have nothing to do with the business in which the corporation is engaged, rather than investments where the corporation is an investor that exerts no control over the business?  Passivity in an investment, in and of itself, shouldn't be discouraged. 

 

I'm not sure where exactly I'd draw the line.  But certainly KO is a passive investment for Berkshire.  Curiously, if they held a KO bond they'd pay 35% tax rate on the income, but the equity dividend is taxed at only 10.5%?

 

I don't want to discourage passivity -- I just don't think it should be a lure for tax sheltering behavior.  If Berkshire can pay 35% tax on income from a bond, why can't it pay 35% tax on the BofA income?

 

The reason why I even mention the word "passive" was to insinuate that it's not income from operations -- a subsidiary is not considered a passive investment, even though it may be passive for all intents and purposes (Buffett says he only acquires businesses with management intact that run themselves).  So I suppose I'd give him a free pass on those dividends so as not to make conglomerates impractical.

 

Thus, even my suggestion to raise taxes up to normal corporate rates on common stocks dividends doesn't solve the whole problem as Buffett has achieved the scale to just swallow up whole entire companies (thus avoid my "passive" tax proposal).  But hey it's a start... he can't buy all of BofA -- and he has to pay a huge premium for takeovers so it's not all a free lunch (like the BNSF premium he paid).

 

 

[ERICOPOLY]

 

However, the question remains whether you believe that there should be any investment vehicle to defer tax for the individual?  Forget the fact that the corporate form is in some cases being used to defer the realization of personal income for the mega rich in a way not accessible to the mere rich or the normal schmuck.  I always thought you were an advocate for a no-limit savings/investment account that could compound tax free so long as you did not tap the account for consumption. 

 

 

I don't know if you remember, but originally when we talked about this back in Feb/March I swore that Bush himself had proposed such accounts (nobody agreed that he had).  That proposal is where I got the idea from (it was never my idea).

 

Anyhow, I was looking for something else today (I was searching for how much people are actually contributing pre-tax to retirement plans), but instead ran across the following:

 

https://www.cbo.gov/doc.cfm?index=5151&type=0&sequence=3

 

Pay attention to the description of the LSA proposal:

 

The President's budget includes a proposal that is designed to both consolidate and expand the current system of tax-free savings accounts for retirement and other purposes, such as education. Two new kinds of accounts would be created: retirement savings accounts (RSAs) and lifetime savings accounts (LSAs). The RSA would function in some ways like a Roth individual retirement account (IRA)--that is, taxes would not be deferred on contributions, as they are for contributions to traditional IRAs, but the interest that the accounts earned would accrue tax-free. In contrast to Roth IRAs, however, RSAs would be available to all workers (and their spouses) regardless of income; they would also have higher limits on contributions and allow penalty-free withdrawals at a slightly earlier age. The proposal would eliminate further tax deferrals for IRA contributions.

 

Like the RSAs, the proposed lifetime savings accounts would face tax treatment similar to that governing Roth IRAs. However, unlike Roth IRAs or RSAs, LSAs would be open to everyone, regardless of age, income, or employment status, and participants could withdraw funds at any time for any reason. Taxpayers could also use LSAs to consolidate other savings plans, including Coverdell education savings accounts and qualified state tuition plans.