Buffett made $62,855,038 last year

[ubuy2wron]

How would a lower capital gains tax rate bring us more innovations like the iPad?

 

For one thing, companies like Microsoft Apple and Google have enough cash to fund any such ideas, and their profits fall under the corporate tax rules rather than capital gains.

 

You guys are throwing out great sounding ideas but you are not explaining how the capital gains tax is standing in the way.  I see only strong assertions.

 

Bill Gates decided to give up on Microsoft in the 1970s because the capital gains tax was too high?

I do not think the true entreprenuer spends a whole lot of time thinking about his marginal tax rate when he sells his company they are too busy building their business. The chronic complainers about taxes are usually also complaining about uncertainty and regulation the real wealth creators just do not care. Do you think when face book was in its infancy anyone said oh no I just will not bother because the tax rates on capital gains is too high. There exists a ton of incentives in the current tax code for investors and the wealthy. What America needs is more Warrens and Steve Jobs and reducing the tax rate will not create more of these rare birds. Liberalizing immigration for the investor class might and also help sell some of those foreclosed homes at the same time. In Canada lottery winnings are tax free in the US they are fully taxed I will bet that there exists a higher participation of lottery players in the US than Canada on a per capita basis. Tax rates matter they just do not matter that much.

[ERICOPOLY]

The game changer is what new businesses, new ideas, new products, and innovations can create demand and jobs going forward.

 

Suppose you had one or more of these "game changer" business ideas right now...

 

You might have $100k to your name, invest it in the business, and sell out for $10m. 

 

35% capital gains rate means you walk away with roughly $6.5m, and at 15% capital gains rate you walk away with roughly $8.5m.

 

So it's a 65x gain vs an 85x gain.

 

The incentive is still there.  Nobody is going to give up on the 65x return simply because it's not 85x.

 

Would you rather hold onto your 100k instead of making a 65x return (refuse to invest at 35% rates) if you can't have 85x (invest only at 15% rates)?

[Guest]

I've started Galbraith's "The Great Crash, 1929" and it even discusses how lower capital gains rates may have partially caused the crash of '29 and '87. Basically, more people put money into the market after the reductions. Stocks went up (temporarily, obviously), that made people feel less averse...and then the bubbles popped.

 

I think it's so funny when people are like "well, if you tax us more we won't work as hard." yeahhhh.

 

But, if we tax you more...you'll have to work harder in order to retire! ;)

[alwaysinvert]

Of course it's on the margin that  igher/lower tax rates have an effect. The most brilliant people will find their way as long as society does not go DDR. But it's not the Steve Jobses that create the most job opportunities, contrary to intuition. Look at number of employees in small businesses. That it where the marginal money is. You are beating up strawmen.

 

There is no inherent contradiction in having excess capital and still having severely underutilized areas of the economy. A guess would be that removing minimum wage laws would be miles better than fiddling with the capital gains tax, though. Of course that's never ever going to happen but anyway.

[RichardGibbons]

As an serial entrepreneur, I'd say that the tax is basically irrelevant until it gets over 60%.  I'd suggest that some of the better ways to encourage entrepreneurship are through socialized medicine and improved education. 

 

If you don't have socialized medicine then you're gambling with your family members' lives if you quit your job and lose your health insurance to start a risky venture.  The more educated populace you have, the more people will be able to start businesses and the higher their chance of success.

 

That's why the pro-business party is so eager to fund government healthcare and education.

 

Oh wait.  Never mind.

[ERICOPOLY]

Of course it's on the margin that  igher/lower tax rates have an effect. The most brilliant people will find their way as long as society does not go DDR. But it's not the Steve Jobses that create the most job opportunities, contrary to intuition. Look at number of employees in small businesses. That it where the marginal money is. You are beating up strawmen.

 

Small businesses... how do the capital gains taxes impact them??? 

 

I thought if you owned a small business you largely pay corporate taxes and payroll taxes.  Maybe you pay taxes on your dividends.  But capital gains taxes???

 

[alwaysinvert]

Of course it's on the margin that  igher/lower tax rates have an effect. The most brilliant people will find their way as long as society does not go DDR. But it's not the Steve Jobses that create the most job opportunities, contrary to intuition. Look at number of employees in small businesses. That it where the marginal money is. You are beating up strawmen.

 

Small businesses... how do the capital gains taxes impact them??? 

 

I thought if you owned a small business you largely pay corporate taxes and payroll taxes.  Maybe you pay taxes on your dividends.  But capital gains taxes???

The small companies are owned, run and started by people who, lo and behold, sometimes pay capital gains. Also, calm down.

[ERICOPOLY]

I think the name of the game is to throw out something vague and attack the other side for fighting straw men.  LOL.

[finetrader]

If you don't have socialized medicine then you're gambling with your family members' lives if you quit your job and lose your health insurance to start a risky venture.  The more educated populace you have, the more people will be able to start businesses and the higher their chance of success.

 

Your post make a lot of sense but here in Canada we have both: free health service for population(pay by government) and low educatrion fees. But I don't think Canadian are known for their entrepreneurship spirit. Instead I think we have a tendancy to rely on our lands that are full of commodities (gold, copper, oil,..) and let foreigner extract it from the ground.

 

 

 

 

 

[biaggio]

If you don't have socialized medicine then you're gambling with your family members' lives if you quit your job and lose your health insurance to start a risky venture.  The more educated populace you have, the more people will be able to start businesses and the higher their chance of success.

 

Your post make a lot of sense but here in Canada we have both: free health service for population(pay by government) and low educatrion fees. But I don't think Canadian are known for their entrepreneurship spirit. Instead I think we have a tendancy to rely on our lands that are full of commodities (gold, copper, oil,..) and let foreigner extract it from the ground.

 

Is that not because we have such huge physical resources relative to a small population? Are we maybe more complacent + not as driven (entrepreneurly) as a result?

 

I can t imagine having to worry about medical bills.

[ERICOPOLY]

This is a stupid example. How often does this happen? How many losses on other deals does it take for this to happen? What is the limit on capital losses you can take in a year? rhetorical...

 

On average, most small businesses are partnerships, S-corporations, and LLCs because they are the most tax efficient vehicles. They pay most their income through their individual federal return.

 

The conversation that you jumped into was about the capital gains tax.  I had to provide an example based on sale of a business.  People were suggesting that there would be no iPads were we to have a higher capital gains tax.

 

No iPads?  Well, okay.  So long as we're talking about blockbuster products and capital gains, then logically the poster is worried about not being able to sell good ideas for high capital gains.  Thus, I'd say selling out for $10m would be low-ball.  Thus I provided a conservative example.

 

It only strengthens my point if (as I believe) the small businesses largely pays it's taxes through the federal income tax return.  That's sort of the whole point that I'm fighting here -- this idea that capital gains taxes are squashing the small businessmen is an argument that we can laugh at all day long.  It's obvious to me that people are worried about their passive investment gains mostly, but are not standing up to say so.  Instead, these fictitious arguments about the job creators.

 

[alwaysinvert]

The no Ipads argument is stupid, but to say that the capital gains tax (as well as income tax, consumption tax or whichever tax that has a regressive component to it if not tweaked percentage-wise) has no effect on the marginal money is displaying a profound misunderstanding of how an economy works. That's like saying that inflation has no effect on the willingness to consume vs investing. Now I could have misunderstood you and that might not be the case you are trying to make. If that is the case I am sorry.

 

Granted, obviously the capital gains tax does not have the same detrimental effect as increased costs of hiring or higher corporate tax.

[ERICOPOLY]

The capitalists who disagree with Buffett are essentially asking for a free handout from the government.  Buffett differs from them in that he feels everyone should pay their share, and not take the free handout. 

 

The "free handout" is the basic welfare services that the government provides to keep the bench warm -- the people sitting on that bench are the laid-off workers.  The companies need that bench to be kept warm so that when business demand returns these workers are clothed/fed/healthy and ready to go.  The capitalists of course are happy to take this benefit but don't want to pay anything for the benefit.  Thus, the capitalists ask for a "free handout".

 

Ironic isn't it?  These are the same people who claim the unemployed are getting the handouts!

 

Buffett recently (in an interview) was asked if he would be interested in hiring more workers for the good of the country.  He responded "No", that instead he would hire them only when business demand dictates it.  He elaborated that it is the governments' role to provide food, medicine, clothes and shelter for them until that business demand returns.

 

This is an interesting point he is making:

 

1)  businesses should hire labor and keep them employed only when business conditions dictate it

2)  they should hire them back (clothed, healthy, fed) in a "ready to work" state when the time comes

 

So basically he doesn't want idle hands hanging around the factory, and is happy to pay the government to "outsource" their care until needed once again.

 

I think most of the capitalists feel the same way (don't want idle hands on the payroll), except these other capitalists don't think they should be paying for the care of their idled workforce (through taxes) when not employed. 

[ERICOPOLY]

Granted, obviously the capital gains tax does not have the same detrimental effect as increased costs of hiring or higher corporate tax.

 

We're pretty much in agreement.  I was only talking about capital gains tax and shaking my head at the assertion it would lead to less investment in operating companies.

 

Now, maybe somebody is trading financial assets within the operating companies.  That very well may be so, however it doesn't create jobs and isn't innovative.  A higher capital gains tax might get them to slow down their trading, but probably won't get them to fire the employees on the operating side of the business.

 

[alwaysinvert]

Granted, obviously the capital gains tax does not have the same detrimental effect as increased costs of hiring or higher corporate tax.

 

We're pretty much in agreement.  I was only talking about capital gains tax and shaking my head at the assertion it would lead to less investment in operating companies.

 

Now, maybe somebody is trading financial assets within the operating companies.  That very well may be so, however it doesn't create jobs and isn't innovative.  A higher capital gains tax might get them to slow down their trading, but probably won't get them to fire the employees on the operating side of the business.

Still not the effect I'm talking about. If capital is taxed away at a higher rates that is obviously a hinderance to capital going into start-ups and capital injections into existing companies. It also affects the relative pricing of entrepeneuring: if stocks and bonds are higher priced due to more available capital, then entrepeneurship gets more attractive in relative risk-reward.

[ERICOPOLY]

Still not the effect I'm talking about. If capital is taxed away at a higher rates that is obviously a hinderance to capital going into start-ups and capital injections into existing companies. It also affects the relative pricing of entrepeneuring: if stocks and bonds are higher priced due to more available capital, then entrepeneurship gets more attractive in relative risk-reward.

 

The big "IF" though.  "IF" it is taxed away in excess of reinvestment opportunities.

 

Right now, it looks like the answer (at present capital gains rates) is NO.  There is a lot of cash sloshing around earning close to zero.  Thus, at present levels it is not too high of a tax.  Thus it can be pushed higher until it reaches that point (but not more than that point).

 

We can instead debate where that point is.  Yes, I agree it exists.  I just disagree that we're already at that point (evidenced by all the cash that's not being invested).

 

Take a portion of that unused cash away, and there is still a lot of unused cash sitting there idle.  No net loss of investment, no job destruction.

 

The trick is in finding taxes that can be increased without discouraging the formation or expansion of operating companies.  You've listed several that are not good candidates such as income taxes or corporate taxes. The capital gains tax however is uniquely focused largely on passive investors, not active investors.

[alwaysinvert]

I don't think looking at this specific point in time is very instructive. That kind of top-down managing is not something I believe in or have seen any evidence of working very well historically. No one knows when things are going to turn and suddenly there are loads of capital being used highly suboptimally via government. There is no human being that has the kind of foresight to prevent that.

[ERICOPOLY]

I don't think looking at this specific point in time is very instructive. That kind of top-down managing is not something I believe in or have seen any evidence of working very well historically. No one knows when things are going to turn and suddenly there are loads of capital being used highly suboptimally via government. There is no human being that has the kind of foresight to prevent that.

 

It was top-down managing when it was cut to 15% in the first place. 

 

Did you say at that time "This kind of top-down managing is not something I believe in or have seen any evidence of working very well historically".

 

 

[alwaysinvert]

I don't think looking at this specific point in time is very instructive. That kind of top-down managing is not something I believe in or have seen any evidence of working very well historically. No one knows when things are going to turn and suddenly there are loads of capital being used highly suboptimally via government. There is no human being that has the kind of foresight to prevent that.

 

It was top-down managing when it was cut to 15% in the first place. 

 

Did you say at that time "This kind of top-down managing is not something I believe in or have seen any evidence of working very well historically".

No, I regard the status quo as 0%. Taxing is top-managing, cutting taxes is changing management from the top to the bottom. Regarding tax-cutting as subsidizing seems to me a very odd outlook on government's role in the economy. But this is another issue.

[Tim Eriksen]

The capitalists who disagree with Buffett are essentially asking for a free handout from the government.  Buffett differs from them in that he feels everyone should pay their share, and not take the free handout. 

 

The "free handout" is the basic welfare services that the government provides to keep the bench warm -- the people sitting on that bench are the laid-off workers.  The companies need that bench to be kept warm so that when business demand returns these workers are clothed/fed/healthy and ready to go.  The capitalists of course are happy to take this benefit but don't want to pay anything for the benefit.  Thus, the capitalists ask for a "free handout".

 

Ironic isn't it?  These are the same people who claim the unemployed are getting the handouts!

 

Buffett recently (in an interview) was asked if he would be interested in hiring more workers for the good of the country.  He responded "No", that instead he would hire them only when business demand dictates it.  He elaborated that it is the governments' role to provide food, medicine, clothes and shelter for them until that business demand returns.

 

This is an interesting point he is making:

 

1)  businesses should hire labor and keep them employed only when business conditions dictate it

2)  they should hire them back (clothed, healthy, fed) in a "ready to work" state when the time comes

 

So basically he doesn't want idle hands hanging around the factory, and is happy to pay the government to "outsource" their care until needed once again.

 

I think most of the capitalists feel the same way (don't want idle hands on the payroll), except these other capitalists don't think they should be paying for the care of their idled workforce (through taxes) when not employed.

 

Your understanding of how the capitalists look at the situation is incorrect.  Those who disagree with Buffett are not looking for a free handout.  They have a different belief in what is fair and reasonable.  They also realize Buffett is making an inaccurate comparison in order to arrive at a conclusion he thinks is right.  To compare just payroll and income taxes at one point in time is not looking at the whole picture.  He ignores corporate taxes that companies (and shareholders indirectly) have already paid.  He attributes both halves of payroll tax to the individual (when the corporation (i.e. shareholders) actually paid half) which makes it look worse for the middle class person right now but ignores that the same person will collect Social Security for many years in the future.  If it is a tax now then it is a handout (opposite of a tax) when collected (and results in a hugely negative tax rate for most middle class Americans). 

 

To argue that capitalists are looking for a free handout is absurd.  Buffett is not different from them in thinking everyone should pay their fair share.  Capitalists in general believe that as well.  They obviously have a different belief in what is fair.  To posit that the free handout is provided by the government is also misleading.  It is provided by taxes which largely come from the capitalists you say are wanting a free handout.

 

You are giving Buffett too much credit and the capitalists too little.       

[ERICOPOLY]

I don't think looking at this specific point in time is very instructive. That kind of top-down managing is not something I believe in or have seen any evidence of working very well historically. No one knows when things are going to turn and suddenly there are loads of capital being used highly suboptimally via government. There is no human being that has the kind of foresight to prevent that.

 

It was top-down managing when it was cut to 15% in the first place. 

 

Did you say at that time "This kind of top-down managing is not something I believe in or have seen any evidence of working very well historically".

No, I regard the status quo as 0%. Taxing is top-managing, cutting taxes is changing management from the top to the bottom. Regarding tax-cutting as subsidizing seems to me a very odd outlook on government's role in the economy. But this is another issue.

 

It would be a net of 0% -- just putting back what was already there originally. 

 

Your handle is "always invert".  I'm merely inverting it.  It's a top-down management in one direction but not the other according to you -- yet it nets out to 0%.  That becomes a logical imbalance actually.

 

[Guest Dazel]

I would peg his personal at over a billion.

 

The original 17m that was mentioned earlier was put into berkshire to gain control of it. He had virtually 0 outside cash in 1976 when his investments were all consolidated in Berkshire after the sec investigation. He said he had to start  his personal wealth all over from scratch! Imagine he did not sell a Berkshire share or take any dividends at that time!

He is a legend!

 

Dazel

[moore_capital54]

Dazel, please supply some literature backing this posting. My understanding was that Buffett closed B Partners with roughly $25m of the total NAV of B Partners, which was his and Suzy's net worth, of that $25m roughly $5-7m was his stake in berkshire which is the same stake he owns today, the rest was cash and shares distributed to him personally which constituted his net worth outside of berkshire.

 

This is the first I hear about him losing all his outside cash in 1976, I would appreciate if you could send me in the right direction to verify that.

[alwaysinvert]

I don't think looking at this specific point in time is very instructive. That kind of top-down managing is not something I believe in or have seen any evidence of working very well historically. No one knows when things are going to turn and suddenly there are loads of capital being used highly suboptimally via government. There is no human being that has the kind of foresight to prevent that.

 

It was top-down managing when it was cut to 15% in the first place. 

 

Did you say at that time "This kind of top-down managing is not something I believe in or have seen any evidence of working very well historically".

No, I regard the status quo as 0%. Taxing is top-managing, cutting taxes is changing management from the top to the bottom. Regarding tax-cutting as subsidizing seems to me a very odd outlook on government's role in the economy. But this is another issue.

 

It would be a net of 0% -- just putting back what was already there originally. 

 

Your handle is "always invert".  I'm merely inverting it.  It's a top-down management in one direction but not the other according to you -- yet it nets out to 0%.  That becomes a logical imbalance actually.

Inverting is not the same as calling things something they aren't. Cutting taxes is not central planning, it is diverting power to the citizenry at the expense of top-down management. The net result of cutting taxes is less power in the hands of government, no matter what the motives behind the cut is. If that is a good thing or not is another story and up for debate.

 

If you are going to play the game of it being "a net of 0%" I can just point to the 19th century or whenever there was no capital gains tax in the US. Productive discussion, eh?

[AZ_Value]

The capitalists who disagree with Buffett are essentially asking for a free handout from the government.  Buffett differs from them in that he feels everyone should pay their share, and not take the free handout. 

 

The "free handout" is the basic welfare services that the government provides to keep the bench warm -- the people sitting on that bench are the laid-off workers.  The companies need that bench to be kept warm so that when business demand returns these workers are clothed/fed/healthy and ready to go.  The capitalists of course are happy to take this benefit but don't want to pay anything for the benefit.  Thus, the capitalists ask for a "free handout".

 

Ironic isn't it?  These are the same people who claim the unemployed are getting the handouts!

 

Buffett recently (in an interview) was asked if he would be interested in hiring more workers for the good of the country.  He responded "No", that instead he would hire them only when business demand dictates it.  He elaborated that it is the governments' role to provide food, medicine, clothes and shelter for them until that business demand returns.

 

This is an interesting point he is making:

 

1)  businesses should hire labor and keep them employed only when business conditions dictate it

2)  they should hire them back (clothed, healthy, fed) in a "ready to work" state when the time comes

 

So basically he doesn't want idle hands hanging around the factory, and is happy to pay the government to "outsource" their care until needed once again.

 

I think most of the capitalists feel the same way (don't want idle hands on the payroll), except these other capitalists don't think they should be paying for the care of their idled workforce (through taxes) when not employed.

 

Your understanding of how the capitalists look at the situation is incorrect.  Those who disagree with Buffett are not looking for a free handout.  They have a different belief in what is fair and reasonable.  They also realize Buffett is making an inaccurate comparison in order to arrive at a conclusion he thinks is right.  To compare just payroll and income taxes at one point in time is not looking at the whole picture.  He ignores corporate taxes that companies (and shareholders indirectly) have already paid.  He attributes both halves of payroll tax to the individual (when the corporation (i.e. shareholders) actually paid half) which makes it look worse for the middle class person right now but ignores that the same person will collect Social Security for many years in the future.  If it is a tax now then it is a handout (opposite of a tax) when collected (and results in a hugely negative tax rate for most middle class Americans). 

 

To argue that capitalists are looking for a free handout is absurd.  Buffett is not different from them in thinking everyone should pay their fair share.  Capitalists in general believe that as well.  They obviously have a different belief in what is fair.  To posit that the free handout is provided by the government is also misleading.  It is provided by taxes which largely come from the capitalists you say are wanting a free handout.

 

You are giving Buffett too much credit and the capitalists too little.     

 

Actually, It is my personal opinion that we don't give Buffett enough credit whenever we discuss this and some try to oversimplify and others over-complicate his stance.

 

He knows very well that whenever owners of a company get to pay a tax on the dividend they receive, that money has already been taxed at the corporate level.

He knows that payroll taxes paid by employees are matched by the company (i.e. owners/shareholders), he knows that top earners are responsible for most of the income tax revenue etc...

Trust me, he is aware of all those facts as they affect him much more than all of us here combined I would guess.

 

However, I am yet to see anyone argue against  (or at least address) the fundamental fact that underlies WEB's crusade dating back to that estate tax senate hearing to today's minimum tax on the wealthy talk, which is:

 

Even with all those arguments being true (the rich are double taxed when they receive their dividend checks, they pay most of the income tax etc... etc...), even with all that, we are now solidly entrenched in a society where the very top (and a very small minority of the population) are seeing their net worth increase exponentially while the middle class has been going nowhere and an increasingly alarming number of them can't even keep up with the economic treadmill they're on and they're leaving the middle class and joining the poor, while the very top 5% or so are controlling an increasing portion of the American pie.

WEB sees this and says this society is not sustainable! And personally I agree with him; Instead of berating WEB for not "supposedly" understanding who pays what taxes whenever he says tax the rich more, how about someone tries to help him solve the underlying issue with our society that he is trying to solve. I would say it is a very big problem we have on our hands unless you can show somewhere in the history of humanity where 5% of a population have gone on a long run of monopolizing for themselves an ever increasing portion of a country's resources without the remaining 95% sooner or later forcing a redistribution (often bloody redistribution). It might even be his own survivor instinct that pushes him to fight for this as he knows that if shit was to ever hit the fan there's only one guy ahead of him (for the US at least) so his head will definitely be on a hit list somewhere.

 

So in my mind it's fruitless to engage in these debates over taxation and pretending that WEB doesn't understand taxes and who pays what because some people think that nobody should ever tax them and they wouldn't even be happy with a 0.00005% tax rate and cutting taxes will be the solution to everything; And instead try and address the underlying problem. Unless you believe it is not true that the middle class is shrinking and the poor increasing and the very top taking home more and more of the pie, in which case I'd be glad to take a look at the data you're looking at.

 

So does someone have a better idea that doesn't involve fiscal policy like WEB advocates (i.e. the hated "T" word)? Because what we have isn't working in my opinion and undoubtedly there comes a day when 90% of a country collectively wakes up and decides that a system that isn't working for them isn't worth keeping and it can get ugly real quick and I want to avoid that; and if it means that I'll personally pay a little bit more capital gains taxes then I won't be happy but I'm willing to at least have that conversation.

 

Just my 2c.