Warren Buffett: "Stop Coddling the Rich"

[BOBB]

My Maggie imitation:

"Whatever you said isn't thought through on a level that one could read and discern an actual question or statement. Now, mind you, I didn't read your post. If I had time I would relate this to the economy of the antebellum South, but I don't. If someone has time to do that I would be happy to critique; however, I won't read your post in so doing. Mrs. Maggie would discern the present value of my time, but is too busy watching SVU."

Give or take.

Whoever asked, for all but the lowest income folks the capital gains tax rate is 15%. The top marginal tax rate is 35%. The concept behind this is that sellers of real estate, stocks and bonds are taxed on the rents, dividends and interest at their marginal rates while they hold the asset and the asset will be taxed the same way for the buyer. So taxing the capital gain on the sale of the asset, is a double-taxation the argument goes. Having read Mr. Buffett's Op-Ed, my take is that he is complaining about the unfairness of the effective rates and gave the rates folks in his office paid as an example. The high wage-earner with some investments are definitely the most penalized in our system.

[kcshocker11]

My Maggie imitation:

"Whatever you said isn't thought through on a level that one could read and discern an actual question or statement. Now, mind you, I didn't read your post. If I had time I would relate this to the economy of the antebellum South, but I don't. If someone has time to do that I would be happy to critique; however, I won't read your post in so doing. Mrs. Maggie would discern the present value of my time, but is too busy watching SVU."

Give or take.

Whoever asked, for all but the lowest income folks the capital gains tax rate is 15%. The top marginal tax rate is 35%. The concept behind this is that sellers of real estate, stocks and bonds are taxed on the rents, dividends and interest at their marginal rates while they hold the asset and the asset will be taxed the same way for the buyer. So taxing the capital gain on the sale of the asset, is a double-taxation the argument goes. Having read Mr. Buffett's Op-Ed, my take is that he is complaining about the unfairness of the effective rates and gave the rates folks in his office paid as an example. The high wage-earner with some investments are definitely the most penalized in our system.

8)

[wufan]

Maybe the first and best thing to do would be try and get accurate numbers, and I do not know the best sources to get those numbers. Lets make the comparison as easy as possible:

Person A: $100,000 income from work for an employer

Person B: $100,000 income from investments

What is the actual federal tax burden for both? Once that is established, then we can ask...

If the actual federal tax burden is not the same, regardless of which way, is that fair to both parties? Should one have preferential treatment over the other simply because of the way in which the income was earned?

Long term capital gains are taxed up to 15% regardless of income. Short term are the same as your income tax....

All true, but let me give you an example of legal tax avoidance. This can be applied to any number of commodities.

Lets say I wish to shelter 1 mil dollars. I hire a co that takes my mil and buys cattle-say 1st calf heifers. ( I can buy younger or older depending when I want my loses to hit

Next it contracts with ranchers around the globe to run small amounts of these cattle on each of their ranches, thus diversifying risk.

1. Now, I have just started a business and am able to write off available start up costs, others are differed to future years.

2 . I am now able to write off costs associated with running the business. These costs can be mgmt fees, breeding costs, vet costs, shipping,feed etc.

3. I am now able to depreciate over 5yrs each calf. Throwing me well into a loss the first few years.(This lose goes to reduce income from other sources on my tax return, thus saving me more cash)

Dont forget the 179 expenses allowed

4. I place cattle in locations where I love to travel, and as long as I visit my cows my trip becomes a business trip.

5 When my cattle give birth all male calves are castrated an and sold- the money from this pays part of my expenses or the purchase of more calves.

6. The females are kept and are bred in a couple of years. My flock now grows. It grows every year exponentially.

Dispite the growth of my herd, I am still showing a loss as my assets grow.I am also able to borrow against my now larger herd that has many cattle with no cost basis ( can buy more cattle or expand into other areas eg, stud bulls)( This option was done by Pres Reagan, the bulls that is).

7. I sell the cattle off as I can absorb the gains(at the lower LT gain rates) or as I buy more calves and off set gains with depreciation.

8.After a few years I have millions of dollars of assets and have written off up from all loses associated with building my herd.

Cattle is just one example, I can do this with any number of items, grain, race horses, wineries etc. 8)

This is a good example of how wealthy people create jobs (as well as defer taxes). It is simple and easily understood, but your herd does not grow exponentially each year. It grows about 45% a year, of which you have to pay taxes on (now or later). When you do pay taxes, you will have to pay it on your new herd size, not the original herd size (this would be a significantly larger herd and would have a higher amount of taxes that would be generated).

You have successfully gained assets and paid a lower tax percentage (but higher overall tax amount, i.e. tax revenue for the government has increased), also you have created jobs and helped to grow the economy. See what I did there?

Option B: Man takes home $650,000.00 bitterly. Government takes $350,000.00 and says "That's not enough." They then it to GE and Acorn and no jobs are created.

[kcshocker11]

Maybe the first and best thing to do would be try and get accurate numbers, and I do not know the best sources to get those numbers. Lets make the comparison as easy as possible:

Person A: $100,000 income from work for an employer

Person B: $100,000 income from investments

What is the actual federal tax burden for both? Once that is established, then we can ask...

If the actual federal tax burden is not the same, regardless of which way, is that fair to both parties? Should one have preferential treatment over the other simply because of the way in which the income was earned?

Long term capital gains are taxed up to 15% regardless of income. Short term are the same as your income tax....

All true, but let me give you an example of legal tax avoidance. This can be applied to any number of commodities.

Lets say I wish to shelter 1 mil dollars. I hire a co that takes my mil and buys cattle-say 1st calf heifers. ( I can buy younger or older depending when I want my loses to hit

Next it contracts with ranchers around the globe to run small amounts of these cattle on each of their ranches, thus diversifying risk.

1. Now, I have just started a business and am able to write off available start up costs, others are differed to future years.

2 . I am now able to write off costs associated with running the business. These costs can be mgmt fees, breeding costs, vet costs, shipping,feed etc.

3. I am now able to depreciate over 5yrs each calf. Throwing me well into a loss the first few years.(This lose goes to reduce income from other sources on my tax return, thus saving me more cash)

Dont forget the 179 expenses allowed

4. I place cattle in locations where I love to travel, and as long as I visit my cows my trip becomes a business trip.

5 When my cattle give birth all male calves are castrated an and sold- the money from this pays part of my expenses or the purchase of more calves.

6. The females are kept and are bred in a couple of years. My flock now grows. It grows every year exponentially.

Dispite the growth of my herd, I am still showing a loss as my assets grow.I am also able to borrow against my now larger herd that has many cattle with no cost basis ( can buy more cattle or expand into other areas eg, stud bulls)( This option was done by Pres Reagan, the bulls that is).

7. I sell the cattle off as I can absorb the gains(at the lower LT gain rates) or as I buy more calves and off set gains with depreciation.

8.After a few years I have millions of dollars of assets and have written off up from all loses associated with building my herd.

Cattle is just one example, I can do this with any number of items, grain, race horses, wineries etc. 8)

This is a good example of how wealthy people create jobs (as well as defer taxes). It is simple and easily understood, but your herd does not grow exponentially each year. It grows about 45% a year, of which you have to pay taxes on (now or later). When you do pay taxes, you will have to pay it on your new herd size, not the original herd size (this would be a significantly larger herd and would have a higher amount of taxes that would be generated).

You have successfully gained assets and paid a lower tax percentage (but higher overall tax amount, i.e. tax revenue for the government has increased), also you have created jobs and helped to grow the economy. See what I did there?

Option B: Man takes home $650,000.00 bitterly. Government takes $350,000.00 and says "That's not enough." They then it to GE and Acorn and no jobs are created.

I never said it didnt create jobs! You can also say if we raise ordinary rates this inspires more of this and thus creates more jobs (Yes it probably hurts job creation in other areas).

While you attempt to politicise my example I am only showing how our tax code allows the reduction of taxes and how Warren Buffett can end up paying less than his secretary. Perhaps exponentialy is the wrong word but the herd greatly increases by breeding, using cash from sales to purchase more or using them as leverage to borrow and increase its size.

I am not passing judgement on our tax code(I have made a fine living from it) just showing you how it works!

As for your option B -

We don't pay taxes. Only the little people pay taxes.
Leona Helmsley

8)

Oh one more thing you sell off the herd not all at once, it is done with your year by year tax situation as the primary focus. I can purchase just enough new cattle to shelter the herd portion thats being sold. Or If I have other shelters I can sell just enough to offset their loses. Hell I can put off paying taxes as long as I want, I can even give pieces away to charity and write off even more. 8) Caveat-Always keep in mind Alt Min Tax.

Please rem also that these ranchers, vets etc would exist with or without this situation. The company that did this at its max only employed 67 people(They were the largest ag tax shelter in the world). I am saying that even though some jobs are created its not nearly as much as you think. 8)

[wufan]

So the purpose of your example was to show how the tax code works and was not a statement for or against taxation?

My appologies as that was not how I took it. I thought it was to demonstrate how the rich cheat the system. Must be my conservatively biass mind playing tricks on me. :D

[kcshocker11]

So the purpose of your example was to show how the tax code works and was not a statement for or against taxation?

My appologies as that was not how I took it. I thought it was to demonstrate how the rich cheat the system. Must be my conservatively biass mind playing tricks on me. :D

No politics intended here! Ive written and administered tax shelters that were used by some of the wealthiest people in the world. What is truely funny is that even though Im a Liberal one of the people was Pres Reagan. 8)

PS - My boss at the time ask me if I wanted to see his most famous subpoena- He pulled out one to the Watergate trials. Some of the defendants had investments with us and he had to testify about them. 8)

[MoValley John]

First and foremost, anything that Warren Buffet says must be taken with a grain of salt, the man is a crook. He always has been a crook and always will be. Warren Buffet spends a giant sum of money marketing his image, he is not what he appears to be. I know two people that work at Berkshire, one of them does much work polishing his image. The soap opera appearances, his huckleberry Dairy Queen crap, it is all a facade. Warren loves to tell people that he's this simple guy living in Omaha, he's hardly here! Warren is the wolf in sheep's clothing. And people eat it up like a fine dessert.

Okay, I'm done with the Warren Buffet ad hominem, the guy makes me sick. Carry on.

[shockmonster]

Mo John-What can you tell us about the rich Starbucks guy who made news today calling for a boycott? He probably has some skeletons in his closet too.

[Maggie]

My Maggie imitation:

"Whatever you said isn't thought through on a level that one could read and discern an actual question or statement. Now, mind you, I didn't read your post. If I had time I would relate this to the economy of the antebellum South, but I don't. If someone has time to do that I would be happy to critique; however, I won't read your post in so doing. Mrs. Maggie would discern the present value of my time, but is too busy watching SVU."

Give or take.

Whoever asked, for all but the lowest income folks the capital gains tax rate is 15%. The top marginal tax rate is 35%. The concept behind this is that sellers of real estate, stocks and bonds are taxed on the rents, dividends and interest at their marginal rates while they hold the asset and the asset will be taxed the same way for the buyer. So taxing the capital gain on the sale of the asset, is a double-taxation the argument goes. Having read Mr. Buffett's Op-Ed, my take is that he is complaining about the unfairness of the effective rates and gave the rates folks in his office paid as an example. The high wage-earner with some investments are definitely the most penalized in our system.

Very funny. I was not trying to be a jerk, sorry if - came across that way,but the tax code is complicated. Certainly people take advantage as much as they can - is it "fair" probably not. This is why reforming the tax code is an important - but it won't be popular with many in Washington, for obvious reasons.

KC's example is pretty good I think.

[Maggie]

Buffet has been singing this tune for years.

The point Mr. Buffet makes if that the percentage of his income that he is required to pay in taxes is substantially lower than most of his colleagues ... principally because most of his income is taxed at the capital gains tax rate and not at the income tax rate that most Americans have to pay on their income. That is true. And if Buffett feels he is under-taxed, as others have pointed out, I believe the IRS will accept a check.

Buffet speaks in terms of raising tax rates, instead of reforming a system shot through with tax expenditures, gimmicky depreciation, and credits for favored expenditures. The problem is that Buffet knows (or should know) that such an increase will affect owners of small and medium sized businesses, who run on much tighter profit margins and budgets than Mr. Buffet is currently used to (and some of which are sole owners of their companies, meaning that personal income rates are tied directly to their businesses). In a market with stagnant job growth, this is staggeringly irresponsible suggestion. An increase in taxes will take the money those individuals may invest in their businesses (or spend on the product of other businesses) and put it into the hands of the government instead, a government that has proven more voracious and less productive than the private sector.

Besides, those who earn more have been paying an increasing share of the tax burden. The tax system is very progressive.

[Maggie]

Warren Buffett Is Wrong On Taxes

The Oracle of Omaha is at it again. On July 7, Warren Buffett told Bloomberg: "I think the rich have a responsibility to pay higher tax rates." Then he groused that his wealthy friends are "paying lower tax rates than the people who are serving us the food." Mr. Buffett has been voicing this complaint for years, once observing that his personal tax rate of 17.7% is lower than that of his receptionist (30%).

During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.

I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.

IRS data for 2008, for example, show that households in the top 10% of earners (above about $114,000) paid 19% of their income to the feds. Those in the top 1% (above $380,000) paid 23.3%. The top 0.1% of earners, with incomes of $2 million or more, end up paying a slightly lower tax of 22.7%, because they get more of their income from investments (more about this below).

So what about the rest of us? According to IRS data, a median-income household ($35,000) in 2008 paid about 4% of its income in federal income tax.

Mr. Buffett may have been referring to all federal taxes, not just income taxes, when he said the rich pay less than others. His secretary and most workers in America do pay a lot in Social Security and Medicare payroll taxes, but even accounting for them the federal system is highly progressive.

According to the Congressional Budget Office (CBO), middle-class families in 2007 (earning between $34,000 and $50,000) paid an effective 14.3% of their income in all federal taxes. The top 5% of income earners paid 27.9% and the top 1% paid 29.5%. And what about the highest earners? Americans with annual incomes above $2 million paid an average 32% of their income in federal taxes in 2005 (the most recent year for which data are available).

So how does Mr. Buffett arrive at such a low personal tax rate? He may have been referring to a 2010 IRS study of the 400 richest American taxpayers, a list he's probably on. It showed those people paid an effective federal income tax of 18.1% in 2008.

Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.

Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.

The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.

To his credit, Mr. Buffett has criticized President Obama's near-obsessive calls for higher taxes on corporate jets. As Mr. Buffet correctly noted, the writeoffs companies take for capital expenditures such as jets are legitimate business expenses.

Overall, though, Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett.

[wufan]

Thanks for sharing maggie!

[MoValley John]

All taxes are regressive. The sooner everyone realizes this, the sooner meaningful tax reform takes place.

More on Warren Buffet's comments. Or should I have typed moron Warren Buffet's comments? Everyone knows that the tax code is messed up and everyone knows that long term capitol gains are taxed at a lower rate. If Warren Buffet was honest, he would not advocate an increase in the tax rates of the wealthy, he would advocate simply taxing all income the same. Earned income would be taxed at the same rate as long term capitol gains.

Instead, he wants to bump the rates paid by the highest wage earners. The fallacy in that is not all high wage earners are wealthy. High wage earners may be on the road to to wealth, but for many, they simply have a good paying job. Warren is right that higher tax rates do not deter people from making more money. If the highest marginal tax rate was 75%, people would still work, earn money and pay those taxes. It would, however, slow the process of converting high wage earners into wealthy people. It would also slow the money that those high wage earners had available to invest in private business, stocks, bonds and assets that eventually become investments that employ people.

And going back to my original statement, all taxes are regressive, taxing all income is the only way to reform government. As much as it is political suicide to mention, taxes must be collected on all income, unemployment checks, WIC payments and yes, even social security. I am an advocate of a flat tax, no shelters, nothing. But even without a flat tax, if, at the federal level, all income was taxed, even at a small marginal rate, everyone would be brought to the table, everybody would have a vested interest in where their money was going, and everyone would begin to scrutinize federal spending. As it is, in the neighborhood of 50% of the population, plus or minus, pays zero in federal taxes. When more than half of the population doesn't pay any money, the masses don't see the out of control spending as the problem, they simply see the solution being tax the rich more.

[Maggie]

MVJ – our tax system is very progressive. That said I agree with most of your post. There is some merit to considering taxing capital gains at the same rate as income. And to borrow a phrase from our glorious Leader “make no mistake” Buffett’s position doesn’t exactly arise due to some altruistic strain in his DNA. Aside from being bad-policy in substance, he has a self-interest angle: Buffet already owns a ton of wealth; a large part of his business is to rent it to those who need it. As you point out, what he is suggesting is a steeper tax on those seeking to accumulate wealth of their own. In other words, I got mine - and I'm going to urge the government to keep you from getting yours.

Spite? No. By preventing others from accumulating wealth Buffett can charge people more for the use of his. So let's not mistake his scheme as a statement against interest. It is the opposite.

So MVJ – what about eliminating capital gains tax and income tax all together – and replacing it with consumption tax (VAT)? I know much would depend upon how the VAT is structured.

[Kung Wu]

It's all a scam maaaan. We've been duped by The MAN! It's all a big lie, man. I'm gonna go play me some guitar on the sidewalk and raise me some gas cash so I can take the van fishing by the dam, maaan. I know FSF would dig it, groovie!