Warren Buffett: "Stop Coddling the Rich"

[MoValley John]

First off, our tax structure is progressive in only that we tax at higer rates as income is higher. That said, any tax is regressive because any tax will burden someone unfairly and harshly. If you apply a 50% tax on any income between $250,000-$300,000, it hurst the $260,000 wage earner much more than it does the wage earner that makes $400,000. At the same time, with a 60% bracket for wage earners between $300,000-$500,000, the wage earner that makes 400,000 is burdened more than the guy making $650,000.

At the same time, the 12% you charge the guy making $35,000 is a bigger burden than that same 12% you charged the guy for the same marginal income that makes $70,000. Sure, our tax structure is formatted to be "progressive" but any and all taxes are regressive. Taxes by nature, always hurt those with the least to give more than those with the most, you can't bracket away that fact and say it is progressive. It is simply an attempt at being less regressive.

As for a consumption or VAT tax, I'm on the fence. I can see how they would work, but at the end of the day, is what we pay for the end product more in taxes than it is the product itself? And if we switch to a VAT tax, how do we soak the rich? Rich get rich by being efficient with their money and as a percentage of wealth, spend less. My best friends that are very wealthy right now are the guys that didn't buy the CD player when it first came out. They are the guys that bought used cars and kept them till the cars literally died on the road. Yes, they consume now, they have very nice stuff, but their rate of consumption even now is a far less percentage of their income than it is for Joe Sixpack. The rich could simply reduce their tax burden by not participating in consumption and hoarding their money. A VAT tax would be regressive, possibly moreso than what we currently have. The VAT on a gallon of milk would unfairly burden the single mom just trying to feed her poor, starving kids.

[MoValley John]

Maggie, I will PM you a few tidbits on Warren Buffet. What I will say publiclly, is the op-ed piece that he "authored" isn't his work. He is a member of the Obama economic team and the op-ed was written for him, he simply signed it.

[Maggie]

One would think that “isn’t actually that progressive” would suggest some kind of comparative context, i.e., isn’t actually that progressive relative to other, say, OECD countries. What we know is that the U.S. has the most progressive system of household taxes in the OECD, even when we factor in that pesky payroll tax.

Let me advance a simple proposition: most Americans pay taxes and receive benefits. If you receive more in benefits than you pay in taxes, I’d say you’re getting a pretty good deal. If you’re paying more in taxes than you’re receiving in benefits, well, that’s less true. Now, it might make sense to pay more than you receive in benefits if you’re very wealthy and you capture various intangible benefits, e.g., one could argue that the wealthy benefit more from efforts to protect private property than the non-wealthy. And then there is the entirely plausible argument that we all benefit from a decent social minimum that helps mitigate various social maladies: it’s only natural that those most able to pay should pay more than those least able to pay. But when the 60 percent of Americans are net recipients of federal benefits, is it at least possible that some are not desperately poor? Could some live in relatively low-cost metropolitan areas, where they might prefer more discretion over their income than seeing their tax take rise in exchange for benefits they might not want or need? Is it legitimate to ask whether we’ve struck the right balance, given the fact that we live in a very diverse country where the cost of living varies dramatically from Little Rock to Santa Monica?

As for the VAT – yes, it will impact everyone. That is the beauty of it – everyone has “skin in the game” whether they realize it or not. Sure the rich may hoard their money – but they won’t. Most people with a lot of cash on hand are frugal (and they remain so) – they drive pick up trucks, shop at Walmart, etc. but many I see don’t (many comment on how blind the East and West coasts are to the goings on in the center of our Country – the same is true in the reverse). Yeah a VAT would impact everyone – so what?

[Maggie]

Maggie, I will PM you a few tidbits on Warren Buffet. What I will say publiclly, is the op-ed piece that he "authored" isn't his work. He is a member of the Obama economic team and the op-ed was written for him, he simply signed it.

Please do.

I figured as much. Given that Warren has been playing this little tune for some time - his "new" article in the NYT struck me as opportunistic given our Presidents little bus tour.

[Aargh]

An approximate quote from one of my economics profs:

"No one worries too much about macro-economics, because in the long run we're all dead, and it's easy for us to ignore things that happen after we're dead".

The gap between the "haves" and the "have-nots" is getting wider. History shows us that when that gap gets too big and taxation falls too heavily on the "have-nots" while the "haves" are protected by government, there is a revolution. I believe both the American and French revolutions were heavily influenced by this situation.

The USA does not have a monarchy, but the cost of running a political campaign empowers the "haves" to the point that they may as well be Counts, Dukes, and Princes.

The super-rich can control who runs for office and they can control the agendas of the political parties. That's not much different from the system in England when the colonies in America revolted.

We are becoming what we rejected to form this country. We're doing it in the name of democracy and capitalism and claiming that our method is superior to a monarchy.

In the short term, those who have succeeded should probably have more of a say in how our country is run

In the long run, we're becoming the equivalent of a monarchy. Monarchies were established by who was most successful at raising an army and fighting a war. That was the midieval equivalent of someone being economically successful today.

We're seeing fundamental religious beliefs gaining control over our political system. When we see that in Middle East countries, we cite that as a violation of personal freedom, yet we seem to embrace it in our own country.

We're a lot closer to the French model prior to the French Revolution than we would care to believe.

[MoValley John]

I agree with all of what you have said, Aargh. That said, I am going to shift gears a bit.

God it's too late for me to be up and it's too late for me to be on this stupid computer!!!! :cry: :roll: :-x

Okay, Warren said it;s time to stop coddling the rich, he demonstrated how he pays less taxes proportionally than those that earn less then him. For the sake of discussion lets give him that. Lets agree to quit "coddling" the rich. Lets raise their taxes.

Now for a moment, let us turn our attention to the purpose of taxation, it is to raise money in the public coffers. It is not for social engineering, it is not for redistribution, it is not to be fair. Taxation is for the sole purpose of generating revenue in which to operate the government. Period.

With that understanding on taxation, let us turn back to Mr. Buffett. Assuming Warren was right and we should quit coddling the rich, will raising taxes on the rich have done any good to rectify the current situation? I say no, In fact, I believe that if you not only tax the rich, but actually confiscate all of the wealth of the top 5%, you haven't solved the problem, you have simply made a tiny dent in the problem and took the wealthiest 5% and dropped them to the poorest. But I digress, going back to Warren's plan, even he says it won't make a dent. From a piece in the Omaha World Herald:

Buffett's plan would increase the nation's revenue by only about $50 billion a year, Buffett told The World-Herald. Each year, the U.S. spends $1.3 trillion more than it collects in taxes.

http://www.omaha.com/article/20110816/NEWS01/708169929

So, Buffett made a big splash and made ripples across the country. He incited class envy, all in the name of advancing his party. And for what? Oh yeah, closing the annual deficit gap by less than 4%. These are Buffett's numbers!!! And if you pissed Buffett off and confiscated everything he and his rich friends have, we still wouldn't make a dent in the accumulated national debt. You would simply turn the richest into the poorest.

My point is, regardless of what Obama, Buffett or anyone else says, we simply have a spending problem. And until we address the spending problem, all of this talk of raising taxes on the rich is nothing but a distraction. It's comedic! I harken it to an old slapstick movie where pressed into a corner, Obama shouts, "Hey, look over there!" Distracted for the moment, we look away and Obama escapes.

Republican, Democrat, conservative or liberal, we need to keep focused on fixing the problem and that is spending. If you want to raise taxes on the rich, fine! But until we drastically cut what the federal government spends, regardless of how much we soak the rich, we have fixed nothing.

I'm too tired, it's too late, so I'll end my probably incoherent rant here.

[wufan]

Mo Valley Johne, that was very eloquently put for a 0400 aberation! I think that is what most of the fiscal conservatives believe.

For me, it's not about taking home an extra $1000.00 a year via a tax cut, tax break, tax incentive, economic stimulus, or anything. For me, it's about freedom. Here are the three ways in which an individua,l that by breaking no laws, has lost his freedom:

1. When you're in debt, and you can't pay your bills and you become a slave to that debt. You do any and everything you can to eleveate your debt and until it is under control, you have lost your freedom. The government has enslaved us in our debt. Thru bad decisions and bad luck we have become a nation that can't escape what we have borrowed without income. This must be controlled first and foremost.

2. By having your property forcefully taken from you. You must have the right to protect yourself and your family, but for the purposes of this discussion, you must pay your fair share of taxes, no more, no less. Perhaps a 30% + income tax of all of the nations earners is necessary, but the problem is that we don't see that money or how it's spent. The simplist way for us to gain perspective is to increase the burden on the cities, counties, and states. Let the Federal government only take what is needed to address those issues which are of federal importance and allow the states to make the decisions on what is needed locally. This spurns activism in those whos life is immediately affected by the decision, and in turn allows development of greatness.

3. This last one is what makes America great. Here, we have the opportunity to succeed and FAIL. If you remove my opportunity to fall on my face, I have no freedom. No matter what I do I will be destined for mediocrity. Allowing a person to rise to the occasion gives him or her a sense of self-worth and accomplishment. By propping up bankrupt businesses and making life more comfortable on wel-fair than a menial job, the government has taken away your initiative, drive, and soul.

[wufan]

An approximate quote from one of my economics profs:

"No one worries too much about macro-economics, because in the long run we're all dead, and it's easy for us to ignore things that happen after we're dead".

The gap between the "haves" and the "have-nots" is getting wider. History shows us that when that gap gets too big and taxation falls too heavily on the "have-nots" while the "haves" are protected by government, there is a revolution. I believe both the American and French revolutions were heavily influenced by this situation.

The USA does not have a monarchy, but the cost of running a political campaign empowers the "haves" to the point that they may as well be Counts, Dukes, and Princes.

The super-rich can control who runs for office and they can control the agendas of the political parties. That's not much different from the system in England when the colonies in America revolted.

We are becoming what we rejected to form this country. We're doing it in the name of democracy and capitalism and claiming that our method is superior to a monarchy.

In the short term, those who have succeeded should probably have more of a say in how our country is run

In the long run, we're becoming the equivalent of a monarchy. Monarchies were established by who was most successful at raising an army and fighting a war. That was the midieval equivalent of someone being economically successful today.

We're seeing fundamental religious beliefs gaining control over our political system. When we see that in Middle East countries, we cite that as a violation of personal freedom, yet we seem to embrace it in our own country.

We're a lot closer to the French model prior to the French Revolution than we would care to believe.

The comparison you make between monarchy and modern capitalists is true. One key difference, however, is that a person of non-noble birth had ZERO opportunity to improve his lot in life or that of his children. A brilliant man born of poor means will have a hard go of it, but through fortitude, he can change the life of his family for generations to come. Even a mediocre person of no specific merit can live the life of a wealthy individual by simply going to college and finding a reasonable job. The life that an American lives with a $40000.00 income is better than 99% of the rest of the world. I work with a Sri Lankan girl whom comes from Nobel birth (her grandfather was a "king") and her father is in the top 5% of earners in Sri Lanka. She's an entry level Chemist and her two bedroom apartment is twice the size of the home she grew up in.

The gap between the rich and poor might be growing here in the States, but the poor of the world wish they could be so lucky as to be poor Americans.

[Kung Wu]

Yes, they consume now, they have very nice stuff, but their rate of consumption even now is a far less percentage of their income than it is for Joe Sixpack. The rich could simply reduce their tax burden by not participating in consumption and hoarding their money. A VAT tax would be regressive, possibly moreso than what we currently have.

I disagree here, your insight is too short term. Everybody dies. The hoarding rich old man will pass his money down to his children soon enough and it's well known that within a couple of generations the overwhelming percentage of the accumulated wealth will be lost.

I don't consider VAT and Fair Tax to be the same thing -- you mention VAT but ignore Fair Tax. Fair Tax is better in my mind because it wouldn't punish the inventor or the manufacturing industry.

In VAT the wealthy corporation owners would be taxed on asset aquisitions for their corporations (for example the jets they purchase for their businesses) -- so while they may be conservative personally, their corporations are paying a reasonable tax on those assets that takes their business forward. I'm not sure if that applies to Fair Tax though.

[SubGod22]

Why Warren Buffett Is Wrong

[SubGod22]

Why Doesn't Warren Buffett Just Write the Government a Check?

Warren Buffett, the multi-billionaire, thinks he doesn't pay enough taxes. He wants the government to tax him more because he says as a percentage of income he pays less in tax than his secretary. -- Maybe he should give his secretary a raise.

There is an Office of Public Debt in the Treasury Department which exists so that people who think the government isn't already getting enough of their money can pay more. It's a free country (still) so if Warren Buffett thinks government is not getting enough of his money, he should write Washington a check. He can then try persuading other billionaires, like his friend Bill Gates, to do the same.

Does Buffett know that even if the government confiscated all of his wealth and that of every billionaire and millionaire in the country, its effect on debt reduction would be minuscule? That's because revenue isn't the problem; spending is the problem.

[Maggie]

Aargh,

To begin with, I understand your frustration. But the French revolution was inspired, in part, by the writings of Rousseau the American Revolution was not (I don’t think many of the Founders, save possibly Jefferson, held Rousseau in high regard) – and there were very different results.

As for income inequality, usually arguments that Paul Krugman and others make to attempt to demonstrate that we are no longer a “middle-class society” (the rich are getting richer, etc.) are based on household income figures. It is not a serious argument. Households differ over time in size, they differ from one group to another in size, and they differ from one income level to another in size. Over time households have been declining in size – for example if at some point in the past a household had three working adults and now the household has two working adults – and the family is making the same money it always made that is not stagnation it is a 50% increase in per capita income. Which may be why one of those adults left to start his or her own household – he or she could afford to. Household income is utter nonsense. If you are serious you look at per capita income because it always means one person. That is a legitimate comparison, if you are looking to score political points you go to household or family income.

In any event, I don’t see the “have-nots” revolting in this Country. The most significant political movement in my lifetime has been the Tea Party movement. And from what I can tell these people are the “haves”.

Do we have an imperfect political system? Yes, we do. Do we have members of Congress who think and act as if they are Royalty? Darn, right we do. But I don’t subscribe to the view that “rich” people run America – be it Soros or the Koch brothers.

[RoyalShock]

I'm not sure I can adequately explain this question in my mind, but I'll try.

Let's say they raise taxes on Mr. Buffett and his ilk by 10%, effectively (probably lower, but for the sake of argument). That's $70+ billion dollars removed from the market, every year. Since Congress likes to talk in 10-year terms, that's close to a trillion dollars when you add inflation.

We've learned by now that the so-called multiplier of government spending isn't reality. So a good chunk of that trillion dollars is getting sunk. Some of it will be put back into the market to be taxed again, some of it won't.

If, instead, that money was left in the private sector, spent on goods and investment, how much more tax revenue in 10, 20 or 30 years will that money generate, considering it's helping to create and maintain jobs and increase the income of large taxpayers?

[wufan]

I'm not sure I can adequately explain this question in my mind, but I'll try.

Let's say they raise taxes on Mr. Buffett and his ilk by 10%, effectively (probably lower, but for the sake of argument). That's $70+ billion dollars removed from the market, every year. Since Congress likes to talk in 10-year terms, that's close to a trillion dollars when you add inflation.

We've learned by now that the so-called multiplier of government spending isn't reality. So a good chunk of that trillion dollars is getting sunk. Some of it will be put back into the market to be taxed again, some of it won't.

If, instead, that money was left in the private sector, spent on goods and investment, how much more tax revenue in 10, 20 or 30 years will that money generate, considering it's helping to create and maintain jobs and increase the income of large taxpayers?

The great economic debate of our time (maybe prior...I don't know the history). Does the government earn more money by increasing income tax or by letting the individual create wealth and subsequently taxing the wealth generated? The numbers I have seen (decreasing coporate taxes leads to increased revenue) show that by allowing it to circulate EVERYONE gets richer. Not everyone buys that theory due to the diminishing returns on investment as a percentage.

[MoValley John]

Yes, they consume now, they have very nice stuff, but their rate of consumption even now is a far less percentage of their income than it is for Joe Sixpack. The rich could simply reduce their tax burden by not participating in consumption and hoarding their money. A VAT tax would be regressive, possibly moreso than what we currently have.

I disagree here, your insight is too short term. Everybody dies. The hoarding rich old man will pass his money down to his children soon enough and it's well known that within a couple of generations the overwhelming percentage of the accumulated wealth will be lost.

I don't consider VAT and Fair Tax to be the same thing -- you mention VAT but ignore Fair Tax. Fair Tax is better in my mind because it wouldn't punish the inventor or the manufacturing industry.

In VAT the wealthy corporation owners would be taxed on asset aquisitions for their corporations (for example the jets they purchase for their businesses) -- so while they may be conservative personally, their corporations are paying a reasonable tax on those assets that takes their business forward. I'm not sure if that applies to Fair Tax though.

I understand three generations from the penthouse to the poorhouse, but the question remains, is, and more importantly, can the government wait three generations to receive what they believe to be rightfully theirs? When considering taxation, you have to consider the here and now.

And yes, the rich will always spend much more in sheer dollars than the "middle class" and poor. But as a percentage of income, they won't. And while a household of four with a $60,000 a year income will spend a vast majority of that $60,000 just to get by, a family of four with a $150,000 income will probably be socking away a much greater percentage of their income. So, if the $60,000 a year household spends 90% of their income just to get by, while the $150,000 household hopefully saves a meager 20%. In that scenario, a disproportionate tax burden would be levied against the lower wage earner. The higher income household would pay more in sheer dollars, but pay less less as a percentage of income. At that point, you are in the same boat as Buffett was complaining.

I don't know the answer to the "fair" tax question. I don't believe there has ever been a "fair" tax. Any tax will always hurt the poor more than the rich. I do believe that all taxes are regressive. That isn't absolutely a bad thing, either. Like it or not, taxes must be paid for the government to operate, and I don't care how much of a Libertarian you might be, we need the government. With that, I also believe we need taxes. But we are also being smothered by our government. For whatever reason, the government has taken over areas in which they don't belong and has made promises in the form of entitlements that they can't keep. The government keeps spending and spending, yet the solution presented will only reduce the deficit by less than 4%. With that, regardless of what tax system the government enacts and at what tax rates the goverment sets, the debt problem will continue.

When the President speaks of attacking the debt on two fronts, with tax increases and budget cuts, I can live with that. But when Warren Buffett chimes in for the President, and it is later revealed that the tax increases proposed don't make a dent in the problem, while at the same time the President and Congress can't find more than a small pittance to cut, we are in trouble. Big trouble.

The fact of the matter is this, the spending problem dwarfs any tax inequity problem. We could double the revenue the government takes in, we could really soak the rich, but as Warren Buffett's own numbers proved, it won't change anything. We are wasting time and efforts arguing over tax fairness. It is a diversion and a ruse. The whole soaking the rich fallacy simply riles up the middle and lower classes. It solidifies the Democratic base and is a rallying cry, all the while, we sink deeper and deeper in debt.

My challenge to the President would be this, raise taxes, but raise them on everyone. And sure, soak the rich. Raise long term capital gains to 25% and jack up the top marginal brackets. But for every dollar that the government raises in new taxes, they better be able to find at least a dollar in real cuts. Not baseline cuts, but real cuts. I could live with that.

On an aside, my wife and I have five children, five! All of our children go to private, Catholic schools, that again, is our choice. We do earn in excess of $150,000 and we do pay taxes. In all honesty, because of our deductions, I don't think we pay our fair share, but that is for another day. With five kids, our choice to have them in private schools and our income, we have to scrimp, save and work to get by. We do share in some luxuries, but these are also tough value choices. We don't drive new cars, we don't always have the latest gadgets and we don't eat out very often at all. I haven't seen a movie in a movie theater in over 10 years. And yes, we have had to make cuts, real cuts. I can tell you this, if the cuts we have had to make were "baseline" cuts, those cuts would be a heck of a lot easier to make. Congress finds it difficult to even make those tough baseline cuts.