Buffett: Raise Taxes on ‘Coddled’ Billionaires

[wautd]

When even billionaires are pointing out how criminally insane the current Bush tax cuts are

Buffett: Raise Taxes on ‘Coddled’ Billionaires

Billionaire Warren Buffett urged Congress to raise taxes on the nation’s wealthiest individuals to help cut the U.S. budget deficit, saying it won’t inhibit investment or job growth.

“My friends and I have been coddled long enough by a billionaire-friendly Congress,” the chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A) wrote in an opinion article published in the New York Times. “It’s time for our government to get serious about shared sacrifice.”

Buffett’s advocacy of higher taxes for the “mega-rich” may reinforce President Barack Obama’s call for an end to tax breaks for corporate-jet owners. In the op-ed, the 80-year-old investor said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him and on his behalf, was $6,938,744.

“That sounds like a lot of money,” Buffett wrote. “But what I paid was only 17.4 percent of my taxable income -- and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”

A 12-member panel, formed in the Aug. 2 law that raised the nation’s debt ceiling and averted a possible default, is charged with finding $1.5 trillion in budget savings.

Democratic Representatives James Clyburn, Chris Van Hollen and Xavier Becerra will join Republican counterparts Dave Camp, Fred Upton and Jeb Hensarling. The Senate team includes Republicans Jon Kyl, Pat Toomey and Rob Portman and Democrats Patty Murray, John Kerry and Max Baucus. Murray, of Washington state, and Hensarling, of Texas, will be co-leaders.
Millionaires

Buffett said that for those making more than $1 million -- there were 236,883 such households in 2009 -- he would raise rates immediately on taxable income in excess of $1 million, including dividends and capital gains. For the 8,274 taxpayers who made $10 million or more, he said they should get an additional increase in the rate.

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” Buffett wrote.

He cited Internal Revenue Service data showing that the tax burden on the nation’s wealthy had fallen for the past two decades.

In 1992 the top 400 American earners had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that amount, he wrote. In 2008, while the aggregate income of the highest 400 had soared to $90.9 billion, the rate paid had fallen to 21.5 percent.
Hiring, Investment

Buffett said the notion that high taxes discourage hiring and investment is false.

“I have worked with investors for 60 years and I have yet to see anyone -- not even when capital gains rates were 39.9 percent in 1976-77 -- shy away from a sensible investment because of the tax rate on the potential gain,” he said.

“People invest to make money, and potential taxes have never scared them off,” he said. “And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”

The U.S. unemployment rate has averaged 9.5 percent in the past two years, dropping to 9.1 percent in July from 9.2 percent a month earlier, a government report showed Aug. 5

Really, if taxing was done fairly in the States for the super rich and the big companies for the last few decades, there'd probably be no budget crisis or increased poverty in the States.

[Knife]

While I agree we should tax them and corporations more, I doubt that if we have had taxed them higher rates, we'd not have the fiscal problems we have now. I don't see the congress critters of the last couple decades spending less just because the revenues were higher.

[JME2]

While I agree we should tax them and corporations more, I doubt that if we have had taxed them higher rates, we'd not have the fiscal problems we have now. I don't see the congress critters of the last couple decades spending less just because the revenues were higher.

Agreed; the influx of larger revenue would not have stopped the wild spending.

But Buffet's right; this coddling has gone on long enough.

[Darth Wong]

While I agree we should tax them and corporations more, I doubt that if we have had taxed them higher rates, we'd not have the fiscal problems we have now. I don't see the congress critters of the last couple decades spending less just because the revenues were higher.

They wouldn't have spent less, but the deficits would have been smaller, so the debt would not be as large, and the country would have more breathing room for economic stimulus to lessen the effects of the economic downturn. You would indeed not have quite the fiscal problems you have now.

Mind you, I don't see how this is news. Warren Buffet has been blasting America's "coddle the rich" tax policies for years.

[Simon_Jester]

Also, we'd have had more years of surplus during the 2000-2010 period, which would improve the US government's credibility when it says "we're going to bring the deficit under control and pay off the debt." At the moment, creditors look at the US and see a nation which hasn't seriously tried to pay off debt since the '60s, except for about one year in there before tax cuts ate up the surplus.

That doesn't help.

[TheHammer]

Personally, I'd like to see them cut the corporate tax rate, but also close the tax loopholes that companies are using by shipping cash and resources to overseas subsidiaries and thus disincentivize the practice of moving corporate HQ's to foreign soil. Combine that with a modest tax hike on the rich and I think we'd have a winner.

[Simon_Jester]

Why cut the corporate tax rate?

[Starglider]

Corporation tax is regressive, in that a pensioner holding five shares pays it at the same rate as a wealthy investor holding millions of shares. The notion that you 'tax corporations' is somewhat misleading in that you are actually taxing profits available for distribution to shareholders, i.e. shareholder income. Capital gains tax is a much more appropriate tool for wealth redistribution, although it is a little harder to make it apply to foreign investors than corporation tax.

[TheHammer]

Because as it stands now the rate itself is too high - 2nd highest in the world. So corporations go to great expense to find loopholes, which often lead to moving their corporate HQ's offshores. That's how companies such as GE end up paying like 3% corporate income tax. The thing is, that smaller corporations who can't afford to move off shore are the only ones paying their fair share so they are basically getting fucked over by higher tax rate. If they happen to be a smaller competitor against a multi-national corporation they are put at a big disadvantage.

The thing is, many of these corporations would prefer the stability and resources that being located in the U.S. provides. So you level the playing field by lowering the corporate tax rate, and closing the loopholes that overseas companies currently use. That provides the incentive for companies who have their HQ's overseas to move operations back here - bringing their money with them so you're drawing from a bigger total revenue pool. Corporate profits are double taxed anyway - once as corporate income tax, and any dividends as individual income tax on shareholders. So you can make up additional revenue on the backend via a modest tax increase on the wealthy.

[Soontir C'boath]

Why not just close the corporate tax loop-holes and be done with it?

[Simon_Jester]

If I understand the argument, because closing the loopholes imposes a regressive tax on shareholders according to Starglider. I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of; taxing corporate profits would cut into shareholders' income, but much corporate profit isn't distributed to shareholders and is instead reinvested or used to buy back public stock.

[Uraniun235]

Additionally, there are corporations which do not even pay dividends; Buffett's own Berkshire Hathaway is one such example, and if I remember right so is Apple.

[TheHammer]

Simply closing the tax loopholes is likely to meet stiff opposition from corporations and their armies of lobyists. If you can couple closing loopholes with a corporate tax cut, then you would encourage companies to keep and or move their operations back stateside - something they already want to do. It will also provide incentive for investment. Its a move other countries (such as Canada) are already making.

[TheHammer]

If I understand the argument, because closing the loopholes imposes a regressive tax on shareholders according to Starglider. I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of; taxing corporate profits would cut into shareholders' income, but much corporate profit isn't distributed to shareholders and is instead reinvested or used to buy back public stock.

If its used to buy back public stock, isn't it then subject to capital gains and thus taxed? As for reinvestment, wouldn't that be a good thing? Something that actually does lead to more jobs and growth for the economy?

[Skgoa]

If you sell your stock, you get taxed for the profit, if that was your question. One thing many big companies do in the event they have a heap of money lying around, is investing in other things than their core business. I.e. they act as lenders/investors on the market. Or if they management/board can get away with it, they pay themselves outragous bonuses.

If I understand the argument, because closing the loopholes imposes a regressive tax on shareholders according to Starglider. I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of; taxing corporate profits would cut into shareholders' income, but much corporate profit isn't distributed to shareholders and is instead reinvested or used to buy back public stock.

As the shareholder you pay tax on the dividends you get, while the share instantly looses the exact same price as the amount payed per share was. (At least thats the way it is over here.) So it doesn't really make sense to pay out dividends in the first place. Its only done because some idiot investors actually see it as an incentive to buy a specific stock.

[Alyrium Denryle]

I would be seriously amused and impressed if he directed massive campaign contributions to those who attempt to increase his own tax rate. Right now, he may blast the coddling congress, but he ought put his massive piles of money where his mouth is, if he is not already.

[Knife]

While I agree we should tax them and corporations more, I doubt that if we have had taxed them higher rates, we'd not have the fiscal problems we have now. I don't see the congress critters of the last couple decades spending less just because the revenues were higher.

They wouldn't have spent less, but the deficits would have been smaller, so the debt would not be as large, and the country would have more breathing room for economic stimulus to lessen the effects of the economic downturn. You would indeed not have quite the fiscal problems you have now.

Mind you, I don't see how this is news. Warren Buffet has been blasting America's "coddle the rich" tax policies for years.

Welcome home boss.

Well, I think the situation is way more complicated than just that, as I'm sure you think too, that just raising the tax rate wouldn't be the cure all. Collecting trillions over the years from super rich to balance out trillions in tax cuts they get doesn't balance out raiding the SS fund, or a decade of two wars. The government might be in a better position but would the economy as a whole? I don't know. To many factors to consider for a simple answer, makes my head spin.

[TheHammer]

If I understand the argument, because closing the loopholes imposes a regressive tax on shareholders according to Starglider. I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of; taxing corporate profits would cut into shareholders' income, but much corporate profit isn't distributed to shareholders and is instead reinvested or used to buy back public stock.

As the shareholder you pay tax on the dividends you get, while the share instantly looses the exact same price as the amount payed per share was. (At least thats the way it is over here.) So it doesn't really make sense to pay out dividends in the first place. Its only done because some idiot investors actually see it as an incentive to buy a specific stock.

Actually it would seem to me that the idea of buying stock is the hope that some day it starts paying out a dividend. After all, investors aren't paying all that money simply for bragging rights of holding X number of shares. The fact that Apple doesn't pay a divident currently is a point of contention among stock holders http://www.ibtimes.com/articles/98718/2 ... vidend.htm. A profitable, growing company is generally given more leeway in that regard, but on the other hand share holders generally don't like to see their corporations simply sitting on a pile of money.

[Starglider]

I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of;

Probably because you are thinking of startups, tech companies and pump and dump scams of the sort that the financial media love to sell sucker retail investors on. Mature companies such as utilities and resource extraction do pay dividends, although with the steading morphing of stock markets into (rigged) casinos this has been downplayed.

but much corporate profit isn't distributed to shareholders and is instead reinvested or used to buy back public stock.

Reinvestment is not taxed at all, at least when you do it in the same country; corporate accounting is a very complex subject but essentially the new investments are are costs that you can use to offset revenues and reduce either immediate or future tax liability. Stock buybacks cause appreciation which is covered by capital gains tax.

As the shareholder you pay tax on the dividends you get, while the share instantly looses the exact same price as the amount payed per share was. (At least thats the way it is over here.) So it doesn't really make sense to pay out dividends in the first place. Its only done because some idiot investors actually see it as an incentive to buy a specific stock.

It is really quite sad that in this supposedly liberal 'anti-fat-cat' community, so many still parrot propaganda from financial elites verbatim, as if these insidious non-sequiturs were 'common sense'. If companies never pay dividends, the only exit strategy available to investors as a whole is buyout (merger or private). If this fails to occur the company will eventually go bankrupt and when it does shareholders almost always get nothing. Implanting the notion that 'dividends are worthless' in public perception has been an absolute coup for senior executives and board members, as it is now much easier to pad their salaries to ludicrous amounts and go on empire-building acquisition sprees of highly dubious economic value. It removes the ability for long-term investors (e.g. pension funds) to invest in liquid instruments with relatively safe and steady cashflow, forcing them to either take high risks betting on price appreciation (and getting fleeced by banks, exchanges and hedge funds) or into bonds with artificially low interest rates. I have some professional contact with people who are employed to make you (or rather your pension fund manager) believe things like 'dividends are pointless', and believe me they are laughing at you.

[Simon_Jester]

I'm not sure I buy that, though, since dividends aren't a major source of income for most stocks I know of;

Probably because you are thinking of startups, tech companies and pump and dump scams of the sort that the financial media love to sell sucker retail investors on. Mature companies such as utilities and resource extraction do pay dividends, although with the steading morphing of stock markets into (rigged) casinos this has been downplayed.

Yeah, that's kind of my point. Retail investors aren't, by and large, getting all that much in the way of dividend checks these days, unless I'm badly mistaken. If the bulk of the dividends go to fat cats, then dividend taxes (and by implication profit taxes) aren't all that regressive.

On top of that, even retail investors are mostly members of the middle and upper class, not the lower; this further limits the regressive nature of the tax when compared to a sales or gasoline tax.

Still better to tax capital gains than profits, and maybe to pressure companies to start paying dividends again if possible. But I don't know if it would make as much difference as I thought you were saying earlier.

I have some professional contact with people who are employed to make you (or rather your pension fund manager) believe things like 'dividends are pointless', and believe me they are laughing at you.

That, too, was pretty much what I had in mind...

[Stark]

The article illustrates for me the amount of indirect taxation you guys get. The US income tax might be low, but a mean of 36% tax isn't really that much lower than Australia, where the top bracket is 48% and only the very rich will get that on more than a very small amount of their income. I'm actually very surprised that even the wealthy professionals Buffett works with pay such a large proportion of their income as tax.

Is American tax law more easily evaded than other countries?

[Chirios]

Seems to me like Buffet is the exception. Most American billionaires don't agree with him.

[Nieztchean Uber-Amoeba]

The article illustrates for me the amount of indirect taxation you guys get. The US income tax might be low, but a mean of 36% tax isn't really that much lower than Australia, where the top bracket is 48% and only the very rich will get that on more than a very small amount of their income. I'm actually very surprised that even the wealthy professionals Buffett works with pay such a large proportion of their income as tax.

Is American tax law more easily evaded than other countries?

The American tax code is probably some of the most byzantine legislation that still exists on this planet. And thus, yes, evasion by loopholes or laundering shenanigans is significantly more possible than it is in most countries.

There is a reason why solely closing loopholes would put a large dent in the deficit, and it's the same reason why the idea of a flat tax is still very popular in America - because its tax laws are a Kafka-esque, convoluted monster, such that Gordian Knot solution like a flat tax might actually be an improvement on the current state of things.

[Covenant]

The article illustrates for me the amount of indirect taxation you guys get. The US income tax might be low, but a mean of 36% tax isn't really that much lower than Australia, where the top bracket is 48% and only the very rich will get that on more than a very small amount of their income. I'm actually very surprised that even the wealthy professionals Buffett works with pay such a large proportion of their income as tax.

Is American tax law more easily evaded than other countries?

In a lot of ways, yeah. Even my small little company shielded most of it's company taxation by filing in specific ways. For people who make lots of individual income, there's ways to shelter income and shuffle the money around so the problem is that our taxes are still fairly hefty to the upper middle class folks but the people ABOVE that can get away with basically paying nothing in taxes at all if they're clever and feel like doing the skullduggery. I don't know the specifics because I don't have that kind of money to hide, but yeah, a friend of the family is going to be buying land in Argentina or something as a way to shield his and his company's revenue from taxation.

[Starglider]

Yeah, that's kind of my point. Retail investors aren't, by and large, getting all that much in the way of dividend checks these days, unless I'm badly mistaken. If the bulk of the dividends go to fat cats

Overally they do, but that's just because the wealthy own a disproportionate amount of stocks full stop. Once we allow for that, dividends are actually a far better means of return for smaller investors, either directly (retail) or through their pension funds, because they lack the insider information (now rebranded as 'expert networks') to make the real money in price appreciation (i.e. a killing on pump-and-dump scams). In aggregate small investors are the 'dumb money' that is always late to the game; they miss the most lucrative bit of the runup and takes more losses on the downside. Dividends are far harder for corporate financiers to fleece and of course that's why they're trying to convince investors that they're not necessary. It also slots right into the infinite growth delusion that has done so much harm; 'no need for dividends, the value of all stocks will grow forever!'.

Note; for small private companies dividends have a very different role and are a key part of various 'tax minimisation' schemes. The ethics and legalities of those are a seperate discussion.

On top of that, even retail investors are mostly members of the middle and upper class, not the lower;

What happened to all the agnst about the death of the American middle class? Or when enough people drop out of it is it ok to envy-hate the remainder? Regardless, see above about dividends from mature companies being traditionally the best way for pension funds to have secure earnings.

But I don't know if it would make as much difference as I thought you were saying earlier.

Frankly, almost everything we can practically do about the global financial system at this point is moving deckchairs on the titanic, so in that sense yes it won't make that much difference.