POL: Tax rates and Buffett
 

Last week, Buffett made a statement that rich weren't taxed enough and the statement he made over the summer:

http://www.cnbc.com/id/19483842/site/14081545/
http://business.timesonline.co.uk/to...cle1996735.ece

Now, fellow billionaires are taking charge at him:

http://www.cnbc.com/id/21708265


I think his statements are misleading:

For example, we have two seperate two federal tax rates, one for income (which tops out at 35%) and capital gains (flat 15% for all assets held for at least a year).

His secretary may pay more because Warren only made $100,000 (give or take) in salary in his job last year. That is taxed as income.

Now, the rest of his $46 million-some income is either tax-free (bonds and such) or taxed as capital gains. Now, the capital gains is taxed at 15% (no matter the level of income or gains; this is flat for all Americans).

I agree with the rate for capital gains tax, because capital gains are investments and provide incentives for investors, entreprenuers, and such.

Instead of POL we need a Poll.

That is his point. That the capital gains tax rate is unfair because it allow the wealthy to be taxed at a rate much lower than the average taxpayer (especially when payroll taxes are considered, which are a negligible tax to the wealthy, but a significant tax on the poor and middle class). The wealthy earn most of their income from capital gains - the middle class doesn't because they don't have the money to invest on that scale to begin with. And I agree with him. There's no reason that income earned basically by sitting around on your ass should be taxed at a lower rate than income earned by actually working for it. The stock market is going to appreciate at healthy rate even if capital gains are taxed as ordinary income. That was another of Buffett's points.

Yep... and I agree with him. Capital gains should be taxed more. After all, it IS income, even if it comes from investments.

Tax capital gains more, and the rich will simply invest less. It's not really a desirable trade-off.

I'm guessing that the reduction in investment would not be all the much. Of course there would be, but I don't think to the level to you think.

Then why in the world would you advocate reductions in investments? Do you think the federal govt does not have enough money?

I don't necessarily disagree here, but, let me ask this. If the goal of the rich it to make more money by investing, where would they put that money if capital gains were taxed on a sliding scale rather than fixed rate? Would they decide not to invest and just put it into a low-yielding savings account?

Enough for what? Can you tell me what is enough?

It would make it easier to have tax cuts based on income for middle and low income households.

They are not going to invest less, and to the extent they do, the reduction in investment by the wealthy could be offset by tax cuts and investment and savings incentives for the middle class and poor.

In fact, I think it would not be a terrible idea to lower the capital gains tax for the first $25K or $50K earned, and then tax anything above that at the regular income tax rate.

They'd still invest some, of course, but a higher tax rate would of course, change the potential yield of any investment. You're simply going to take less risks when there's less to gain. When business ventures are more expensive, there's going to be less business ventures that succeed.

It's a classic debate, obviously. Does our society benefit more by having a hypothetical $1,000,000 with the government, or with the private economy? I strongly believe it's the latter.

Or does society benefit more by having a hypothetical $1Mil with the rich or $1Mil in tax benefits for the poor and middle ;).

And also it depends on what the government is doing with the $1Mil. If its for paying down the debt or national health care, I'd give it to the government.

Mighty big of you to be so giving with other people's money.

Indeed... someone needs to give the money of these freeloaders for all the benefits they recieve from crony capitalism system we have currently that they don't pay for. :p

With the rich.

I do like the first part of this proposal even if the rate of taxation for >$50k capital gains seems a little over the top.

Society benefit more? Are we in the Soviet Union? The lower the taxes the better! Rich or poor! If it's for national health care I'd give tax cuts to the people to make their own decisions! To pay down the debt, I'd tell the big spenders in Congress to stop the socialist programs and the neo-con President to stop the foreign intervention and you can pay down the debt without raising taxes! I can't believe people think that the government has to take care of them from cradle to grave. They're ecstatic to just hand over their money and say, "Solve all of my problems!" And that's what's wrong with this country.

"Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, "See, if it weren't for the government, you wouldn't be able to walk." -Harry Browne

Agreed.

This is similar the the gay discrimination discussion in that I feel like people try to boil the argument down into into simple terms, and frame the opposite view as something horrible. In this case, that simplistic view is "Poor and Middle Class need money more than rich people." Well, no shit (and no one disagrees with that, despite the implication of how the discussion is framed). That's not where the disagreement lies.

Wait... so only in the Soviet Union they cared about society benefiting more?! Are you on something? I guess the Founders of the US were Soviets... after all they believed that American society would benefit more as an independant republic.

If we shouldn't care about benefits to society why have a government at all?

The poor and middle class have a much higher marginal propensity to consume. I'd imagine an extra $1Mil in tax cuts would do better for the economy, in increased consumption, than the $1Mil in investments.

Wow. You obviously have no understanding of the beginning of this country. I guess the founders never stood up against an oppressive government and taxes like the Stamp Act. The Boston Tea Party never happened! They ousted the British and installed another opressive government! The founders were socialists? LOL! There should be a limited federal government and stronger state governments like the founders envisioned and like the Constitution tells us! Read the Constitution and some of the founders writings for more info!

And that was the combined sound of the wheels falling off the track on this thread as well as the whoosing noise made when one completely misses a point flying well over one's head (about the deeper issue of the limits of a social contract)...

SI

So none of that was for the benefit of American society?

I am highly, highly amused by this idea that if the founders were interested in improving their own society they've formed some form of oppressive, socialist government. That's... like completely insane.

Or as sterlingice alluded to... WHOOOOOSH!

I thought we were talking about the federal income tax. Taking something someone has worked for and giving it to someone else. The founders obviously didn't believe this was the job of the federal government so I don't see what your point is. I said that they envisioned a limited federal government with certain powers included in the Constitution. When you were talking about benefiting society, you were talking the federal income tax. If you want to say that they the Revolution was to benefit society and the individual colonists, fine, I agree with you. But that isn't what we're talking about here. They believed in a national defense and army, so yes this benefits society. That doesn't make them socialist does it? I fail to see how they are socialists like you say they were. That's...like completely insane.

Or as sterlingrice alluded to... WHOOOOOSH!

Considering how your "Soviet" response was to a post that was asking about whether society benefits more with a certain amount of money with the rich or rather with the poor though tax cuts (sorry, both wasn't an option here... pay attention), I'm not sure how you could have possibly come to conclusion that you did.

Benefitting society by taxes doesn't equal the Soviet Union. It never has and never will. How exactly do you think the early federal government paid for its expenses? You realize that tariffs are taxes, right? Or read up on the Whiskey Rebellion. So the question becomes is it better to take more of that tax revenue from the rich or from the poor. I'm not exactly sure how that makes one a "Soviet".

And, after all, the chant was "taxation without representation", not "taxation" ;).

The point of a capital gains tax is to encourage investment and entreprenuers (risk-takers of the highest order) who will create new products/services, advances in our civilization and new jobs and tax revenue.

However, what stops a middle class person from taking advantage of the capital gains tax and the tax-free incentives?

Our tax system is the one of the best in the world, and a major key to our success. In a global society, investors have the entire globe to look at. Tax rates are going to be more important. Look at Europe and Asia-Pacific. London is driving the growth of the UK due to tax system for wealthy foreigners. Monaco, Dubai, Switzerland and Singapore are making themselves more attractive to lure those foreign citizens with the bank accounts and businesses. What's to stop the wealthy people here from moving to other countries that offer more favorable tax rates? The reality is we can tax the rich people to death (which means you tax foreign companies and investors from investing in our country), but we will reduce foreign investment and American wealth in our country (and going out).

Why should a rich person, who took risks and created jobs, products/services, new tax revenue, be taxed more than a regular person working a regular job? If so, we need to adapt a "fairer" tax system that is fair to all classes (rich, poor, middle class). Either a flat or fair system could work. Under a flat tax, say it was at 20% on all income (regardless of type), everyone pays the same amount. The rich would still pay a higher amount of money.

It's not as if we leave poor people hanging out in the cold. We have plenty of social programs and services to assist them in education, health care, low-income housing and assistance).

The problem Buffett exposed is that right now, in addition to having an economic system that overwhelmingly favors the wealthy, we also have a tax system that gives preferential treatment to the wealthy. And it's not that hard to see how the tax system we have has created the situation where the middle class and poor have received very little of the economic gains over the past 25 years.

And as I said - it's not that the middle class can't take advantage of some of that, but rather the scale that the middle class is capable of doing so is so much smaller than the scale that the wealthy is able to do so that the effect on a middle class family's tax rate is negligible.

Buffett doesn't buy the "disincentive" factor, and he's probably the successful individual investor in the world. And I don't either. And I don't see why "risk" should mean a smaller tax rate on the reward when losses can be written off or offset with gains. That factor is already built into the income equation.

Ding ding ding. We have a winner.

And I don't really expect to stop resenting the hell out of every dime I'm taxed until we get to that point.

And for nearly the one-hundredth time I have to point out that if you take all forms of taxation we are very close to a flat percentage rate already. A flat federal income tax will end up meaning a highly regressive total tax burden.

Galaxy: A 20% flat tax wouldn't come close to balancing the books. Even if you favor the concept of a flat tax you should realize that the rate would need to be near 30% to make it revenue neutral.

One thing to consider, you can do a tax distribution change without changing spending (in theory anyway), instead of raising taxes and raising spending, we could change distribution of that tax and fix (or even decrease spending).

As one of the articles states, the top 1% end up paying 50% of all taxes. Say the average rate comes out to 20% for each guy. Say everyone else splits the rest currently.

The simplest thing to consider, bump their taxes to 40% each. 100% of all taxes we currently collect now would be paid. This means that the other 99% of Americans could simply stop paying taxes at all, and if spending was fixed the budget balances out.

That is a bit extreme of course, but some other numbers:
Go from 20% to 30% on the top 1%: Other 99% cut their taxes in half.
Go from 20% to 25% on the top 1%: Other 99% pay one quarter less in taxes.

If you crunch your own tax numbers you are probably paying at least 30%. Would your life change dramatically from having 15% of your income or 8% returned to you?

For me personally, that would be the difference between entering that 'investor/entrepeneur' class in 5 years instead of 10 years.

Last year I was a WalMart wage slave on the verge of complete breakdown. This year I have my first patent on the way and I was involved in the most successful release my company has ever had. Big capital will always have an incentive to play the game, whether you change their marginal tax rate by 1% or 10%, they are not leaving the table (and as it is I don't see why they haven't bailed the country already if they are looking for tax havens, already they out compete us in rates so they will probably move no matter what we do...)

A change in tax distribution will either lead to a consumption boom (if you assume all the lower and middle class people are just mindless consumers) or it will free up inventive/ambitious minds to get out of the economic dead zone faster and become the leaders who will generate new industries that give people jobs. Big capital will win out by having more quality investments available to put their money behind. Everyone wins.

I was just using 20% as an example. Of course, if we reform a lot of our programs and cut spending, we could fix a lot of things.

What's to stop them now? Already there are plenty of Carribean tax havens that offer little to no taxes.


First thing, just because the rich person took the risks, doesn't mean his or her kids did.

Secondly, the system that is in place has allowed the person to make their fabulous wealth. Without such a pro-corporate system, it is unlikely that so many would be able to do so well (for comparison see the almost anarchical systems in certain countries in sub-saharan Africa). So why should they? Because they've benefited from the system that's been set up and won't exactly feel much hardship if their taxes are raised a small percentage... allowing for a better way of life for the less fortunate and a more stable society (plenty of the rich are well aware that if the disparity between rich and poor grows too much, the seeds of revolution are planted).

So wealthy people are heirs? A lot of the wealth is new money. Plus, the estate tax wacks them hard (another issue).

I guess it comes down to how we view "fairness" in our country and how we view the role of the government and it citizens.

Actually, in regards to tax havens, we are the only country that taxes all of it citizens, regardless of residency. I think the only way to get around is by gaining citizenship of another country.

IMO a lower capital gains rate only makes sense with an estate tax. That way the investment income is eventually taxed and it discourages huge accumulations of wealth that create a defacto aristocracy. I think there's a decent argument for a cut in capital gains rate so long as the estate tax balances things in the end.

For me, though, none of this is as important as an overall simplification of the tax code. I'd be in favor of cutting most deductions and credits, but I'm also cognizant enough to know that isn't going to happen.

There are plenty of wealthy people who are heirs. I mean that money has to go somewhere ;). Estate tax doesn't take all of it.

Yes, in the end, it may just be a base philosophical difference. Though, contrary to most instances, it appears you and I can discuss it rationally which appears to be a rare commodity these days :D.

I believe some European countries also taxes citizens regardless of where they may live (with offsets, of course), but for people with a lot of money, being a citizen of, say, Jamaica is no big deal. Easy enough to get a long term visa.

It's wrong to look at this as a society benefits vs. rich dudes benefit issue because society actually benefits more if the rich dudes benefit in many cases. Tax rates, and capital gains rates in particular, can't be looked at as though government tax revenue simply increases with an increase in the tax rate. A low capital gains rate encourages investment and with more investment that 15% is a piece of a much larger pie. Tax at 50% and government revenues will probably decrease because many investments are no longer worth the time, energy, or risk associated with the decreased returns. Government revenues increased with the Reagan tax cuts for just this reason, incentivizing investment and activity through lower tax rates can drive government tax revenues higher and higher.

But it's obviously very difficult to peg the perfect rate to maximize tax revenues, and there may be a strong argument that it could use a little bump. My major objection to what's being said would be that money is flowing from, in the case of Buffett, an intelligent, efficient, and generous man capable of driving social change through business investment or charity and into the hands of the inefficient, ineffective, and politically motivated bunch of morons in our government. I'd rather he just continue to do the good work he's doing with his money through the Gates Foundation and others than watch it flow to idiotic earmarks and bureaucratic waste.

+1

But there are those still advocating giving even more more money to the federal govt in the delusional hope that, somehow, they would learn to do better despite the monumental amount of evidence to the contrary.

The evidence that a revenue-neutral reapportionment of tax rates so the rich aren't getting the huge windfall they're getting in the form of lower taxes relative to the rest of us is zero. A tax hike on capital gains combined with a middle class tax cut will help the middle class and have no significant impact on the lifestyles of the wealthy.

I agree with that. More than anything else, tax changes do affect behavior and that's where a lot of people trip up (in assuming that an increase in taxation = increase in revenues with all else being equal). I want less revenues coming into Washington and definitely want less expenditures coming out. However that happens (i.e., in adjusting the tax code) are just details. But it is funny that "tax cuts for the middle class" is now an established mantra whereas in the past (among Big Govt types), any kind of tax cuts are evil.

Rearrange the tax rates with a few percentage point bump on the rich and a 10% drop for everyone else, keep revenue neutral.

Then tell the top 1% they can get a tax cut if the government reduces spending. Give the whole difference to them, I wouldn't care, I'll be happy with my 10% reduction off the top.

They've got the political muscle and lobbying, if they have an increased stake in the marginal rate of spending of the government I'll bet you they'll lobby like hell to get it reduced.

A 5% increase in capital gains is not going to push investors into the red. Especially if there is a consumer spending boom associated with 200 million plus people becoming 10% richer, stocks would probably jump for all we know.

The issue I have with Capital Gains and the estate tax, for that matter, is the stifling affect on middle class folks who have invested wisely or have built up a bit of personal wealth. My parents bought a building in the 60s. They ran a furniture store and rented offices out of that building for thirty years. They are now at a point where they want to sell their building, and completely retire. They have invested their life in that building, and to think that capital gains taxes could take a relatively huge portion of it, doesn't strike a positive chord with me. The same for people who stretched to buy a second home as an investment. To think that they might lose half or more of their investment income to a tax just doesn't seem right. I feel the same way about the estate tax. Having the government take a big chunk of taxes out of property and assets that have been taxed while they were originally earned or purchased, doesn't make much sense to me.

So while I agree that folks like Buffett and those a lot less wealthy than him could stand to pay more in taxes without any significant impact on their lives, I do have a problem with the level that many folks are willing to set that minimum income that triggers a higher rate.

But much of their earned appreciation hasn't ever been taxed. To say that an estate tax is double taxation isn't accurate. If they invested 100k and sell for 1mil there should be a tax on that 900k profit.

The same goes for the estate tax. It's designed to eliminate huge accumulations of wealth from generation to generation. I'm fine with bumping the cap to say 5mil so that it won't effect those families that are just becoming wealthy, but doing away with it ends up further entrenching wealth in the hands of a smaller and smaller number of families.

i don't mind taxes - advanced civilizations don't run on hopes and dreams, they're fueled by dollars and cents. i do, however, i mind where my tax dollars go. i wish we could simply designate what our tax dollars pay for. i don't want my tax dollars going towards the military. it costs too much to be world police. i would rather designate my tax dollars towards education and paying for law enforcement. another person could maybe earmark his tax dollars towards improving roads and healthcare. i think that's the best way to determine how big of a role we play in the world. i think people in the Middle East should rot in a slow death - insurgents, women and children alike. that entire region is a plague on humanity. i don't like knowing my tax dollars are funding this war, i would feel better being taxed knowing i could dictate exactly where my money went to. that would also prevent us from living under the monarchy we live in now (yes, this is a monarchy. "president", "king" - it's all the same). the will of the people is not heard, we have no way of influencing how our country is run. we don't even directly vote for our president.

Who's going to pay for judicial salaries and pot hole repairs?

Problem is, cutting income taxes on the middle class and such is only a short-term boost. What do the majority of Middle-to-lower Americans do with tax refunds? Spend it. Which is good for the economy, but explains why Americans in general have little to no savings and debt. You need someone to push the carts.

You make money in life, maybe not a Bills Gate or worth hundreds of millions of dollars, but you can do regardless if your middle class, poor, and wealthy. You just need to make wise decisions as to what you want to do in life (getting married and having children, starting a decision, going to college, what you buy and what you save/invest). I just don't why wealthy people are punished for making decisions that requires to put a lot on the line and a long pay-off.

I hope we move towards a more, fairer tax reform (a Fair Tax system is what I want, but that's for another debate). However, any tax reform is useless without getting change in Washington on spending.

And watch the wealthy flee.

To mean, an estate tax is basically a government holding a gun to your head and saying, "Give me half!". No one sold those assets.

I know this was probably a flippant post but I'll answer. Simplistically put, the majority of govt services should be handled by the local jurisdiction. Therefore, that's where majority of the tax dollars should go. There are many services that should be handled by the state and that's where the next sizable portion of the dollars should go. What's left is not a whole lot, as per the Constitution, and therefore the smallest percentage of our dollars should go to the feds.

You might counter that there would be some poor areas thus, poor local services. Well, despite all of the powers we have allowed the feds (not to mention the tax revenues), we still have poor areas with poor local services.

What probably makes me more angry than any other issue relating to federal powers is how they extort and blackmail the states because they have the expenditures to dole out to them. It should not be that way. We, as citizens, can have more control and accountability if our dollars are kept more locally.

Galaxy: You're right, but I believe it is in society's best interest to limit how much wealth gets accumulated in a few hands. The estate tax effects very few people and is designed to put a small brake on the development of a de facto aristocracy.

Buc: I was responding to HA. If we all get to choose where our tax dollars go the unsexy, but absolutely necessary things wouldn't get paid for. Nobody is going to check "national debt service" on their tax form.