Is Obama's Warren Buffett Tax Proposal Fair and Effective?

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In summary: Obama's "Warren Buffet? Tax" Some analysis from CNN (video):We've had a number of discussions about Warren Buffett's 'my secretary pays more in taxes than me' claim and as far as I can tell, we always at least agreed about what he was talking about: he's combining the federal income tax with the payroll tax. But the analysis from CNN above shows an oversimplified graphic of a person making $50K a year and being in the 25% bracket vs a person who makes $1 million a year via capital gains
  • #1
russ_watters
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Obama's "Warren Buffet? Tax"

Some analysis from CNN (video):

http://www.cnn.com/video/#/video/bestoftv/2011/09/19/current-tax-structure-fair-to-all.cnn?hpt=hp_t2

We've had a number of discussions about Warren Buffett's 'my secretary pays more in taxes than me' claim and as far as I can tell, we always at least agreed about what he was talking about: he's combining the federal income tax with the payroll tax. But the analysis from CNN above shows an oversimplified graphic of a person making $50K a year and being in the 25% bracket vs a person who makes $1 million a year via capital gains and pays 15% -- and these are compared as if the person making $50K actually pays 25% in taxes instead of that just being the marginal rate and the average rate being much less (perhaps even zero after deductions).

Clearly, the graphic is wrong in its apples to oranges comparison, but for people who make $75-$100k who don't have mortgages or kids, it may be true that they pay a higher than 15% average rate.

So what does this proposal by Obama actually mean? First, is he really referring to just the federal income tax or the mixed-together income and payroll tax rate we always assumed Buffett was talking about? And second, how exactly does he propose to fix this inequity? By eliminating the payroll tax cap (income >$105k doesn't get payroll-taxed)? By increasing the capital gains tax rate? By hiking the upper marginal rate? Well apparently (according to the WH press secretary in the video), he's not even going to tell us what he's talking about much less how to do it: it is up to Congress to figure it out. We've also had threads about Obama's lack of coherent plans, but wow. :bugeye:
 
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  • #2


I had a long discussion over the weekend regarding the "fairness" aspects of taxation. It seems the most popular argument at this point is that working people (somehow) pay a higher percentage of taxes than business owners because of payroll deductions. In response - my argument (as a small business person) is that's CRAP for 2 reasons; 1.) the employer pays matching taxes, and 2.) the Medicare, Social Security, and Unemployment components all benefit the employee. Further, the employer pays workers comp.
 
  • #3


As for the Buffet tax - before anyone raises the capital gains rates somebody better consider the consequences to markets and investors - 401K's, pension funds, and institutional investments (insurance). How fair will it be to a teacher if their pension fund loses 50% due to an end of the year panic-driven sell-off?
 
  • #4


I thought the main way he was going to increase revenue was by limiting deductions so everyone making over $1mill had an effective tax rate of at least a certain percentage - that's the so called 'Buffet Tax' as far as I understand it.
 
  • #5


mege said:
I thought the main way he was going to increase revenue was by limiting deductions so everyone making over $1mill had an effective tax rate of at least a certain percentage - that's the so called 'Buffet Tax' as far as I understand it.

David Brooks made an interesting comment today:

We’re not going to simplify the tax code, but by God Obama’s going to raise taxes on rich people who give to charity! We’ve got to do something to reduce the awful philanthropy surplus plaguing this country!
 
  • #6


I think raising the capital gains tax rate probably could raise revenues, but you would want to probably do that only under two circumstances:

1) A guarantee that the government will not just increase spending (or at least not beyond what it should, as it probably has to increase it some year-after-year as the economy grows) and instead, if not working to cut spending, at least try to keep it controlled

2) Do it during a healthy economy, not a weak economy

The capital gains tax is tricky, because initially, raising it tends to reduce revenues and lowering it tends to increase revenues. However, long-term, lowering it will tend to reduce revenues, and raising it can increase revenues.

The other thing I am wondering is if Buffett is really talking about dividend taxes when he talks about his income. His actual income is only around $100K a year, the majority of his income is from the dividends his company, Berkshire-Hathaway, pays out each year, or capital gains (I would think most from dividends though). If so, this is a bit misleading, because a corporation is already taxed at the corporate tax rate (its profits are taxed at the corporate tax rate; the top marginal corporate tax rate is 35%). For owners of a company, the shareholders, if they are paid via dividends, then after the corporation that they own pays the corporate tax rate, they the shareholders then must pay a dividend tax rate. The dividend tax rate used to be tied to the income tax rate, but now it is tied to the long-term capital gains tax rate, which is 15% (0% for people in the bottom ordinary income tax brackets).

In addition, corporations also must pay taxes on their own investment income (corporations invest in the markets and make money from the dividends paid by other corporations and so forth as well). When combined with the corporate tax rate and the dividend tax that shareholders must pay on distributed dividends, this amounts to a triple tax. While investors have their dividend tax tied to the long-term capital gains tax right now (and pre-Bush tax cuts dividend taxes were tied to the marginal income tax rates), the tax on a corporation's dividend income is tied to the corporate tax rate (the highest marginal rate being 39% (the corporate tax rates are weird in that the marginal rates go all the way up to 39% for smaller corps, then down again to 35% for the bigger ones)). Because of all this and how it amounts essentially to a triple tax for the shareholder, the law exempts 70% of the corporation's dividend income from being taxed, so the corporation only has to pay corporate tax on 30% of its dividend income.

So when Warren Buffett says he is paying "15%," what he's really paying as an owner of the company is the profits of the corporation taxed at the corporate tax rate, plus 30% of the corporation's dividend income taxed at the corporate tax rate, plus the 15% tax on the dividends then paid out to the shareholders (that 15% will align with the marginal income tax rates if/when the Bush tax cuts expire).

So unless Buffett's company utilizes all the loopholes to get out of paying corporate taxes as GE does (this would interesting to check), it's a bit mis-leading of him to say he pays at a 15% rate. He pays at more than that. If his company uses no loopholes, it will pay a corporate tax rate on its profits of 35%, a rate of 35% of 30% on its dividend income if high enough (which I think it is), and then the 15% on the dividends it pays to Buffett.

If the Bush tax cuts expire, the long-term capital gains tax rate will go back to 20%, the highest marginal income tax rate will go up to 39.6%, and dividend tax rates will re-align with the marginal income tax rates.
 
  • #7
mege said:
I thought the main way he was going to increase revenue was by limiting deductions so everyone making over $1mill had an effective tax rate of at least a certain percentage - that's the so called 'Buffet Tax' as far as I understand it.
Hmm. Hadn't considered that. The CNN article I linked in the other thread implied it was going to be a separate thing, different from the deduction reductions and rate increases he was proposing.
 
  • #8


As usual - IMO - Obama is fuzzy and gray on the details and the math. NPR seems to think the increases will be in capital gains.
http://www.npr.org/2011/09/19/140599307/does-buffett-rule-add-up-for-obama-deficit-plan

"The Bush-era tax cuts lowered the top-level income tax rate, and they also lowered the tax on capital gains, which includes sales of assets like stocks or businesses. That rate is now 15 percent.

An analysis of IRS statistics shows that households earning near the national average — in the $40,000 to $50,000 range — get the vast majority of their income from wages. Those who bring in more than $1 million a year get only about one-third of their income from wages.

Williams says the rich tend to get more of their money from capital gains and dividends.

"The average tax rate at the very top end is about 29 percent at the federal level, but there are a lot of people like Warren Buffett who pay a lot lower tax rate on their total income than do working Americans," Williams says.

Not Enough For The Deficit

But Williams points out that more heavily taxing CEOs, celebrities, sports stars and hedge fund managers isn't the answer to the nation's deficit woes — not even close.

He put together an estimate based on a tax rate that's so high it probably would never happen — 50 percent — and says that if you taxed all income above $1 million at that rate, you'd only get 10 percent of what most experts say is needed to tackle the nation's deficit.

Alan Viard, a resident scholar at the American Enterprise Institute, says the president is making a mistake by putting a focus on taxing millionaires."
 
  • #9


USA Today said:
Headline: Fact Check: Most Wealthy Citizens Pay More Taxes
The President touted a "Buffett rule", but the data says most millionaires pay a higher tax rate than their secretaries.

President Obama says he wants to make sure millionaires are taxed at higher rates than their secretaries. The data say they already are.
http://www.usatoday.com/money/perfi/taxes/story/2011-09-20/buffett-tax-millionaires/50480226/1

That's quite a slam coming from a news outlet that isn't Fox. Now unlike CNN, USA Today's analysis includes the payroll tax. The bottom line coming from that starting assumption is most millionaires pay a higher rate than most of those in the middle class - and by quite a wide margin.
This year, households making more than $1 million will pay an average 29.1% of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay an average of 15% of their income in federal taxes.
Buffet was also talking about income+payroll taxes, since he gave tax rates for his employees that were higher than the marginal rate:
...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."
http://money.cnn.com/2011/08/15/news/economy/buffett_taxes/index.htm

So why the discrepancy? Two reasons, both of which should be pretty obvious:

1. Buffett isn't the typical millionaire. He's much, much richer.
2. Buffett's staff isn't made up of middle class Americans, it's made up of wealthy Americans.

Apparently, CNN didn't get this. But the more important question is still open: Does Obama? Well if he does, he's not telling...
 
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  • #10


Vanadium 50 said:
David Brooks made an interesting comment today:

Can we even simplify the tax code at this point? It doesn't seem like anyone has the political capital to do it.
 
  • #11


Char. Limit said:
Can we even simplify the tax code at this point? It doesn't seem like anyone has the political capital to do it.

I think I read somewhere that there was a simplified book on the US Tax code or something, and it was more than a thousand pages long.
 
  • #12


Did President Obama misunderstand Warren Buffet? my bold

http://abcnews.go.com/blogs/politic...-buffet-rule-should-apply-only-to-ultra-rich/

"Billionaire investment tycoon Warren Buffett, who has become the unwitting mascot of President Obama’s deficit reduction plan, is less than thrilled with one of the plan’s main provisions: the millionaires’ tax, or as it’s come to be known, the ”Buffett Rule.”
In an interview with Bloomberg Television today, Buffett said he did not support the president’s plan to increase taxes on people who earn more than $1 million per year.
“It isn’t [my idea] to have the rich pay more taxes. It’s to have the ultra-rich pay more,” he said, according to The Hill. “What I’m talking about would probably apply to 50,000 people in the country.”

Later on CNBC Buffett said if it were up to him, people earning $50 million would not see any tax increases, only people who “make a lot of money and pay a very low tax rate, like me.” Buffett did not put on a number on what he considers a “very high income.”"
 
  • #13


I think we all misunderstood Buffett. 50 million a year (to me) is ultra-rich.
 
  • #14


daveb said:
I think we all misunderstood Buffett. 50 million a year (to me) is ultra-rich.

Worse yet, Buffet said the tax increase would impact 50,000 people - the WSJ says only 72 people qualified in 2009.

http://blogs.wsj.com/wealth/2010/11/05/how-many-americans-earn-50-million-a-year/
"There were 72 American tax filers earning more than $50 million in 2009, down from 151 in 2007. The total income of those top filers also fell by more than half. In 2007, the $50 million-plus club’s total earnings were $14.1 billion. The club earned just $6 billion last year."

If these people paid a 99.9% tax rate - the additional revenue wouldn't pay for President Obama's green energy "investments" - such as Solyndra.
 
  • #15


It seems Harry Reid doesn't care what Buffet said - he's drawing his own line in the sand - and citing the TEA Party as in favor of his plan.:rolleyes:

http://news.yahoo.com/reid-even-tea-party-supports-5-percent-tax-171606362.html

"“More than 50 percent of the tea party and about 75 percent of other people in America agree that we need to do something about this so we’re going to propose to pay for this important jobs legislation by asking people who make more than a million dollars a year to pay 5 percent more to fund job creation to ensure this country’s economic success,” Reid said at the Capitol on Wednesday. “Independents, Democrats and Republicans and even the tea party agree it’s time for millionaires and billionaires to pay their fair share of taxes.”"
 
  • #16


Methinks Harry's nose is growing a tad long at that one - I highly doubt the Tea Party supports any kind of tax increase (though I could be wrong - haven't seen any polls one way or the other).
 
  • #17


I buy the argument that corporations are taxed twice argument. If someone incorporates their company as a private company and then pays themselves dividends then they should pay the same amount of tax as if it was a private company paying them profits directly as salary.

I guess the view though is that shareholders aren't relay working for the money they earn. I think the fairest way to handle things would be not to distinguish between regular income dividend income and capital gains income but allow the person to deduct from the income any taxes the company already paid.

Well, in some states the total corporate tax is 35% and applying a 15% dividend or capital gains tax on this would give a combined tax of 44.75%. which is close to the top tax bracket of 35% some corporations are taxed as low as 15% in the untied states and companies do not have to pay tax on capital gains within the company. The only capital gains a company pays are on investments it has in other companies which it has a less then 10% stake in. In other words if you sallow up companies then up you don't have to pay capital gains on them.

Now, if someone invested in a very high growth company the corporate taxes could be low or non existent. In other words, if the company borrows a lot of money, it can write of it's interest expenses from its earnings and pay less corporate tax. In such cases then the argument of the company already pays 35% tax wouldn't apply.
http://en.wikipedia.org/wiki/Corporate_tax
http://en.wikipedia.org/wiki/Income_tax_in_the_United_States
http://en.wikipedia.org/wiki/Capital_gains_tax#Corporate_notes
 
  • #18


John Creighto said:
I buy the argument that corporations are taxed twice argument. If someone incorporates their company as a private company and then pays themselves dividends then they should pay the same amount of tax as if it was a private company paying them profits directly as salary.

I guess the view though is that shareholders aren't relay working for the money they earn. I think the fairest way to handle things would be not to distinguish between regular income dividend income and capital gains income but allow the person to deduct from the income any taxes the company already paid.

Well, in some states the total corporate tax is 35% and applying a 15% dividend or capital gains tax on this would give a combined tax of 44.75%. which is close to the top tax bracket of 35% some corporations are taxed as low as 15% in the untied states and companies do not have to pay tax on capital gains within the company. The only capital gains a company pays are on investments it has in other companies which it has a less then 10% stake in. In other words if you sallow up companies then up you don't have to pay capital gains on them.

Now, if someone invested in a very high growth company the corporate taxes could be low or non existent. In other words, if the company borrows a lot of money, it can write of it's interest expenses from its earnings and pay less corporate tax. In such cases then the argument of the company already pays 35% tax wouldn't apply.
http://en.wikipedia.org/wiki/Corporate_tax
http://en.wikipedia.org/wiki/Income_tax_in_the_United_States
http://en.wikipedia.org/wiki/Capital_gains_tax#Corporate_notes

A high growth company may experience a negative cash flow - high growth doesn't necessarily indicate earnings. However, the stock price may increase in response to the expectations of future earnings. If the company requires debt to fund basic operations - the stock price may not rise.
 
  • #19


WhoWee said:
A high growth company may experience a negative cash flow - high growth doesn't necessarily indicate earnings. However, the stock price may increase in response to the expectations of future earnings. If the company requires debt to fund basic operations - the stock price may not rise.

What do you think a reasonable way to tax companies with high growth and low earnings?

My proposal would be to not distinguish the tax for individuals on capital gains and income and simply let them write off any tax the company already paid.
 
  • #20


John Creighto said:
What do you think a reasonable way to tax companies with high growth and low earnings?

My proposal would be to not distinguish the tax for individuals on capital gains and income and simply let them write off any tax the company already paid.

First, I'm not certain of the business structure you have in mind (closely held private corp/LLC, a quasi-public corp, a public corp, etc.) - the tax strategy might vary by type.

A high growth public company may have a wide distribution of shares, no earnings, cash from an IPO, and an increasing share value. If the individual shareholder sells their shares at a profit - they will pay taxes on the capital gains - there are no taxes paid by the corporation on this transaction.
 
  • #21


WhoWee said:
First, I'm not certain of the business structure you have in mind (closely held private corp/LLC, a quasi-public corp, a public corp, etc.) - the tax strategy might vary by type.

Perhaps but you’ll have to justify to me why we should treat different business structures differently.
A high growth public company may have a wide distribution of shares, no earnings, cash from an IPO, and an increasing share value. If the individual shareholder sells their shares at a profit - they will pay taxes on the capital gains - there are no taxes paid by the corporation on this transaction.

This is exactly my point. In this type of instance, the corporate taxes are small compared to the capital gains tax. Thus there is an incentive for companies to grow quickly when there is a perceived market for growth. However, this type of rapid speculative growth helped to fuel the dot com bubble which resulted in a tremendous loss of wealth and an over capacity that lasted for a decade. As a consequence I think that a company should not be able to deduct investment interest payments from their income if the market capatilization of the company increases by as much or more than the amount they are trying to deduct.
 
  • #22


John Creighto said:
Perhaps but you’ll have to justify to me why we should treat different business structures differently.


This is exactly my point. In this type of instance, the corporate taxes are small compared to the capital gains tax. Thus there is an incentive for companies to grow quickly when there is a perceived market for growth. However, this type of rapid speculative growth helped to fuel the dot com bubble which resulted in a tremendous loss of wealth and an over capacity that lasted for a decade. As a consequence I think that a company should not be able to deduct investment interest payments from their income if the market capatilization of the company increases by as much or more than the amount they are trying to deduct.

Perhaps I should clarify?

When a company goes public (IPO) their shares are sold to the public and the cash (after broker and other fees) is used to capitalize the corporate entity. At this point, the company has exchanged equity/ownership for capital and the investor now owns a share(s) - professional fees are paid on the transaction and to prepare filings. These fees for legal, accounting, and investment banking services might be $100,000 or $millions. Please note, the company may not even be in operation or have employees - there is no profit on this sale of ownership - the purpose is to inject money into the company to fund growth and operations. This step is comparable to an operating partner finding a partner that agrees to invest cash into a business - the money is deposited into the business account. The more cash raised in an IPO - the lower the need for debt funding.

Back to the corporation that has gone public - the shares (if not restricted or issued to insiders) may be traded on the listed exchange at any time by the investor. If the shareholder paid $8.00 per share and sells for $9.00 - the investor makes $1.00 per share and the company earns nothing. Depending upon how the shares are held, the company may need to update their database of owners (an administrative expense) the first investor no longer owns a share and the new investor now has ownership. If the share is sold for $5 the initial investor loses $3.00 and again - nothing but a database adjustment for the company - no profit or loss.

If the company earns an operating profit, the company will pay income taxes on the earnings. The owners are not taxed on these earnings. However, if the corporation pays a dividend - the shareholders will be subject to taxation on the amounts received.
 
  • #23


CAC1001 said:
The other thing I am wondering is if Buffett is really talking about dividend taxes when he talks about his income. His actual income is only around $100K a year, the majority of his income is from the dividends his company, Berkshire-Hathaway, pays out each year, or capital gains (I would think most from dividends though). If so, this is a bit misleading, because a corporation is already taxed at the corporate tax rate (its profits are taxed at the corporate tax rate; the top marginal corporate tax rate is 35%). For owners of a company, the shareholders, if they are paid via dividends, then after the corporation that they own pays the corporate tax rate, they the shareholders then must pay a dividend tax rate. The dividend tax rate used to be tied to the income tax rate, but now it is tied to the long-term capital gains tax rate, which is 15% (0% for people in the bottom ordinary income tax brackets).

Berkshire-Hathaway has never paid a dividend. That's one of the reasons Buffett pays so small a percentage of his income in taxes. The vast bulk of his Haig-Simons income (consumption plus change in net worth) isn't even realized in a given year. It's not like he's selling class A shares all the time to turn his wealth into cash, especially considering he's a notoriously tight spender who doesn't live lavishly. Also, Berkshire-Hathaway has been receiving huge amounts of its own income from the terrific deals it has gotten on preferred stock as it has acted as a private sector de facto bailout fund. Corporations can exempt 70% of their dividend income received from other corporations so that they pay nowhere near the 35% corporate rate. Combine that with the ability to selectively sell off losing investments even when market capitalization has increased and then carry forward the losses into years that a profit is earned and they may not be paying any taxes at all.

You can think what you want of Buffett's politics, but he's not blowing hot air here. He knows the true economic incidence of tax burden that he bears. He's not miscalculating or forgetting the double taxation of corporate income distributed to individuals.
 
  • #24


loseyourname said:
Berkshire-Hathaway has never paid a dividend. That's one of the reasons Buffett pays so small a percentage of his income in taxes. The vast bulk of his Haig-Simons income (consumption plus change in net worth) isn't even realized in a given year. It's not like he's selling class A shares all the time to turn his wealth into cash, especially considering he's a notoriously tight spender who doesn't live lavishly. Also, Berkshire-Hathaway has been receiving huge amounts of its own income from the terrific deals it has gotten on preferred stock as it has acted as a private sector de facto bailout fund. Corporations can exempt 70% of their dividend income received from other corporations so that they pay nowhere near the 35% corporate rate. Combine that with the ability to selectively sell off losing investments even when market capitalization has increased and then carry forward the losses into years that a profit is earned and they may not be paying any taxes at all.

You can think what you want of Buffett's politics, but he's not blowing hot air here. He knows the true economic incidence of tax burden that he bears. He's not miscalculating or forgetting the double taxation of corporate income distributed to individuals.

But by your own explanation, he's an exception to the rule. The general statistics for overall taxation by income don't line up with his claims.
 
  • #25


loseyourname said:
Berkshire-Hathaway has never paid a dividend. That's one of the reasons Buffett pays so small a percentage of his income in taxes. The vast bulk of his Haig-Simons income (consumption plus change in net worth) isn't even realized in a given year. It's not like he's selling class A shares all the time to turn his wealth into cash, especially considering he's a notoriously tight spender who doesn't live lavishly.

Isn't it a contradiction to label him "a notoriously tight spender who doesn't live lavishly" - then cite Haig-Simons?
 
  • #26


Regardless of what is assumed here about what Warren Buffet does or does not understand about double taxation or sheltering corporate income, the facts about the company he founded, Berkshire-Hathaway are these:

That is just the tax paid by BH. Buffet also owns large shares in dozens of other companies, 13% of Amex, 9% of Coca Cola, etc.
 
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  • #27


mheslep said:
Regardless of what is assumed here about what Warren Buffet does or does not understand about double taxation or sheltering corporate income, the facts about the company he founded, Berkshire-Hathaway are these:

That is just the tax paid by BH. Buffet also owns large shares in dozens of other companies, 13% of Amex, 9% of Coca Cola, etc.

mheslep - IMO - regardless of how many $Billions in taxes paid you can attribute to Buffet - the folks who think he should pay more will ignore the facts.
 
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  • #28


Let's back up a bit, please. Many wealthy people earn their income through capital gains, which can be declared and taxed at the whim of the holder. Let's say that Investor does well with some holdings, and takes some risks on others. If (s)he loses on the others, (s)he can liquidate some of assets that gained value and pay NO taxes. Even if they had to liquidate some gaining assets with no offsetting losses, they would still pay far less tax than the average wage-earner. The myth that the "job-creators" are under attack is just that. A myth. The wealthy hold all the cards.

Full disclosure: For the last 5 years that I was employed, I was easily in the top 2% of wage-earners in the US. The Buffet tax would not even have been a blip on the radar for me, since it is a proposed increase in the marginal tax. There is some urban myth that the more money you make, the more you pay in taxes. That resonates with sheeples with little education. Unfortunately, there is no remedial taxation education that informs people that as you push into a higher tax-bracket (Yay!) the taxes that you pay on earlier income do NOT increase. Only the taxes on the higher income.
 
  • #29


turbo said:
Let's back up a bit, please. Many wealthy people earn their income through capital gains, which can be declared and taxed at the whim of the holder. Let's say that Investor does well with some holdings, and takes some risks on others. If (s)he loses on the others, (s)he can liquidate some of assets that gained value and pay NO taxes. Even if they had to liquidate some gaining assets with no offsetting losses, they would still pay far less tax than the average wage-earner. The myth that the "job-creators" are under attack is just that. A myth. The wealthy hold all the cards.

my bold

I guess the "whim" part comes into play when the investor decides to hold or sell?
 
  • #30


turbo said:
Let's back up a bit, please. Many wealthy people earn their income through capital gains, which can be declared and taxed at the whim of the holder. Let's say that Investor does well with some holdings, and takes some risks on others. If (s)he loses on the others, (s)he can liquidate some of assets that gained value and pay NO taxes.
Only if they had NO net gains. That tax would you have paid on losses?

...The wealthy hold all the cards.
...They certainly pay most of the taxes.
 
  • #31


turbo said:
There is some urban myth that the more money you make, the more you pay in taxes.
That myth happens to be a fact. You mean the rate does not increase on the income below the bracket.
 
  • #32


turbo said:
There is some urban myth that the more money you make, the more you pay in taxes...

...as you push into a higher tax-bracket (Yay!) the taxes that you pay on earlier income do NOT increase. Only the taxes on the higher income.
So...according to the second part, the more money you make, the more you pay in taxes. So the first part of your post is wrong...right?
 
  • #33


WhoWee said:
Isn't it a contradiction to label him "a notoriously tight spender who doesn't live lavishly" - then cite Haig-Simons?

Why? I didn't say he should be taxed on unrealized capital gains. I don't realize most of my own capital gains in any given year and certainly don't want to be taxed on them, either. If it was up to me, there wouldn't be a capital gains tax or a corporate income tax at all (maybe keep the punitive short-term rate to discourage day-trading and encourage true corporate governance and owners that care about long-term performance). I cite Haig-Simons simply because it's the best indication of one's ability to pay.

But I still think there's something to his general sentiment that the percentage one pays of actual realized income should not decrease as you earn more. It doesn't for wage and salary earners, but our tax system as it stands is severely tilted in favor of owners (you could make a good argument that no one would buy preferred stock at all if not for the corporate-to-corporate dividend loophole, for instance, which is just individual taxpayers subsidizing the borrowing costs of corporations).

I get that we want to encourage people to invest and take risk, but our tax code also allows people to shelter a whole lot of what they earn without using that money the way the tax code intends if you want to take a charitable interpretation of the intent. Why exempt municipal debt interest from personal income tax, for instance? It's meant to subsidize infrastructure development at the city and state level, but the full area under the demand curve to the left of the equilibrium rate is wasted money in excess of just straightforwardly transferring tax revenue from the federal government to municipalities, rather than giving rich people another way to earn income without being taxed and encouraging cities to borrow more money than they would otherwise be able to. I don't necessarily support a straight punitive wealth tax like some uber-AMT to make sure millionaires aren't paying less than secretaries, but get rid of some of these deductions. Hell, get rid of mortgage interest deduction. It's my own personal largest source of avoiding taxes, but it's still economically stupid. We want to figure out who to blame for the housing collapse and want to talk about Fannie and Freddie guaranteeing loans and bond-raters misjudging MBS risk. What about the government paying half your mortgage in the first few years? What do you think that does to demand and the rate of price appreciation? How do you think that encouraged the creation of initial interest-only ARMs?
 
  • #34


loseyourname said:
Why? I didn't say he should be taxed on unrealized capital gains. I don't realize most of my own capital gains in any given year and certainly don't want to be taxed on them, either. If it was up to me, there wouldn't be a capital gains tax or a corporate income tax at all (maybe keep the punitive short-term rate to discourage day-trading and encourage true corporate governance and owners that care about long-term performance). I cite Haig-Simons simply because it's the best indication of one's ability to pay.

But I still think there's something to his general sentiment that the percentage one pays of actual realized income should not decrease as you earn more. It doesn't for wage and salary earners, but our tax system as it stands is severely tilted in favor of owners (you could make a good argument that no one would buy preferred stock at all if not for the corporate-to-corporate dividend loophole, for instance, which is just individual taxpayers subsidizing the borrowing costs of corporations).

I get that we want to encourage people to invest and take risk, but our tax code also allows people to shelter a whole lot of what they earn without using that money the way the tax code intends if you want to take a charitable interpretation of the intent. Why exempt municipal debt interest from personal income tax, for instance? It's meant to subsidize infrastructure development at the city and state level, but the full area under the demand curve to the left of the equilibrium rate is wasted money in excess of just straightforwardly transferring tax revenue from the federal government to municipalities, rather than giving rich people another way to earn income without being taxed and encouraging cities to borrow more money than they would otherwise be able to. I don't necessarily support a straight punitive wealth tax like some uber-AMT to make sure millionaires aren't paying less than secretaries, but get rid of some of these deductions. Hell, get rid of mortgage interest deduction. It's my own personal largest source of avoiding taxes, but it's still economically stupid. We want to figure out who to blame for the housing collapse and want to talk about Fannie and Freddie guaranteeing loans and bond-raters misjudging MBS risk. What about the government paying half your mortgage in the first few years? What do you think that does to demand and the rate of price appreciation? How do you think that encouraged the creation of initial interest-only ARMs?

my bold

I'm glad you made this point as most everyone can relate. The problem with eliminating such a "loophole" is the decision to borrow (and loan) may have been based (partly) on this legal deduction.
 
  • #35


turbo said:
There is some urban myth that the more money you make, the more you pay in taxes. That resonates with sheeples with little education. Unfortunately, there is no remedial taxation education that informs people that as you push into a higher tax-bracket (Yay!) the taxes that you pay on earlier income do NOT increase. Only the taxes on the higher income.

As Russ points out, this is a contradiction!

What do you mean about "no remedial taxation education"? I don't know about the US, but taxation is similar here, and it's not as if the tax process is a black box: it's quite clear the rates of tax that individuals are required to pay, given their salary.

Why would you expect people earning over some threshold to be taxed a higher rate on their entire earnings? Surely that discourages people from working hard and succeeding.
 
<h2>1. What is Obama's Warren Buffet Tax?</h2><p>The Obama's Warren Buffet Tax refers to a proposed tax plan by former President Barack Obama that aimed to increase taxes on the wealthy, specifically those making over $1 million per year. This proposal was named after billionaire investor Warren Buffet, who famously stated that he pays a lower tax rate than his secretary.</p><h2>2. How would the Warren Buffet Tax affect the economy?</h2><p>The impact of the Warren Buffet Tax on the economy is a topic of debate. Proponents argue that it would help reduce income inequality and generate more revenue for government programs. Critics, on the other hand, argue that it could discourage investment and job creation by the wealthy, leading to slower economic growth.</p><h2>3. Did the Warren Buffet Tax ever become a law?</h2><p>No, the Warren Buffet Tax was never passed into law. It was proposed by Obama in 2011 as part of his plan to reduce the federal deficit, but it did not receive enough support from Congress to be implemented.</p><h2>4. What was the purpose of the Warren Buffet Tax?</h2><p>The purpose of the Warren Buffet Tax was to address income inequality and raise revenue for government programs. By increasing taxes on the wealthy, the plan aimed to make the tax system more fair and reduce the burden on middle and lower-income individuals.</p><h2>5. How does the Warren Buffet Tax differ from other tax plans?</h2><p>The Warren Buffet Tax is unique in that it specifically targets the wealthy, while other tax plans may have broader impacts on different income levels. Additionally, the Warren Buffet Tax was proposed as a temporary measure to address the federal deficit, while other tax plans may have long-term implications for the economy.</p>

Related to Is Obama's Warren Buffett Tax Proposal Fair and Effective?

1. What is Obama's Warren Buffet Tax?

The Obama's Warren Buffet Tax refers to a proposed tax plan by former President Barack Obama that aimed to increase taxes on the wealthy, specifically those making over $1 million per year. This proposal was named after billionaire investor Warren Buffet, who famously stated that he pays a lower tax rate than his secretary.

2. How would the Warren Buffet Tax affect the economy?

The impact of the Warren Buffet Tax on the economy is a topic of debate. Proponents argue that it would help reduce income inequality and generate more revenue for government programs. Critics, on the other hand, argue that it could discourage investment and job creation by the wealthy, leading to slower economic growth.

3. Did the Warren Buffet Tax ever become a law?

No, the Warren Buffet Tax was never passed into law. It was proposed by Obama in 2011 as part of his plan to reduce the federal deficit, but it did not receive enough support from Congress to be implemented.

4. What was the purpose of the Warren Buffet Tax?

The purpose of the Warren Buffet Tax was to address income inequality and raise revenue for government programs. By increasing taxes on the wealthy, the plan aimed to make the tax system more fair and reduce the burden on middle and lower-income individuals.

5. How does the Warren Buffet Tax differ from other tax plans?

The Warren Buffet Tax is unique in that it specifically targets the wealthy, while other tax plans may have broader impacts on different income levels. Additionally, the Warren Buffet Tax was proposed as a temporary measure to address the federal deficit, while other tax plans may have long-term implications for the economy.

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