Warren Buffet\'s Stance on Taxes
 

I'm sure it's been talked about here, but I don't think there was an official thread. To see what I'm references read this articles and the articles linked inside it:

Buffet Says the Rich aren't being taxed enough

My basic take on it is that Buffet is being a [censored] idiot. I will elaborate later, but I'd like to hear others' views.

Re: Warren Buffet\'s Stance on Taxes
 

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I'm sure it's been talked about here, but I don't think there was an official thread. To see what I'm references read this articles and the articles linked inside it:

Buffet Says the Rich aren't being taxed enough

My basic take on it is that Buffet is being a [censored] idiot. I will elaborate later, but I'd like to hear others' views.

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Buffet is rich and doesn't care about his own tax (either way he is still a billionaire). But he pays an ETR of 17% because of dividend and other tax laws.
A moral person speaks up here. And no, he shouldn't just send an extra check cause the problem will only be 500million smaller.

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A moral person speaks up here.

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This makes me want to vomit.

No, it's worse than that. It actually pains me to read that.

Edit: I'm looking forward to hearing his testimony next week, and I hope his answer in no way resembles yours.

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He's right?

Are you a billionaire or something? Concerned about estate taxes? Don't worry, Bush has got your back.

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I think most people would prefer if the rich at least paid the same taxes as the poor and middle class. There are a lot others who would be in favor of higher taxes on the rich than the poor.

I think corporations should pay higher taxes. I also think Warren should pay more taxes than I do. If I save an extra 1% of my salary, it will affect my life much more than if Warren saves.

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I think you need to define "more". This thread is getting the responses I was expecting, and it's sad.

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the rich should not have a lower percentage of their work taxed than the middle or poor.

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CF, I think it would help if you stated your position, rather than just saying that mine is sad. Why is it sad that I want to pay less taxes? Do you want to pay more?

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the rich should not have a lower percentage of their work taxed than the middle or poor.

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Why pls?

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Do you want to pay more?

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Um, no.

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is it sad that I want to pay less taxes?

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There's no mention of lowering any taxes.

Re: Warren Buffet\'s Stance on Taxes
 

Ok, so we're not lowering taxes anywhere to offset an increase to the rich. Well I would be against that.

I guess I don't understand what you are asking then.

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crushin, this is a morality/equality issue. I dont think anyone here will argue that taxes are good, or lowering any taxes wouldnt be good for the economy and financial markets. If you want to debate the merits of a progressive tax system perhaps politics or SMP would be better

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All this bickering over who should pay more taxes is disgusting. There's only one system of fair tax, and it's NO TAX: Abolishment of the IRS and legalized theft.

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My basic take on it is that Buffet is being a [censored] idiot.

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Well, of all the things Buffett (two Ts, BTW), is or might be, idiot is not one of them.

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My position has always been that it is impossible to legitimize progressive tax systems so I disagree with Buffett. I don't see how ability to pay = duty to pay

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Buffet is no idiot. He knows the prudent thing to do is to come out favoring higher taxation for the wealthy because it lowers his profile as a target. Then what does he do? Give $37B to a charitable foundation to preclude government attack on the accumulated capital after his death.

Gates has done the exact same thing.

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He knows the prudent thing to do is to come out favoring higher taxation for the wealthy because it lowers his profile as a target.

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I don't understand what you mean.

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I think most people would prefer if the rich at least paid the same taxes as the poor and middle class. There are a lot others who would be in favor of higher taxes on the rich than the poor.

I think corporations should pay higher taxes. I also think Warren should pay more taxes than I do. If I save an extra 1% of my salary, it will affect my life much more than if Warren saves.

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Where the heck did you get the idea that the middle class and the poor pay more taxes than the rich? Of course you don't define any of them i.e. what constitutes being rich, middle class and/or poor. According to the NTU the breakdown on who pays what in Federal income taxes is:

Who pays what in taxes

The top 1% of income earners pay 40% of the Federal income taxes levied against individuals. The top 50% pay 97%. IMO you might conclude that the upper middle class and the rich pay more than 50% of the Federal income tax. No way, no is it right that the poor and middle class are shouldering more of the tax burden than the wealthy.

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He knows the prudent thing to do is to come out favoring higher taxation for the wealthy because it lowers his profile as a target.

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I don't understand what you mean.

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The government's taxation and regulation bureaucracy is vast and vicious. If you are a high profile target that is publicly very vocal in opposition to government policy, you very quickly attract a lot of negative attention. Gates was notorious for not playing the inside Washington regulatory politics game, and found his company in a [censored] storm of anti-trust investigation for years. When he finally started playing the games, voila, the suit is dropped.

The biggest donors to anti-tax organizations are typically very quiet about it. The last billionaire that I know of who was outspoken in support of a radical small government agenda was Volker, of the Volker Fund, and he eventually moderated his positions and support. This is why formerly radical organizations like Cato have become shallow shells of their former selves.

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I think most people would prefer if the rich at least paid the same taxes as the poor and middle class. There are a lot others who would be in favor of higher taxes on the rich than the poor.

I think corporations should pay higher taxes. I also think Warren should pay more taxes than I do. If I save an extra 1% of my salary, it will affect my life much more than if Warren saves.

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Where the heck did you get the idea that the middle class and the poor pay more taxes than the rich? Of course you don't define any of them i.e. what constitutes being rich, middle class and/or poor. According to the NTU the breakdown on who pays what in Federal income taxes is:

Who pays what in taxes

The top 1% of income earners pay 40% of the Federal income taxes levied against individuals. The top 50% pay 97%. IMO you might conclude that the upper middle class and the rich pay more than 50% of the Federal income tax. No way, no is it right that the poor and middle class are shouldering more of the tax burden than the wealthy.

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Exactly the numbers people seem to skip over. That's why I told him he should define "more".

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Buffet is no idiot. He knows the prudent thing to do is to come out favoring higher taxation for the wealthy because it lowers his profile as a target. Then what does he do? Give $37B to a charitable foundation to preclude government attack on the accumulated capital after his death.

Gates has done the exact same thing.

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Gates got the idea from Buffet it's just that Gates set up his foundation and Buffet was persuaded by Gates to contribute. Buffet has been on the record for a long, long time stating that he would donate his fortune to charity stating that his children would not inherit his fortune. I believe that his children will/have received a lot of money from Buffet's ex wife but from Buffet they basically have received all they're going to get (a college education payed for).

Don't see how this is an advantage to Buffet tax wise. Sure he gets to write off his charitable contributions but he doesn't get to spend it either.

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I meant more in the same terms as Buffett, percentage of income.

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crushin, this is a morality/equality issue. I dont think anyone here will argue that taxes are good, or lowering any taxes wouldnt be good for the economy and financial markets. If you want to debate the merits of a progressive tax system perhaps politics or SMP would be better

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I don't know anyone in those forums, and I can probably get the same various responses here (they've already basically been mentioned). The one or two times I ventured into the politics forum it was only for about 10 seconds because it seems that people over there would rather be long winded than actually getting a point across.

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Who pays what in taxes

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This doesn't include payroll (aka FICA, aka Social Security taxes) and the top marginal rates you cite are not applied to capital gains. For the really wealthy, capital gains are where the income is much moreso than wages.

You might want to read what Buffett is saying if you want to rebut it. His main point is that when adding payroll taxes to the income tax on wages, the marginal rate on someone making 50k is much higher than that of a wealthy person who is past the FICA limit (about 95k this year) and making a good bit of his/her money from capital gains (taxed at 15%, not 36%). There is also the issue about carried interest and stuff and whether it should be taxed normally (36%) or at CG rates (15%) but that's really a side issue to what Buffett is talking about.

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those ntu figures do not include payroll taxes, but i think they DO include capital gains taxes in their definition of "personal income taxes".

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You might want to read what Buffett is saying if you want to rebut it. His main point is that when adding payroll taxes to the income tax on wages, the marginal rate on someone making 50k is much higher than that of a wealthy person who is past the FICA limit (about 95k this year) and making a good bit of his/her money from capital gains (taxed at 15%, not 36%).

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Could you explain this a bit for me then? I'm not sure what you mean by the FICA limit.

This was the other reason I wanted to start this thread was to get some insight on what part of the tax structure Warren Buffet is talking about.

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fica taxes are 7.65% (6.2% soc security + 1.45% medicare) on all wages up to approx 95k. wages above 95k are only taxed at 1.45% (the medicare portion)

therefore, somone earning 50k pays a higher percentage of his total income in FICA taxes than someone earning 250k.

but one could argue that this discrepancy is more than made up by the fact that INCOME taxes are far less as a percentage of ttoal income for the 50k person vs the 250k person

Re: Warren Buffet\'s Stance on Taxes
 

FICA limit:
The 6% you pay in social security taxes is only on the first 95k you earn as an employee. Someone who earns 150k will pay 6% on the first 95k, and 0% on the remaining 55k, for an effective rate of 3.8% FICA tax. For a person earning 50k/yr, they will pay the full 6%.
The reasoning behind this is because there is a cap on SS benefits.

Because of dividend and capital gains taxes being lower than income taxes, rich people tend to pay less (percentage wise) too, since a larger percentage of their income will be in the form of dividends and cap. gains rather than wages.

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Buffet is no idiot. He knows the prudent thing to do is to come out favoring higher taxation for the wealthy because it lowers his profile as a target. Then what does he do? Give $37B to a charitable foundation to preclude government attack on the accumulated capital after his death.

Gates has done the exact same thing.

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Gates got the idea from Buffet it's just that Gates set up his foundation and Buffet was persuaded by Gates to contribute. Buffet has been on the record for a long, long time stating that he would donate his fortune to charity stating that his children would not inherit his fortune. I believe that his children will/have received a lot of money from Buffet's ex wife but from Buffet they basically have received all they're going to get (a college education payed for).

Don't see how this is an advantage to Buffet tax wise. Sure he gets to write off his charitable contributions but he doesn't get to spend it either.

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He doesn't want to spend it. He wants to preserve the accumulated capital, and the productive capacity it embodies, because that is the best possible thing you can do for society. If government were to attack that accumulated capital via the estate tax, for example, it would have to be broken up, and all those years of accumulated capital would be converted into consumption via government redistribution, which is really, really damaging to society in the long run.

Gates and Buffet are heros for that $70 or 80B (or whatever it is) charitable foundation. That fund will do an immense amount of good around the world for decades, whereas government would squander it in one week and have nothing to show for it except more damage done.

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Poor people: "I lose a higher percentage of my pay to taxes than rich people, tax them more."

Rich people: "I pay so much more money in taxes, quit taxing me."

Really is there any more to this argument than a matter of perspective on who should be carrying the tax burden? And for most people your perspective will depend on how much you make.

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I think most people would prefer if the rich at least paid the same taxes as the poor and middle class. There are a lot others who would be in favor of higher taxes on the rich than the poor.

I think corporations should pay higher taxes. I also think Warren should pay more taxes than I do. If I save an extra 1% of my salary, it will affect my life much more than if Warren saves.



[/ QUOTE ]Where the heck did you get the idea that the middle class and the poor pay more taxes than the rich?

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How about from Warrren Buffett in the link in the OP? Did you read it?

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No way, no is it right that the poor and middle class are shouldering more of the tax burden than the wealthy.

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He is not talking in terms of absolute dollars, obviously.

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those ntu figures do not include payroll taxes, but i think they DO include capital gains taxes in their definition of "personal income taxes".

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I agree. The link does not give an explanation but the source is IRS which generally implies the numbers are simply total federal income tax (combo of reg rates, CG rates, credits, AMT, etc.) and do not include state taxes, sales taxes, or FICA. In fact, these aren't the best numbers to use for distributional comparisons but are often used b/c they are the most readily available (specifically, it's otherwise very tough to say much about the super-rich).

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those ntu figures do not include payroll taxes, but i think they DO include capital gains taxes in their definition of "personal income taxes".

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I agree. The link does not give an explanation but the source is IRS which generally implies the numbers are simply total federal income tax (combo of reg rates, CG rates, credits, AMT, etc.) and do not include state taxes, sales taxes, or FICA. In fact, these aren't the best numbers to use for distributional comparisons but are often used b/c they are the most readily available (specifically, it's otherwise very tough to say much about the super-rich).

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Well, I can't just take your word on this. What are the relative sizes of total income tax revenue versus the other items? If income tax dwarfs them (which I would think it does but I have not seen any comparison) then these numbers are fine to reference.

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Well, I can't just take your word on this. What are the relative sizes of total income tax revenue versus the other items?

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If you are rich, income taxes easily represent the vast majority of taxes, with the possible exception of state taxes in a high tax state like NY or CA. If you are poor, income taxes can be a tiny fraction of overall taxes. For example, a family of four with two young kids and total income of 30,000 could pay literally nothing in income taxes, yet pay substantial amounts of sales tax & payroll taxes.

Not even my point though. It was that info on people like Gates & Buffett is EXTREMELY tough to come by, in large part because they won't be in any data that comes from sampling. The IRS data, in aggregate form, is one of the few pieces of public data that includes them.

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those ntu figures do not include payroll taxes, but i think they DO include capital gains taxes in their definition of "personal income taxes".

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I agree. The link does not give an explanation but the source is IRS which generally implies the numbers are simply total federal income tax (combo of reg rates, CG rates, credits, AMT, etc.) and do not include state taxes, sales taxes, or FICA. In fact, these aren't the best numbers to use for distributional comparisons but are often used b/c they are the most readily available (specifically, it's otherwise very tough to say much about the super-rich).

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Well, I can't just take your word on this. What are the relative sizes of total income tax revenue versus the other items? If income tax dwarfs them (which I would think it does but I have not seen any comparison) then these numbers are fine to reference.

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Its been said that three quarters of U.S taxpayers pay more in payroll taxes than income tax. And the social security tax rate isn't 7%, its double that because your employer pays a similar amount on your behalf, effectively out of pay you would have recieved if it werent for the tax. U.S. payroll taxes are over 15% up to $90k in income.

Buffett makes a great point about tax fairness that has been frequently misunderstood. Theresa Heinz Kerry pays 14% on total income north of $4m per year. But another rich guy busting his ass to make the same $4m per year in W2 income can easily pay twice the taxes as the trust fund baby Theresa Heinz Kerry. And a secretary making $50k per year can easily pay a similar percentage as the rich guy, or half that rate depending upon deductions. Our tax system has been sold to the highest bidder and they have the most advantageus rates.

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effectively out of pay you would have recieved if it werent for the tax.

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When I owned several businesses I never passed on savings to employees just because I saved them, whether they were from tax breaks, volume purchase savings or any ther type. Hard to believe any reasonable for profit business owner would either.

Other than picking that nit I understand your point and agree that it is obvious without any advanced calculations at all that more people pay more in payroll taxes than income tax. After all fortunately there are more poor people than rich ones.

Jimbo

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those ntu figures do not include payroll taxes, but i think they DO include capital gains taxes in their definition of "personal income taxes".

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I agree. The link does not give an explanation but the source is IRS which generally implies the numbers are simply total federal income tax (combo of reg rates, CG rates, credits, AMT, etc.) and do not include state taxes, sales taxes, or FICA. In fact, these aren't the best numbers to use for distributional comparisons but are often used b/c they are the most readily available (specifically, it's otherwise very tough to say much about the super-rich).

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Well, I can't just take your word on this. What are the relative sizes of total income tax revenue versus the other items? If income tax dwarfs them (which I would think it does but I have not seen any comparison) then these numbers are fine to reference.

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Its been said that three quarters of U.S taxpayers pay more in payroll taxes than income tax. And the social security tax rate isn't 7%, its double that because your employer pays a similar amount on your behalf, effectively out of pay you would have recieved if it werent for the tax. U.S. payroll taxes are over 15% up to $90k in income.

Buffett makes a great point about tax fairness that has been frequently misunderstood. Theresa Heinz Kerry pays 14% on total income north of $4m per year. But another rich guy busting his ass to make the same $4m per year in W2 income can easily pay twice the taxes as the trust fund baby Theresa Heinz Kerry. And a secretary making $50k per year can easily pay a similar percentage as the rich guy, or half that rate depending upon deductions. Our tax system has been sold to the highest bidder and they have the most advantageus rates.

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Well I know Mrs. Kerry had tax free muni's and I assume she had a significant amount of dividend income that was taxed at the corporate level. Perhaps she had some long term cap gains. We've been through this a zillion times in the politics forum so I'm not sure I'm for it again. But the problem with taxing income is that the U.S. has a diverse set of income earners. What constitutes a business expense that is deductible for one person may not be the same for another. The tax system as it currently stands is the breeding ground of special interest groups. The main reason the tax code is so complicated is due to the fact that defining taxable income for all income earners is a complicated endeavor.

As far as the payroll tax is concerned. First of all it is specifically for SS. SS payments are skewed such that the poorest wage earners will get more than their fair share when they collect SS. I realize the SS trust fund is a gimmick but if they collect SS in the future they'll get more than their fair share for what they contributed. Second of all the lowest wage earners have the EIC and that can make up for a lot of the money that they pay in payroll taxes.

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effectively out of pay you would have recieved if it werent for the tax.

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When I owned several businesses I never passed on savings to employees just because I saved them, whether they were from tax breaks, volume purchase savings or any ther type. Hard to believe any reasonable for profit business owner would either.

Other than picking that nit I understand your point and agree that it is obvious without any advanced calculations at all that more people pay more in payroll taxes than income tax. After all fortunately there are more poor people than rich ones.

Jimbo

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I always get that reaction from fellow small business owners. Its a natural reaction, but aside from being a basic tenet of economics let me explain it to you another way. Presume you offer a $50k per year salary with a new employee. It's really a market rate, if the employee demands more you can get someone else and if you try to pay less he has other job offers at thst rate. Before he starts work the government suddenly imposes a $4k employer paid payroll tax. You tell the employee you only think his labor is worth $50k total and can only pay him $46k. He gets angry and calls his other job offers, he'll find they have suddenly dropped $4k as well, they cant pay any more than their original costs either (or they would have bid more before the tax was imposed).

Employer paid payroll taxes are paid by employees in the form of lower wages. It may not be as clean as my example, some employers may eat part of the tax when its imposed but over time a supply demand curve that intersected at $50k will now intersect around 46k. I say around because the supply demand curves are altered

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Adios,

Almost everything you wrote is true, Buffett and I just think it is unfair. Where I quibble is it is not difficult to treat incomes the same. Buffett has already proposed an unlimited IRA to shield investment income until its converted into consumption. I'd go a few steps further,

1) abolish corporate income taxes to eliminate double taxation of earnings.
2) allow taxpayers to put all investments in unlimited IRAs so they can compound tax free until the taxpayer wants to withdraw and spend the money.
3) eliminate payroll taxes, support SS and medicare from income taxes. To make this possible, restrict SS and Medicare eligibilty to people making less than median income and pro-rate it against income. SS is supposed to be a safety net, make it that and nothing more.
4) tax all income, whether W2, dividends, muni bond interest, capital gains or IRA distributions the same with three brackets. Zero up to half median income, 15% up to three or four times median income, and 20% above that, no deductions, no exemptions.

Your tax form would be about five lines. You'd never have to track stock sales and purchases for tax reasons. A million smart people who are wasted working on tax forms would suddenly be available for more productive purposes. EITC can go away, no longer needed. IRS staffing could be reduced tenfold, once again diverting resources to better things. And since payroll taxes skew supply demand curves for employment we'd actually see a reduction in unemployment among lower income brackets.

And lastly, its fair. If you make the same as your neighbor, you can be comfortable knowing you will both contribute the same in taxes.

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Adios,

Almost everything you wrote is true, Buffett and I just think it is unfair. Where I quibble is it is not difficult to treat incomes the same. Buffett has already proposed an unlimited IRA to shield investment income until its converted into consumption. I'd go a few steps further,

1) abolish corporate income taxes to eliminate double taxation of earnings.
2) allow taxpayers to put all investments in unlimited IRAs so they can compound tax free until the taxpayer wants to withdraw and spend the money.
3) eliminate payroll taxes, support SS and medicare from income taxes. To make this possible, restrict SS and Medicare eligibilty to people making less than median income and pro-rate it against income. SS is supposed to be a safety net, make it that and nothing more.
4) tax all income, whether W2, dividends, muni bond interest, capital gains or IRA distributions the same with three brackets. Zero up to half median income, 15% up to three or four times median income, and 20% above that, no deductions, no exemptions.

Your tax form would be about five lines. You'd never have to track stock sales and purchases for tax reasons. A million smart people who are wasted working on tax forms would suddenly be available for more productive purposes. EITC can go away, no longer needed. IRS staffing could be reduced tenfold, once again diverting resources to better things. And since payroll taxes skew supply demand curves for employment we'd actually see a reduction in unemployment among lower income brackets.

And lastly, its fair. If you make the same as your neighbor, you can be comfortable knowing you will both contribute the same in taxes.

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I love the concept and agree that it would make for a much better and more fair system. However, I think you would see a tremendous revenue short fall under that system. It is my guess that the marginal rates you quote would have to be significantly higher to generate the same revenues.