Buffett certainly has a talent for stating the obvious.

One interesting contradiction comes out in this article. On one hand Buffett says that this is the worst housing bust since the Great Depression, but on the other hand he says it's only going to last for two years. Yet the housing decline during the Depression lasted for at least 4 years, and arguably for more like 9 since it really started before the depression. Even the housing bust in 1985 lasted for at least 3 years. Yet a 2 year housing slump with a relatively small number of foreclosures is worse?

I think Buffett likes to make dramatic statements and draw attention to himself. The business with his salary vs. his secretary's salary has been gone over innumerable times, so we all know the truth behind it and how disingenuous and manipulative it is. But hey, if he wants to use his wealth and position to push a political agenda and do it deceptively, why should he be different from anyone else?

Dave

There is also a difference between being an astute investor and being an expert in macroeconomics. They are not necessarily mutually inclusive.

Even during the Depression, there were good investments to be made in the stock market. The trick, as always, was identifying them.

There were more than a few investors who survived the Depression with little or no damage to their portfolios; my great-grandfather was one such.

Dave says:so we all know the truth behind it and how disingenuous and manipulative it is.

No we don't all know...

Do tell.

Zedd, I wasn't planning to have to walk people through Buffet's bogus tax argument, but okay.

Here's what it comes down to. Buffet pays his secretary enough to push her up into the second highest tax bracket. He's in the highest tax bracket himself, but almost all of his income comes not from the modest salary Berkshire/Hathaway pays him, but from capital gains. So most of his income is taxed not as salary but as capital gains.

So, Buffet can claim that his secretary pays a higher percentage of her income in tax than he does, because he's counting his investment income taxed at 20% along with his salary taxed at 33% and coming up with a lower rate. However, on a straight salary vs. salary comparison Buffet DOES in fact pay a higher rate than his secretary does.

His claim that she pays a higher tax rate than he does is disingenuous and deceptive because he's basing it on an apples and oranges comparison rather than a comparison of equivalent things. In fact, as straight rates go, they both pay the same rate on capital gains and he pays a higher rate on salary than she does. Only when you combine the two does his tax rate appear lower because so much more of his income is classed as capital gains.

So it's a cheap little math trick which lets him make a bogus politically motivated point.

Dave

Dave,

Buffet was referring to what he makes (to put it simply). He pays less in taxes from what he makes. If you are getting paid $65k a year you don't have money to do what he does in order to get the returns that he does and get taxed what he does. So YES you would be paying more taxes on what you make.

Lets keep it simple Dave. Changing HOW you make the money doesn't make it any less the money that YOU make.

The bigger point is that WB doesn't NEED the money that he is making and being taxed less on. The person who is subsisting needs every cent.

You know, it really doesn't pay to even try to talk to you, Zedd, since all you're interested in is being argumentative for its own sake.

Buffet was referring to what he makes (to put it simply). He pays less in taxes from what he makes.

No, he pays orders of magnitude more in taxes than his secretary. He pays on the order of $8 billion a year in taxes last I checked, compared to her taxes of about $15,000.

If you are getting paid $65k a year you don't have money to do what he does in order to get the returns that he does and get taxed what he does. So YES you would be paying more taxes on what you make.

If he's that concerned he could pay her in stock instead of paying her a salary, or in place of part of her salary. He could easily work out a compensation scheme for her where she paid almost no taxes at all.

But the point is that he's not concerned. He just wanted to make a contrived political point based on manipulating the way taxes are figured.

Lets keep it simple Dave. Changing HOW you make the money doesn't make it any less the money that YOU make.

But it does alter the tax consequences, a significant distinction which Buffett did not choose to acknowledge when making the comparison.

And the difference IS significant, because with a salary none of that income is at risk, while Buffett's income from investments is entirely at risk, which is one of the reasons why it's taxed at a different rate.

The bigger point is that WB doesn't NEED the money that he is making and being taxed less on. The person who is subsisting needs every cent.

We have a system where individual need is not a factor in determining the distribution of wealth. Instead we base wealth distribution on merit. If we change to a system where income is based on need, let me know because I'm looking into other contries to move to.

Dave

The income tax was established as a means to raise revenue for the Federal government. It was not intended to be, nor should it be, used as a wealth redistribution scheme.

If we want to redistribute wealth, let's do it honestly and blatantly by forcing people to give up their wealth in larger amounts and all at once. Then, it will be seen for what it is, instead of trying to disguise it under the rubric of paying for government and its services.

My suspicion is, that if wealth redistribution were handled in that manner, it would be VERY unpopular and the pols would have a LOT of resistance from the public.

No one on the left would be likely to describe the income tax as a 'wealth redistribution scheme.' It's a question of who can afford to pay. Someone making over a million a year has a huge disposable income; taking an additional 3% of it doesn't cramp his style. Someone making $70,000 a year would feel a pinch from a 3% tax increase.

Rangel's tax proposal to get rid of the AMT pays for itself by shifting tax breaks to middle-income earners. He immediately got attacked for proposing a huge 'tax increase,' even though the proposal is very specifically revenue-neutral.

There is rampant hypocrisy when the GOP talks about taxes. When they say the Dems want to raise your taxes, they imply they're referring to the $70,000-a-year people. They really mean the million-dollar-plus club.

The GOP's favored way to get rid of the AMT? Just abolish it and let the deficit increase.

"No one on the left would be likely to describe the income tax as a 'wealth redistribution scheme." "

Of course not.

Someone making $70,000 a year would feel a pinch from a 3% tax increase.

Yes they certainly would. And yet, most Democrat proposals for tax increases will impact people with incomes that low.

Rangel's tax proposal to get rid of the AMT pays for itself by shifting tax breaks to middle-income earners. He immediately got attacked for proposing a huge 'tax increase,' even though the proposal is very specifically revenue-neutral.

Everyone wants to get rid of the AMT, the only question is what to do about the loss of revenue. Obviously doing it with minimal raises in taxes for anyone would be the best solution. One proposal would be just to raise the bottom limit on it to the equivalent in modern terms of where it was originally set.

Your facts are also just dead wrong about the Rangel plan. The lowest increase it applies is 4%, not 3%, and that applies to anyone earning a GROSS income of $200,000 or more - not to the adjusted taxable income. So someone with a small business who grosses that much and then has expenses they write off against it and ends up with a real income under $70,000 could still get hit with a 4% tax increase ont he $200,000 amount, which might be more like a 12% increase on their real net income. High volume, high overhead small businesses like those who resell items on ebay or the internet would be devastated by a structural tax change like this.

In fact, the extremely complex proposal which is 125 pages long, hits small investors and small companies like a hammer while granting special breaks to big business, including lowering the top corporate tax rate by 3.5%. It increases taxes on stock options, partnership profits, investments and profits from small businesses to make up the revenue lost by the AMT. Yes, it hits people with large incomes hardest - 6% of gross income for the top earners - but it hits everyone who has large deductions for donations or expenses no matter what their final income is.

And yes, I take the bill personally. For me it might be bad enough that I'd have to shut my business down, or more likely I'd be in a situation where there would be a storng dissincentive to ever increase my volume of sales, which seems just stunningly stupid.

There is rampant hypocrisy when the GOP talks about taxes. When they say the Dems want to raise your taxes, they imply they're referring to the $70,000-a-year people. They really mean the million-dollar-plus club.

Sorry, what we're looking at here isn't hypocrisy from the GOP, it's deceit or blind ignorance from the democrats who claim that a tax increase like this would not hurt middle income earners because they ignore a large segment - more than 25% - of those earning in the income range from $50K tgo $150K by just assuming that they earn a salary rather than having a small business or profiting at least partially from investments.

Dave

Dave Sed: You know, it really doesn't pay to even try to talk to you, Zedd, since all you're interested in is being argumentative for its own sake.


No I am simplifying things for you bud. Pay attention... It is what he makes. Full stop.

As for the risk part... HE CAN AFFORD THE "RISK" so why is he rewarded for taking a risk that is not REALLY a risk for him. Again its simple Dave. The only thing the he is risking is his pride. If Joe blow took the same risk, THEN we'd be talking. He would be risking survival, food and shelter. WB would only be risking his reputation as a good investor. His point was, why am I being rewarded for being wealthy? I invest what I invest and MAKE what I make because I can.

Zedd, what you are now proposing is a special tax system exclusively for Warren Buffett. The reason Buffett benefits is that the system is designed to treat everyone above a certain wealth threshhold the same way. For Buffett that works out better than it does for the majority who fall in that same income class, but you can't address that with a change to the general system unless you create a new class of tax for the super-ultra rich. That's a whole different deal.

Maybe if you weren't trying to simplify things you could express them in a way which actually made sense rather than consistently appearing 'STUPID'.

Dave

Just for the record:
I wasn't pulling the 3% figure from Rangel, just used it off the cuff as an example.

And Rangel's plan will never become law in its current form anyway. [Certainly not before 2009.] It makes a good starting point for discussion. But the White House and GOP leadership didn't want to discuss it, they wanted to dismiss it with a soundbite: "the biggest tax increase in history." And the cowardly Dems running for president couldn't get away from it fast enough.

Sometimes Rangel is just hot air, but this tax proposal was both clever PR and a well-designed attempt at problem solving. You can attack the specifics, but the overall goals are admirable. Unless you already hate Charlie so much you automatically dismiss everything he says.

Clavos sed:was not intended to be, nor should it be, used as a wealth redistribution scheme.

Not sure how this statement matches what we are discussing. WB is saying that Americans are disporportionately taxed. The wealthy get away to paying less taxes proportionately. He was not saying that everyone should have the same income or that his income should be evenly distributed to the rest of the population.

Dave,

Sorry I didn't mean to ignore your post. I just realize that you'd responded to me.

I think what WB was suggesting is that we have to do an overhaul of the tax code.

You suggested that he was being disingenuous in his pronouncement because you are looking at what he is saying and how it fits within our current set up.

How do you overhaul the tax code and keep it fair while taxing Warren Buffett without hammering a bunch of small investors in the process?

Consider this. The capital gains he's paying taxes on are money which has already been taxed TWICE. It's been taxed once as income before it was invested and then again as corporate profits while it was being used by the company issuing the stock. Both of those likely at a pretty high rate. So when the capital gains tax is taken out that's the third time it's been taxed.

Even if Buffett didn't buy the stock and received it in some other way, corporate taxes were still paid, so in reality the money he's being taxed on at the capital gains tax rate has already been taxed once at 35%. So ultimately his claim that he's paying less tax than his secretary is untrue, because he's not taking those corporate taxes into account.

If I recall correctly, Buffett claimed that his secretary was paying taxes at 26% while he paid at 17%. But if you factor in the corporate taxes paid by the companies he's investing in, he's actually receiving income which has been taxed at something more like 49%, almost double what his secretary pays.

Dave

Dave,

Stop the smoke screen. Last time you were arguing that the taxation of corporations actually trickles down to the consumer. Stop yourself.

An overhaul usually means a revamping which would mean that it wouldn't be set up in the same configuration. Every economic system was conceived by man. You often respond as if there are universal laws at work and a new paradigm can not be established.

For a person who predicted the dot com crash in 79' you certainly display a lack of vision.

Dave,

Stop the smoke screen. Last time you were arguing that the taxation of corporations actually trickles down to the consumer. Stop yourself.

An overhaul usually means a revamping which would mean that it wouldn't be set up in the same configuration. Every economic system was conceived by man. You often respond as if there are universal laws at work and a new paradigm can not be established.

For a person who predicted the dot com crash in 79' you certainly display a lack of vision.