Warren Buffett: Why Am I Not Being Taxed More?

By Justin Gardner | Related entries in Democrats, Republicans, Taxes, tea party

An amazing editorial was published the New York Times yesterday. Not just because Warren Buffett lays waste to nearly every single “taxation kills investment” argument…but because he has lost his patience with those who don’t understand history.

To start…

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Indeed.

But wait…there’s more…

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

I bold that second paragraph specifically because it flies in the face of what many consider conventional wisdom about taxing investment income.

When engaged in debate over issues like this, people sometimes ask me what would be the incentive to invest if taxes are higher. I answer the same every time because the answer will always be the same: to make money. Is there another ballgame in town when it comes to making money off of money? Sure, you could invest in a small business or a startup, but many investors don’t have the time or patience for that. They want to able to read the tea leaves, pivot off of the market’s emotions and make a quick buck. It’s as simple as that.

All investors know this to be true, but only the intellectually honest ones will admit it. Count Buffett among that group.

And to that point…

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

That’s right. Over 20% of the richest people in the US didn’t make any income that would qualify for payroll taxes. And even if they did, it’s unlikely that made up any significant portion of their actual income. It’s all investments folks. Wake up.

Here are Buffett’s suggestions…

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

All sage advice.

…and it will never happen.

Thank you Tea Party!


This entry was posted on Monday, August 15th, 2011 and is filed under Democrats, Republicans, Taxes, tea party. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

43 Responses to “Warren Buffett: Why Am I Not Being Taxed More?”

  1. Tillyosu Says:

    I was wondering how long it would take Justin to rush out this op-ed.

    I, for one, tend to share Pat Buchanan’s sentiment.

    I’m sure the Treasury is eagerly awaiting your check Mr. Buffet.

  2. Loviatar Says:

    @ Tillyosu

    Do you believe in defending our country if so I expect your immediate enlistment in the Army with deployment to Iraq.

    If not, then why do you hate America?

    See how silly it is when your comment is applied to any Government action. Just because Mr. Buffett believes the tax rate on the wealthy is too low does not mean he should be obligated to immediately give his money away. His belief; I got mine lets help those less fortunate. Your belief; I’ve got mine screw the country.

    This tax cut thing really is a religion to you guys, all faith and no thought.

  3. WHQ Says:

    Further, Warren Buffet, on his own, cannot make a dent in the deficit, so it would be a waste of his money and his money alone to simply voluntarily send a check to the treasury. Even serious free-market advocates understand the free-rider problem. It’s basic economics.

    And the question of whether or not he is advocating an effective policy does not depend on the strength of his personal desire to give up his money voluntarily, regardless of whether or not doing so would help our national finances in a significant way. The argument stands on its own or doesn’t, regardless of who is making it.

  4. Justin Gardner Says:

    @Tillyosu, just answer one question: why should investment income be treated differently from other income?

  5. Tillyosu Says:

    Do you believe in defending our country if so I expect your immediate enlistment in the Army with deployment to Iraq.

    I actually do believe in defending our country, and I actually did enlist in the army – the infantry in fact, straight out of high school. But your little thought experiment would only make sense if I made the argument that ALL men should be compelled to enlist in the army straight out of high school, and I did not do so.

    As to Mr. Buffet’s (and Justin’s) argument regarding dividends and capital gains taxes:

    There’s a reason, first of all, that dividends are taxed at lower rates than ordinary income. It’s because dividends have been taxed already at corporate tax rates. Dividend taxes are just double taxation.

    But for capital gains – would raising capital gains taxes discourage investment? Well not exactly. But what it would do is change the risk/return relationship when it comes to investment. That relationship, as any finance major could tell you, is inescapable. So what would happen if the government decided it was going to take a larger share of that return? Asset prices would most likely fall, and wealth would be destroyed.

    For example, let’s say an investor is looking at an investment opportunity and says “given the risk associated with this asset, I will only invest for a 15% return.” If the government reduces that return, then the price of the asset must be reduced to compensate for the risk.

    In addition, a raise in capital gain rates would depress economic activity and result in less capital gains tax revenue. Once again, the historical record bears this out. When capital gains rates were reduced in 1978 and again in 1981, capital gains revenue increased. And when they were raised in 1987, capital gains revenue decreased. It’s just a simple fact that the decrease in marginal rates, capital gains rates, and dividend rates over the last 60 years has coincided with economic growth and higher tax revenues.

    Now, Mr. Buffet and Justin may be nostalgic for the glory days of the 76-77 economy when capital gains rates were much higher, but I don’t think many investors share their sentiment.

    @WHQ

    You’re right. It would be a total waste of Mr. Buffet’s money. And that’s exactly my point. But I’m surprised at your quick turnaround from the previous thread where you were making a totally opposite argument, even after Geeze demonstrated that raising the top marginal rate to 39.6% wouldn’t make a dent in the deficit either.

  6. Tillyosu Says:

    Also WHQ, as I’ve pointed out previously, a larger and larger portion of the tax burden is being carried by a smaller and smaller proportion of the population – with nearly half paying no income taxes at all. Isn’t that the free rider problem we should be worried about?

  7. Tillyosu Says:

    Sure, you could invest in a small business or a startup, but many investors don’t have the time or patience for that. They want to able to read the tea leaves, pivot off of the market’s emotions and make a quick buck. It’s as simple as that.

    You should bear in mind, Justin, that the sort of short term capital gains that you’re describing are indeed taxed as ordinary income. It’s only long term capital gains (like oh, investing in a small business or a startup) that are taxed at lower rates. That right there should answer your question.

  8. WHQ Says:

    Isn’t that the free rider problem we should be worried about?

    The half not paying federal income taxes pays plenty of other taxes. But, yes, we should be concerned that such a large percentage of our population doesn’t make enough money to be subject to federal income tax.

    But I’m surprised at your quick turnaround from the previous thread where you were making a totally opposite argument, even after Geeze demonstrated that raising the top marginal rate to 39.6% wouldn’t make a dent in the deficit either.

    But it would make a dent. Geeze demonstrated that it would. It just didn’t seem worthwhile to him, for whatever reason. Probably because he was attacking a straw man suggesting that the goal was to eliminate our deficit entirely over the short term through this one measure.

    There is no turnaround. Changing the marginal tax rates for everyone is not the same as changing them for Warren Buffet, all by his lonesome. The two things would have dramatically different results, but I’m sure you’re smart enough to know that.

  9. WHQ Says:

    Dividend taxes are just double taxation.

    So what? I pay sales tax when I spend my after-tax income. I pay federal and state gasoline taxes when I buy gas with my income that was already subjected to federal and state income taxes.

    There may be good arguments for reducing or even eliminating corporate taxes and capturing that revenue downstream when it gets disbursed to individuals, be they employees or investors, or upstream at the consumer end. But double taxation isn’t one of them. It doesn’t mean anything except as an abstract notion that some people seem to get caught up with.

  10. kranky kritter Says:

    GOP opts for non sequitur response again? really? Every time IN MY LIFETIME a wealthy person with extensive knowledge of finance has suggested that the wealthiest could easily handle paying slightly higher taxes with no adverse economic effects, conservatives go to the canned “send your check to…. ” response. Wealthy conservatives LOOOOOVE to be glib.

    But for the rest of us, it’s not a vaudeville routine. So lets notice that anti-tax conservatives will go to very great lengths to avoid any discussion of whether, under the current particular economic circumstances, a small tax hike on the wealthy really would be harmful. Or unjust. If forced into having this argument, which they lose, their fallback position is to claim that the extra revenue would be insignificant.

    Or to repeat the argument that spending is the entire problem. The rest of us know that the problem is the gap. It’s beyond me why conservatives can’t just accept the easy victory. They deserve credit for bringing way more folks to the side of noticing that federal spending is unsustainably beyond our means and must be curtailed. they’ll never get broad credit for that role so long as they keep insisting that small tax increases on the wealthiest can’t be a sensible and fair part of bridging the gap. Their argument comes across weirdly like this:

    We have serious budget problem due to overspending. Therefore we can’t raise taxes.

    Very sound premise. Unsupported conclusion. That’s a great way not to get credit for the stuff you’re right about.

  11. Tillyosu Says:

    So lets notice that anti-tax conservatives will go to very great lengths to avoid any discussion of whether, under the current particular economic circumstances, a small tax hike on the wealthy really would be harmful.

    I could answer that question for you. Instead, I’ll let that “anti-tax conservative” Christina Romer do it. Money quote:

    If you raise taxes, in the short run, it will tend to lower output. And that’s one of the reason I’d say, you know, even though I very much support raising taxes for dealing with the deficit gradually over time, now is not the time to do it.

  12. WHQ Says:

    If you raise taxes, in the short run, it will tend to lower output.

    So will cutting spending. The question is to what degree any given proposal, in and of itself, will lower output and whether or not, given that, it is worth it for other reasons, considering the other proposals in play. I’d suggest at this point that raising taxes on the very wealthy will reduce output less than spending more on infrastructure will increase output – dollar for dollar.

  13. Tillyosu Says:

    It doesn’t mean anything except as an abstract notion that some people seem to get caught up with.

    Of course it means something. It undermines Mr. Buffett’s entire argument. Because dividend income is not just taxed at 15%, it’s also taxed first at a corporate rate of 35%. What that means is that the effective tax of dividend income is somewhere around 45% (I think my math is right on this).

    In fact, after some reading, I’ve realized a few other points. First, guess who doesn’t pay dividends? Berkshire Hathaway. So Mr. Buffett wouldn’t be affected by an increase in dividend rates. Second, guess who never sells assets once he’s bought them. Yep, Warren Buffett. So neither would he be affected by an increase in capital gains rates.

    This seems to be a pattern for Mr. Buffett. He’s also a big proponent of the estate tax. But guess who decided to transfer his estate to a charitable organization…tax free? Uh huh. And guess who owns six life insurance companies? (Life insurance is widely used to avoid the estate tax). You guessed it.

    Which brings me back to my original point – if Mr. Buffett feels that he’s not contributing enough to the federal government, and if raising marginal rates or dividend rates or capital gains rates won’t achieve that end, then he should just cut them a check.

  14. Justin Gardner Says:

    There’s a reason, first of all, that dividends are taxed at lower rates than ordinary income. It’s because dividends have been taxed already at corporate tax rates. Dividend taxes are just double taxation.

    While it’s true that most of that money gets taxed, if you make money off of that money, you’ve only paid that corporate tax once. The initial money could also be given to you as a gift, which would be tax free to you.

    It’s only long term capital gains (like oh, investing in a small business or a startup) that are taxed at lower rates. That right there should answer your question.

    Wrong.

    Long term stock investing, which happens often, only has to pay 15% (or less than that if you’re in a lower tax bracket). And short term investments in startups or homes that are flipped within a year still are subject to short term capital gains.

    But the long term rate was what Buffett was referring to. And in special cases, even investments that get flipped quickly, because they’re investing in certain sectors, are subject to less taxation on a portion of their insanely short-term investments. Why? Because of corporate lobbying, pure and simple.

    The reason people invest is to make money. Taxation doesn’t hinder that. The lack of good opportunities does.

  15. Tillyosu Says:

    While it’s true that most of that money gets taxed, if you make money off of that money, you’ve only paid that corporate tax once. The initial money could also be given to you as a gift, which would be tax free to you.

    I don’t think you understand what double taxation means for dividends. If I buy a share of a company, I am part owner of that company. When the company earns money, that income technically belongs to me. But Uncle Sam get’s his share of that income before it gets to me (in the form of a dividend). But then, when it does get to me, Uncle Sam gets another share (dividend tax). So in effect, Uncle Sam has taxed the same income twice. Regardless of where the money comes from, or what I do with it, I’m taxed about 45% on that income.

    Long term stock investing, which happens often, only has to pay 15% (or less than that if you’re in a lower tax bracket). And short term investments in startups or homes that are flipped within a year still are subject to short term capital gains.

    Isn’t that EXACTLY what I said above?

    But the long term rate was what Buffett was referring to.

    Right. But that’s NOT what you were referring to when you said:

    Sure, you could invest in a small business or a startup, but many investors don’t have the time or patience for that. They want to able to read the tea leaves, pivot off of the market’s emotions and make a quick buck. It’s as simple as that.

    You were referring to short term capital gains.

    And in special cases, even investments that get flipped quickly, because they’re investing in certain sectors, are subject to less taxation on a portion of their insanely short-term investments.

    Would you care to give us an example? The only one I can think of is if you bought and sold a house that was your primary residence. I can only imagine the kinds of lobbyists those people have…

    And my favorite part:

    The reason people invest is to make money. Taxation doesn’t hinder that. The lack of good opportunities does.

    Oh perfect! (I think KK would call that “proof by declaration”…he thinks it’s pretty awesome). I have just one teensy question. Why don’t we have a capital gains tax rate of 99% then?

  16. WHQ Says:

    If I buy a share of a company, I am part owner of that company. When the company earns money, that income technically belongs to me.

    You might want to discuss that with the boards of many companies. You are entitled to whatever portion of profit the board decides goes to shareholders as dividends. Some stocks pay no dividend at all, even stocks for companies that make a profit. And it’s laughable to think that people typically pay 45% in the real world adding corporate taxes to dividend taxes.

    Why don’t we have a capital gains tax rate of 99% then?

    You have a point there, being very literal about it. But I think what really matters is that whatever disincentive taxes at certain reasonable levels represent is insignificant relative to the revenue produced, assuming you aren’t ardently anti-government to begin with and oppose government revenue as an evil in and of itself. For me, there should be progressivity in taxation of all forms of individual income. I don’t mind disincentives at absurdly high levels of income. Money gets to be useless in practical terms at some point. Let someone else at a lower marginal rate make it instead.

  17. Tillyosu Says:

    You might want to discuss that with the boards of many companies. You are entitled to whatever portion of profit the board decides goes to shareholders as dividends.

    Rrrright. But who do you think the Board works for and is elected by? The shareholders.

    Some stocks pay no dividend at all, even stocks for companies that make a profit.

    That’s true. But why would a company not distribute income to the owners in the form of dividends? Well, for a couple of reasons. They may decide to reinvest that money in the company. Or they may decide to hang on to it as retained earnings. So does that mean that I’ve just been screwed out of my share of the earnings? No. The stock that I hold increases in value in proportion to my share of the retained earnings. That’s why you see headlines like “Stock X soars on reports of better than expected earnings.” So I am enriched, just not in the form of cash. BTW, if I turn around and sell that stock, and let’s say I just bought it 3 months before, I have to pay ordinary income rates on it. So I have an incentive to hang on to that asset for at least a year. Now I wonder why they would do that…

    And it’s laughable to think that people typically pay 45% in the real world adding corporate taxes to dividend taxes.

    Is it? Let’s run through the numbers. Suppose there is a corporation that has one share of stock, and I am the sole stockholder. Now suppose that that corporation earns $100. I determine, as the sole stockholder, that those earnings should be distributed to the owner. Before it can, I have to pay Uncle Sam 35%. That leaves me with $65. Then when the money leaves the corporation and goes into my pocket, I have to pay Uncle Sam an additional $9.75. That leaves me with $55.25. So of that $100, I have paid $44.75 to Uncle Sam, and get to keep $55.25 for myself. Now you tell me, what is 44.75/100?

    I don’t mind disincentives at absurdly high levels of income. Money gets to be useless in practical terms at some point. Let someone else at a lower marginal rate make it instead.

    I wonder, what is level of income would be “absurd” to you? Because I can guarantee that there are millions of people with a different number than you. And no, money doesn’t get to “be useless” at a certain point. A dollar of investment from a rich man is just as valuable as a dollar of investment from a poor man. What you meant to say was “a dollar to a rich man doesn’t mean as much as a dollar to a poor man.” That may be true, but is that really a justification for taking it? If so, I’d love to visit your home and take all of the stuff that I judge you don’t really care about anymore.

  18. kranky kritter Says:

    If you raise taxes, in the short run, it will tend to lower output.

    Right, that’s the general case description, that on average, raising taxes tends to have this effect.

    The relevant question is the one I’ve already asked you over and over, and which you’ve consistently evaded. It’s this:

    What is the reason, in this specific instance that we should think that raising taxes [not on everyone or by a lot, but on the wealthiest, and only by a little bit, 3% on dollars of income greater than 250k) will adversely effect output by causing a shortage of investment capital.

    Show me the capital shortage. You can’t. It isn’t there.

  19. Tillyosu Says:

    What is the reason, in this specific instance that we should think that raising taxes [not on everyone or by a lot, but on the wealthiest, and only by a little bit, 3% on dollars of income greater than 250k) will adversely effect output by causing a shortage of investment capital.

    Did you even watch that interview? The answer is clear, and you quoted it above. I mean, your argument is just plain idiotic. “Sure, maybe raising taxes tends to result in less output. Doesn’t mean it will this time. That’s like saying “sure drunk driving tends to result in more accidents. Doesn’t mean it will this time.”

    Do I really have to walk you through this? When you increase taxes you take money out of the economy. This results in less supply of investment capital. Now what happens when you reduce the supply of something? The price tends to go up. So the users of capital have to offer a higher return for investment. And they have to reduce prices and get less investment than they otherwise would. So the result is…output is reduced.

    But your argument is that there’s excess capital with nowhere to go, and that it wouldn’t harm investment if we confiscated it and let the government spend it. But here’s the rub: you can’t demonstrate that there’s an excess of investment capital. You can only claim that for some reason low interest rates lead to an excess of investment capital (a claim that is totally untrue), and that given the interest rate environment, there MUST be an excess of investment capital. Bull.

    So you see, I don’t have to demonstrate that there’s a shortage of investment capital. It’s not essential for my argument. You, on the other hand, do. And you haven’t yet.

  20. rachel Says:

    “When you increase taxes you take money out of the economy.”

    Because… The government just stuffs it in a mattress and it is never seen again? Huh?

  21. Buwahaha Says:

    The idea of “excess capital” is something of a myth. Pre-2008, when large companies needed to buy something big they would often finance that decision. When the banks cut businesses’ access to credit, the businesses that were able became, in effect, their own banks by increasing their capital on hand. The money is there because they can’t or won’t trust lending institutions to fund their ventures like they did in the past.

  22. gerryf Says:

    This thread is an excellent example of why the rich never pay taxes. We have one guy throwing up a multitude of half-baked reasons why the group that controls 80 percent of the wealth is paying a disproportionately low percentage of taxes and everyone else is trying to reason with him.

    Ultimately, he’s got no reason that actually makes sense other than they have the money and they can buy more congress people who make the laws. These laws exempt certain income under a guise of fairness, double taxation, encouraging this or that–all of which is pure crap.

    Everything else is just semantics.

  23. Tillyosu Says:

    This thread is an excellent example of why the rich never pay taxes. We have one guy throwing up a multitude of half-baked reasons why the group that controls 80 percent of the wealth is paying a disproportionately low percentage of taxes

    Actually gerry, the rich DO pay taxes. And more than their “fair share” in fact.

    Consider this: the most recent IRS data shows that the top 1% get 20% of the national income, yet they pay 38% of income taxes. The top 5% get 35% of the national income, yet they provide nearly 60% of the national taxes. Let that sink in for a moment. 5% of the country is paying 60% of taxes. Think about that the next time someone claims the rich are not paying their fair share.

    In fact, recent OECD data shows that the United States has the most progressive tax system of ANY OECD member nation. What that means is that the wealthy in the U.S. have the highest tax burden in relation to their share of the national income.

    So your claim that “the rich don’t pay taxes” or that their share is “disproportionately low” is flat out contradicted by the numbers.

  24. kranky kritter Says:

    What is the reason, in this specific instance that we should think that raising taxes [not on everyone or by a lot, but on the wealthiest, and only by a little bit, 3% on dollars of income greater than 250k) will adversely effect output by causing a shortage of investment capital.

    Message received, til. You refuse to answer. You call my question idiotic, and deny that it deserves to be answered. If there was a shortage of capital interest rates would be substantially higher.

    I strongly suspect that privately, you agree that there’s no trouble whatsoever with any shortage of investment capital. I doubt that there’s a good way to conclusively prove it, but everything about current economic circumstances and movements of money suggest it in a way that’s way too ample for a fair-minded person to ignore.

    In fact, recent OECD data shows that the United States has the most progressive tax system of ANY OECD member nation. What that means is that the wealthy in the U.S. have the highest tax burden in relation to their share of the national income.

    And yet we have FAR lower income tax rates than all of the evil socialist countries. Sweden for example, has an average (average, not top, average) rate of 58%. You seem to think it’s the height of cleverness to ignore all the rational points in Warren Buffet’s argument and glibly tell him to write a check. So, you don’t like the progressivity in the US system with a 35% top rate, and you can”t even begin to stomach a 38% top rate. So why not move to Sweden. I’m sure you won’t mind the wealthy paying way higher taxes as long as folks with lower incomes are paying their “fair” share.

    Consider this: the most recent IRS data shows that the top 1% get 20% of the national income, yet they pay 38% of income taxes. The top 5% get 35% of the national income, yet they provide nearly 60% of the national taxes. Let that sink in for a moment. 5% of the country is paying 60% of taxes. Think about that the next time someone claims the rich are not paying their fair share.

    These numbers would look very different if we accounted for the cost of subsistence. You’ve already agreed that an allowance for subsistence is both fair and rational. If we looked at “income above subsistence, what share of the wealth would the wealthiest have?

  25. Loviatar Says:

    @ gerryf

    For me his half baked reasoning support for the wealthy is kind of nauseating. I always wonder about the guys like Tillyosu and their strident support of the wealthy.

    1) is it self interest at work (he is a multi-millionaire)

    or

    2) is it just sucking up to the rich kid

    Reason number one, I can understand, short sighted and harmful to the country, but understandable. Reason number two makes no sense, I’m left hoping he is a paid sycophant, whose belief is no more than dollar deep. That I can at least understand, not respect, but understand.

  26. WHQ Says:

    I wonder, what is level of income would be “absurd” to you? Because I can guarantee that there are millions of people with a different number than you.

    That’s why we have representative democracy. 350 million people aren’t going to agree entirely about anything. I’m simply making my case for my point of view. I’d have no problem with taxation of, say, someone’s ten millionth dollar at a rate above 50%. At that point, they’ve obviously benefited greatly from our institutions and infrastructure. But that’s just an example of my general thinking, not really a proposal for reducing our deficits.

    Now you tell me, what is 44.75/100?

    I can do the math, but your example isn’t realistic. I’m talking about actual taxation, which almost never occurs at the statutory rates. That’s why the phrase “effective tax rate” exists. I don’t really care whether revenue gets raised by eliminating loopholes or changing the rates. Whatever works. If corporations and shareholders really paid at those rates, that would probably be (more than) sufficient.

    Think about that the next time someone claims the rich are not paying their fair share.

    There’s not really such a thing. What’s fair is that we’re all subject to the same tax code, which applies to income levels and not someone’s identity. Tilly doesn’t pay more on his nth dollar of taxable income than WHQ just because he’s Tilly and not WHQ.

    And, if you’ve made a high income, like I wrote before, you’ve benefited more greatly from our institutions and infrastructure than people who’ve made a lower income. People don’t earn lots and lots of money in a vacuum solely because they are virtuous Randian heroes. They rely on our banking system, our courts, our law enforcement (in the broad sense, not just cops – think anti-trust, patents, etc.), our educational system and our infrastructure moreso than lower earners who simply work for wages.

    One thing that your blog link shows is that the top 10% in the US have the largest share of national income of all the countries listed. Given that, it doesn’t necessarily mean that we have the most progressive tax system, simply that our progressivity has a greater effect because income is more concentrated at the top. Imagine if everyone in the US had an even share of national income. The top 10% would pay 10% of the taxes and no one would earn enough to pay the top rate, even if we had the same tax code we now have – no less progressive. And looking just at the top 10% only gives you a piece of the overall picture. It wouldn’t surprise me if that particular percentile was chosen because it made the situation look a particular way – the nicest cherry, perhaps.

  27. gerryf Says:

    Tillyosu Says:
    Actually gerry, the rich DO pay taxes. And more than their “fair share” in fact.

    You see, Tillyou, that is the problem with discussing anything with you and your ilk–you carefully cherrypick your data to make an argument that is essentially nonsense.

    The only way it works is if you redefine income. Whereas Buffet discusses everything openly and honestly, you take redefine income as whatever suits your argument for the moment; ultimately, that is disingenuous.

    In 2007, the top 20 percent of the population controlled 86.1 percent of the wealth of the US.

    And you think that 60 percent is a deal. Like any wealthy person, you figure everyone else should just take what falls of the plate of the rich and be grateful of it.

    That is exactly the kind of attitude that has gotten us to where the country is in gradual decline.

    How much is too much wealth, Tillyou? You’re going down a dangerous path with this. The “wealthy elite” almost destroyed this country three years ago and it was only through the federal government and the middle class that you loathe that we have not descended into disaster.

    And now, the “elite” are calling for shared sacrifice without sacrificing a thing.

  28. Tillyosu Says:

    @WHQ

    I’m talking about actual taxation, which almost never occurs at the statutory rates. That’s why the phrase “effective tax rate” exists.

    Fair enough. But even at the average effective corporate tax rate in the US (27.7%), the total tax on dividends figures out to about 38.5%. And Mr. Buffet’s argument, at least as it pertains to dividends, still fails.

    And, if you’ve made a high income, like I wrote before, you’ve benefited more greatly from our institutions and infrastructure than people who’ve made a lower income. People don’t earn lots and lots of money in a vacuum solely because they are virtuous Randian heroes.

    How do you figure? Our institutions and infrastructure are available to everyone. People like Gates and Buffett didn’t become billionaires because they somehow had access to resources that no one else did. They became billionaires because they were tenacious, driven, and very, very smart. It’s a curious argument you’re making but it’s instructive because I have a feeling that it’s a sentiment shared by a lot of people on your side of the aisle.

    One thing that your blog link shows is that the top 10% in the US have the largest share of national income of all the countries listed. Given that, it doesn’t necessarily mean that we have the most progressive tax system, simply that our progressivity has a greater effect because income is more concentrated at the top.

    Yes but remember what I was talking about there – whether the rich were paying their “fair share.” It seems to me that the best way to determine that would be to see what their share of the tax burden is in relation to their share of the national income. What that graph showed was that the rich pay about 35% more in taxes than their share of the income – the highest of any OECD nation. What you’re trying to do is change the subject to income inequality, which is not what we were talking about.

    The top 10% would pay 10% of the taxes and no one would earn enough to pay the top rate, even if we had the same tax code we now have – no less progressive.

    You’re missing the point here. I wasn’t saying that we had the most progressive tax rates, only that our system produces the most progressive results.

    @gerrf

    The only way it works is if you redefine income. Whereas Buffet discusses everything openly and honestly, you take redefine income as whatever suits your argument for the moment; ultimately, that is disingenuous.

    I didn’t redefine anything. The figures I presented showed the top 1% and 5%’s share of national adjusted gross income – which includes dividends and capital gains. If you have a better definition of income that you’d like to use, I’d love to hear it.

    In 2007, the top 20 percent of the population controlled 86.1 percent of the wealth of the US.

    See now you’re changing the subject. We’re not talking about wealth here, we’re talking about income. There’s a huge difference. But here’s the great thing about wealth in America – you’re perfectly free to go an take it if you want. For example, I believe Mr. Buffett started out by buying pinball machines and putting them in barber shops. Now he’s the second richest man in America. Nobody gave him that wealth, he earned it.

    The “wealthy elite” almost destroyed this country three years ago and it was only through the federal government and the middle class that you loathe that we have not descended into disaster.

    I don’t buy that argument for a second. This recession wasn’t caused by the wealthy elite. It was caused by a housing bubble that was created and fed by the government. The government set up a nice lucrative game and everyone joined in. From individual homeowners to banks and other financial institutions…and who could blame them. And when that bubble burst, you know who took the biggest hit? The “wealthy elite.” And when the Fed came looking for money to help ease the correction, you know who loaned them money and who’s going to be paying the majority of the taxes to pay that money back? The “wealthy elite.”

    And I don’t loathe the middle class gerry. I am probably the definition of middle class. But someday, if I work hard enough and make the right investments, I’d like to build a better life for myself and for my kids. And when I do, I don’t want someone like you coming and knocking on my door with your hand out because you don’t think I deserve it.

  29. WHQ Says:

    People like Gates and Buffett didn’t become billionaires because they somehow had access to resources that no one else did. They became billionaires because they were tenacious, driven, and very, very smart.

    I didn’t say they had access to resources that no one else did. I said that they’ve benefited more greatly from those resources and relied more greatly on those resources. Yes, they worked hard and are smart, but the entire context in which they were able to work and use their intelligence was not of their making. There was a pre-existing framework in which they made their fortunes, a framework without which they could not have done so. The argument you’re making is like saying a runner doesn’t need oxygen because he uses his legs to run.

    You’re missing the point here. I wasn’t saying that we had the most progressive tax rates, only that our system produces the most progressive results.

    Then you’re missing the point. If one person made all the money in the country, he’d pay all the taxes, right? Even if we had a flat tax, right? The top 0.0000003% would pay 100% of the taxes. Or let’s assume he made 350 million dollars and everyone else each made one dollar, but taxes didn’t kick in until you made a hundred dollars. He’d make 50% of the money but would still pay 100% of the taxes. It’s not changing the subject to note that income distribution affects the outcome of a progressive tax system, which is entirely different from the progressivity of the tax system.

    I mean, what’s the point of your, um, point? That our tax code is too progressive? That it’s unfair? That wealthy people are hurting? That the poor have it too good? That people won’t bother investing? If any of that’s true, why do the wealthiest have such a large share of our national income? Why has it been increasing over the last 40 or so years? Why are the real incomes of the lower quintiles stagnant while our economy has been growing?

  30. Tillyosu Says:

    I didn’t say they had access to resources that no one else did. I said that they’ve benefited more greatly from those resources and relied more greatly on those resources.

    Yes but through their own volition. Everyone else is perfectly free to use those same resources just as they did. Everyone else is free to draw up contracts and enforce them in court, or to file patents, or to access capital markets. The difference is they don’t.

    But think about this. You could make an argument that folks in lower income neighborhoods utilize police services more than folks in higher income neighborhoods. Are you suggesting that they should pay higher taxes for those services?

    I mean, what’s the point of your, um, point? That our tax code is too progressive? That it’s unfair? That wealthy people are hurting? That the poor have it too good?

    My point was simply that the rich are paying their “fair share,” despite what gerry or Buffett or Justin or anyone else would have you believe.

  31. WHQ Says:

    Yes but through their own volition.

    So what? I don’t see what that has to do with how one formulates an opinion on effective and reasonable tax policy.

    Your last is a matter of opinion, not fact. On such things, mileage varies, thus representative democracy.

  32. theWord Says:

    Just to clarify. Call it whatever you want but are you saying that 21 people walk into the offices of Berkshire Hathaway, they all work hard to make the company succeed… and one person’s contribution to the society that makes it all possible should be 1/2 or less as a percentage than every other person that walks through the door?

    And that’s fair to you. Certainly turns the meaning of the word on it’s head for me.

    Sam Harris nailed it for me last year when talking about extending the GOP tax cuts – “Imagine being safely seated in lifeboat, while countless others drown, only to learn that another lifeboat has been secured to take your luggage to shore…”

  33. Tillyosu Says:

    and one person’s contribution to the society that makes it all possible should be 1/2 or less as a percentage than every other person that walks through the door?

    Ahhh, and there it is. So even if Mr. Buffett pays 10 times more than anyone in that office, your concern is whether it hurts him enough. And if it doesn’t hurt him enough, then he should contribute more. Is that about right? That sounds like a pretty stupid way to design our tax code.

    But here’s the thing: everyone in that office is free to take their income, and dump it into stocks and other assets that provide returns with more favorable tax treatment. Gee, I wonder what crazy person would think to set up a tax system that favors savings and investment?

    Sam Harris nailed it for me last year when talking about extending the GOP tax cuts – “Imagine being safely seated in lifeboat, while countless others drown, only to learn that another lifeboat has been secured to take your luggage to shore…”

    Well, Sam Harris is an idiot. Okay maybe not an idiot, but he’s certainly no tax expert. Consider that since the passage of the Bush tax cuts, the distribution of the tax burden has shifted to the wealthy. The top 10%’s tax burden went up some 11%, while the tax burden on the bottom 50% DROPPED nearly 21%.

    So a better analogy would be the rich get a bigger boat, but as a consequence, they end up carrying more of EVERYBODY’s luggage. Now that the waters are a little choppy, everyone is pointing at them and saying “Hey your boat is too big. That’s not fair, you should have a smaller boat.”

    To which the obvious response should be “Fine, but you’re going to have to take some of this luggage back.”

  34. WHQ Says:

    But here’s the thing: everyone in that office is free to take their income, and dump it into stocks and other assets that provide returns with more favorable tax treatment. Gee, I wonder what crazy person would think to set up a tax system that favors savings and investment?

    Their income was already taxed before they bought stocks. What favors savings and investment is earning even more money, even if that money gets taxed, even if that money gets taxed (more) like other income. We can favor investment without taxing capital gains at 15% regardless of how many millions someone makes. There’s no reason there can’t be more progessivity in the taxation of unearned income while still encouraging investment.

    Consider that since the passage of the Bush tax cuts, the distribution of the tax burden has shifted to the wealthy. The top 10%’s tax burden went up some 11%, while the tax burden on the bottom 50% DROPPED nearly 21%.

    Consider that the distribution of national income shifted to the wealthy. That’s why they’re paying more in taxes even at lower rates. They’re getting a bigger piece of our national income. What’s so hard to understand about that? If I get a raise my tax burden will go up. Should I refuse my raise?

  35. kranky kritter Says:

    This recession wasn’t caused by the wealthy elite. It was caused by a housing bubble that was created and fed by the government. The government set up a nice lucrative game and everyone joined in.

    Look, it’s the new and improved LOAD OF CRAP, now with truthiness.

    If the gov’t repeals Glass-Steagall at the behest of wealthy powerful private business interests, how is that not the wealthy elite’s fault?

    If lenders fail to do their due diligence and loan to borrowers without documenting their income, how is this the government’s fault?

    If bond ratings agencies fail to understand the investments they rate, or choose not to do their diligence on risk because they have incentive not to, how is this the government’s fault?

    Wall Street was the maker of the game. They were the ones that CREATED the crappy investments vehicles composed of the unsustainable loans that they had a giant appetite for. They were the ones that paid big commissions to bond ratings agencies to give AAA ratings to worthless packages.

    It’s the packages that fueled the appetite for loans regardless of soundness that accounts for the epic size of the bubble. At its most basic, wall street created risk as muxh risk as they could, as quickly as they possibly could do it. Why? Becuase they had found a way to sell ALL of that risk to others under fall pretenses (AAA ratings they were paying for).

    The only way that we can really blame government is if we focus on its failure to properly estimate just how unscrupulous, greedy, and motivated wall street is to enrich it itself by any means which the government does not explicitly prohibit.

    None of that means Fannie Mae or Barney Frank is innocent. But the engine was the ability to create risk and sell all of it downstream to suckers.

  36. Tillyosu Says:

    So let me get this straight, the financial crisis occurred because thousands of investors, including sophisticated investors like pension, insurance, and hedge funds, were “duped” by a collusion between the ratings agencies and wall street banks who (in a wider conspiracy involving retail banks) sold them crappy securities? And then, suddenly and simultaneously in 2008, these investors realized they had been duped? Sigh. If you really believe this partisan tripe, then there’s no hope of untangling this for you.

    The fact of the matter is that the recession was nothing more than a repricing of risk, and consequently assets. Yes, I will grant you that this repricing affected the entire financial system – and thus the US economy – because of it’s interconnectivity. But it wasn’t the interconnectivity itself that caused it.

    So what would cause a sudden and dramatic repricing of risk (and of housing related assets) in 2008? According to you, those assets had ALWAYS been mispriced, and everyone just realized it in 2008. To me, the more like explanation was the imminent and then actual failure of the GSEs (GOVERNMENT sponsored entities) in 2008. You know, those entities that owned or guaranteed 60% of American mortgages?

    See my theory is that the recession would have never occurred without the housing bubble, and the housing bubble would have never occurred without the existence of the GSEs, the CRA, and HUD lending mandates. Sure, the problem was exacerbated by an interconnected financial system, and by irresponsible borrowers. But those things weren’t the proximate cause of the recession. The proximate cause of the recession was the inflated housing demand caused by the GSEs and by government. And when those GSEs failed, that demand evaporated.

  37. WHQ Says:

    GSEs (as in Freddie and Fannie) had a not-insignificant level of responsibility, but CRA and HUD? Seriously? What sort of volume do you think they work in? A worldwide financial crisis significantly caused by lending in disadvantaged communities? Really? That’s what brought down Lehman Brothers?

    What brought the house down was the repeal of Glass Steagall (like kk said) and the subsequent quant vodoo of CBSs and CDSs and whatever other ridiculous derivative financial innovation you can think of along with, yes, the bought-off ratings agencies giving AAAs out like baloons at a kid’s birthday party.

    If you think the global mess we experienced was caused in a large part by GSEs or at all significantly by CRA and HUD, you’re drinking some strong kool aid.

  38. mdgeorge Says:

    But here’s the thing: everyone in that office is free to take their income, and dump it into stocks and other assets that provide returns with more favorable tax treatment.

    Unless they want to, I don’t know, have a place to live or something.

  39. kranky kritter Says:

    If you really believe this partisan tripe, then there’s no hope of untangling this for you.

    I’ve looked into these matters extensively and at length. And have found a depth of support for my understanding of it including from many conservative sources, which far transcends partisan spin. So I’m extremely comfortable with my understanding of it.

    From your brief take here, I’m equally confident that you couldn’t untangle it if you had until the end of time, bound up in reflexively pro-business ideology as you are.

    My take doesn’t, as you claimed, include any tale of overt conspiracy linked among a tale of entities. All it takes is an astonishing lack of due diligence from the start, with liar loans, all the way to the finish, with the purchase of AAA rating bonds that carried FAR more risk than they were described as having.

    See my theory is that the recession would have never occurred without the housing bubble, and the housing bubble would have never occurred without the existence of the GSEs, the CRA, and HUD lending mandates. Sure, the problem was exacerbated by an interconnected financial system, and by irresponsible borrowers.

    Right. So if someone causes a raging wildfire by spraying gasoline at a lit match, the fire is due to the match. The gasoline, and the sprayers? They “merely” exacerbated things. RIIIght.

    But those things weren’t the proximate cause of the recession. The proximate cause of the recession was the inflated housing demand caused by the GSEs and by government. And when those GSEs failed, that demand evaporated.

    I don’t think you know what proximate means. Do you think it means “whatever allows me to blame the government? Heh.

    The bubble never would have come close to reaching epic size without the unquenchable thirst of brokerages for liar loans to fraudulently package as AAA securities based on a highly dubious premises about what sort of RE market growth was sustainable.

    Even I knew the RE market HAD to crash as soon as I heard ads for negative amortization loans. What I didn’t know was how far the sickness had spread. I suspect lots and lots of people were thinking along the same lines, they knew the RE market had to crash, but not when. And had no idea that everyone had been exposed to the risk.

  40. Whale Says:

    Kranky —

    On February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price.

    http://en.wikipedia.org/wiki/Tulip_mania

    So in the Tulipmania of 1636-37, was it the bastard-tulip speculators or the contract-altering Dutch Parliament that caused the fall. After all, it isn’t really the bubble that hurts, it’s the collapse of the bubble. Similarly, it is not the “falling off the mountain” that we are afraid of — its the ridiculously extreme deceleration at ground level that causes the problem. I’m just saying.

  41. Mike A. Says:

    “Consider this: the most recent IRS data shows that the top 1% get 20% of the national income, yet they pay 38% of income taxes. The top 5% get 35% of the national income, yet they provide nearly 60% of the national taxes. Let that sink in for a moment. 5% of the country is paying 60% of taxes. Think about that the next time someone claims the rich are not paying their fair share.”

    Yes, and if the rich make 100% of the income, they will pay 100% of the taxes…and Tilly will have more reason to claim how unfair this is.

  42. Tillyosu Says:

    Yes, and if the rich make 100% of the income, they will pay 100% of the taxes…and Tilly will have more reason to claim how unfair this is.

    Obviously, you failed to grasp the point of my comment. My point was that the top 5% pay a very large portion of the income taxes in relation to their share of the national income. The highest, as I’ve previously pointed out, of any OECD member nation.

  43. Steve Says:

    Although I agree that the rich can afford to shoulder a larger burden to help the nation get out of its debt problem, it seems that Mr. Buffett forgets to mention one of the reasons he pays lower taxes: charitable contributions allow a person to claim tax deductions and lower the effective tax rate.

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