Buffett: Tax the Rich

[respect]

We may think investing is a good idea, but the bulk of capital gains is earned on money that would be invested anyway so it’s incentive value is questionable at best.



As per above, the risk of loss is already going to be offset by expectations of higer returns and incentivizing reckless investing is generlay not a good idea.

And the returns would have to be even higher to compensate for the higher taxes. Put another way, the higher the tax, the lower the potential return.

 

[lomiller]

Even though I've phrased that in terms very sympathetic to myself as an investor, it doesn't sound like double taxation to me...the $1,000 is money I didn't have before. However, taxing it at a lower rate seems to make sense unless it's economically preferable that I spend it or just hold it instead of investing it.

The current environment in the US is that there are too many dollars available for investment and too few being spent so spending it may be better. Unless you burry the money in your back yard it isn’t really possible to “do nothing” with it.

 

[lomiller]

in a fair society, the workers would own all production.
investment would mean actually pulling up your sleeves and getting to work.
no one should make a profit on another's labour.

“Workers” as opposed to whom? Most people work, even Warren Buffet needs to work to understand where best to invest his money and most people who work for a wage have investments in the form of pensions, life insurance, real-estate or investment portfolios.

 

[lomiller]

correct.
no one should make a profit on the labour of another.

So no one should be able to make a profit producing an MP3 player someone else invented because they would be profiting from the inventors labour?

you miss the point.
the workers should own their own labour.

They already do own their own labour, this is what allows them to trade it for something else they may want to have.

 

[lomiller]

And the returns would have to be even higher to compensate for the higher taxes. Put another way, the higher the tax, the lower the potential return.

I thought the point was to attract more investors? The more investors you have interested the lower the rate of return the investment will earn. What really happens is investment as more money flows into investments is that dollars become more likely to trickle down to marginal investment opportunities. This may or may not be a good idea.

In either case, however, a billionaire is going to be investing most of his/her money regardless, because what are you going to spend that much money on? If you are interested in getting the middle class and hopefully even the poor to invest/save more capital gains rates don’t strike me as a particularly effective way to go.

 

[respect]

I thought the point was to attract more investors? The more investors you have interested the lower the rate of return the investment will earn. What really happens is investment as more money flows into investments is that dollars become more likely to trickle down to marginal investment opportunities. This may or may not be a good idea.

In either case, however, a billionaire is going to be investing most of his/her money regardless, because what are you going to spend that much money on? If you are interested in getting the middle class and hopefully even the poor to invest/save more capital gains rates don’t strike me as a particularly effective way to go.

Billionaires won't start burying their money in their backyards if the tax rate was higher or anything like that. But it would affect what they invest in. Start ups and research especially can require a company to seek investments, investors consider the risks and rewards when deciding whether or not to invest there, the higher the tax, the lower the reward at a given expectation of success. Risky stocks would be less desirable, bonds would have to pay higher returns to compensate for the loss of potential reward and so on.

 

[jimtron]

So why is him being a billionaire relevant at all? If you are upset that taxes on capital gains are typical less than on income, argue for them to be higher. Bringing up the accumulated wealth of a small portion of investors is not a serious argument, it is an emotional appeal.

I don't know how much tax he paid on his billions, so him being a billionaire may not be that relevant to my argument. But for sure he made many millions last year, and only paid 18%. The fact that he made millions is relevant, because people who make hundreds of thousands pay a much higher percentage.

My point: someone making millions shouldn't be in a lower tax bracket than someone making hundreds of thousands.

I didn't mean to imply that his accumulated wealth is relevant. His accumulated billions are only relevant to my argument if he paid a lower tax rate for those as well--I'm not sure if that's the case or not.

 

[lomiller]

Billionaires won't start burying their money in their backyards if the tax rate was higher or anything like that. But it would affect what they invest in. Start ups and research especially can require a company to seek investments, investors consider the risks and rewards when deciding whether or not to invest there, the higher the tax, the lower the reward at a given expectation of success.

Doubtful. Remember, they will not just invest in a single vehicle they will spread their investment out across many and pay tax on the total return. They don’t need a high return on every single investment; all they care about is making sure they typical return for each is higher than for a safe investment. Since capital gains tax doesn’t change the relative return between the two investments I can’t see a compelling reason for it tilt the field in either direction.

Risky stocks would be less desirable, bonds would have to pay higher returns to compensate for the loss of potential reward and so on.

If you take money out of risky investments and place it in safer investments as you suggest the result would be that the return on these safer investments drops. For example when there is a big sell off of stocks people need to do something with the money from the sale, which means they buy bonds. More people buying bonds drives up the price of the bond which drives down the yield. IOW if you are correct and capital gains tax drives people out of risky stocks, bonds would give a lower payout, not a higher one.

 

[mhaze]

why would they need to do anything with their wealth, except live comfortably?
no one should be able to make a profit on the backs of the workers.

Why not? It sounds like a great idea to me. They could work, and I could sell what they make, give part of the money to them and keep the rest.

I'd have to keep them reasonably happy, of course.

 

[respect]

Doubtful. Remember, they will not just invest in a single vehicle they will spread their investment out across many and pay tax on the total return. They don’t need a high return on every single investment; all they care about is making sure they typical return for each is higher than for a safe investment. Since capital gains tax doesn’t change the relative return between the two investments I can’t see a compelling reason for it tilt the field in either direction.


If you take money out of risky investments and place it in safer investments as you suggest the result would be that the return on these safer investments drops. For example when there is a big sell off of stocks people need to do something with the money from the sale, which means they buy bonds. More people buying bonds drives up the price of the bond which drives down the yield. IOW if you are correct and capital gains tax drives people out of risky stocks, bonds would give a lower payout, not a higher one.

I'm not talking about all bonds, rather those that pay high returns because they are deemed risky. Safe bonds like Treasury Bonds would be more desirable.

I find it perplexing that you think that potential return has no relevance to one's willingness to take risk. Let's say that the capital gains tax was 40%. Do you really think that the loss of 25% in potential returns for a given investment will have no affect on one's willingness to make it?

 

[jimtron]

OK, to recap, would anyone be up for listing the top 2 or 3 or so best arguments against Buffet's editorial? I've been a bit surprised at how many here seem to differ with him on this topic, and I'm still not totally understanding the objections (though I kind of am).

The main objections that come to mind are 1) capital gains taxes are relatively low to encourage investing in the economy, and 2) because investing is risky. Feel free to correct me and add your own. I'm just trying to get to the basic/main points where folks differ on the topic.

eta: and if anyone disputes facts from the Buffet editorial, feel free to chime in--IIRC no one has done that yet on this thread.

 

[MarkyX]

you miss the point.
the workers should own their own labour.
all means of production should be owned cooperatively by the workers.
there should be no bosses.

So as a worker, I do not have the option sell my own labour to someone who is willing to pay for it?

 

[jimtron]

Hey, this thread has gotten kind of convoluted--I wonder if we could keep more general discussions about labor and capital on a different (new?) thread?

It would be swell if we could focus on the topic--Buffet's recent editorial about how he (in his view) pays too little in taxes, thanks.

 

[mhaze]

OK, to recap, would anyone be up for listing the top 2 or 3 or so best arguments against Buffet's editorial? .....

What? Did you think he was motivated by anything other than pure self interest? Don't be a fool. Higher cap gains would make ordinary people reluctant to sell, thus he'd have a more flexibility in trading.

 

[jimtron]

What? Did you think he was motivated by anything other than pure self interest? Don't be a fool. Higher cap gains would make ordinary people reluctant to sell, thus he'd have a more flexibility in trading.

OK, Buffet wants higher capital gains tax, because that will make other investors reluctant to sell, giving him more flexibility. I don't buy it, but I'll keep it in mind. Anyone else agree with this view?

 

[bikerdruid]

So as a worker, I do not have the option sell my own labour to someone who is willing to pay for it?

you are free to do as you wish, but should not do so under any compulsion.

 

[Mister Agenda]

you are free to do as you wish, but should not do so under any compulsion.

There is no compulsion. Workers are free to attempt a cooperative venture if they desire. All they have to do is be willing to assume responsibility for the enterprise's success and accept the risks involved in failure.

 

[Mister Agenda]

1. What does investing in the stock market do for the company except, if purchasing shares in that company is done with the market, increase the value of that companys shares? The majority of issued shares available on the market aren't new issues to raise capital for reinvestment, are they?

2. Where does the money earned from dividends and capital growth go if earned by very few individuals, especially if reinvested straight back in? What contributes to the economy more, 1000 people buying one loaf of bread each or 1 guy buying 10?

I've seen the %age of tax paid by the top x% of earners being greater than the bottom 50% used as a positive argument. That confuses the hell of out me.

1. I think it is time to look into wikipedia, you're asking for a lot of information and I'm not a financial advisor, just a guy with a 401K.

2. What contributes to the economy more, 1 guy buying 10,000 loaves of bread or 1,000 people buying one loaf of bread each? Our hypotheticals are very hypothetical.

3. That one is very much in the eye of the beholder. On the one hand, most taxes being paid by top earners can be viewed as them already paying their fair share and largely funding the government functions that benefit everyone. On the other hand, isn't it a shame that the distribution isn't more equitable so lower earners are still earning enough to contribute more as a percentage to tax revenues.

I think Jonathan Haidt's values research is helpful here. It's not about economics, it's about differing value systems. Haidt's moral dimensions (he's up to six now) are related to political ideology, and are (briefly): Care/No Harm, Fairness, Loyalty, Tradition/Authority, Purity, and Liberty. Liberals value Care/No Harm and Fairness significantly more highly than the others, conservatives value them all roughly the same (but their highest is Care/No Harm, although it's emphasized less than in liberals), and libertarians value Liberty significantly more highly than the others. Remember these are moral values, the liberal thinks it's wrong to weight respect for Tradition and legitimate Authority equally with Fairness, the conservative thinks it's wrong to place Fairness over Loyalty, the libertarian thinks it's wrong to place Fairness or Tradition over Liberty. All three political positions value all six dimensions, so it doesn't mean that a conservative doesn't think Fairness is important, just that they are more likely to place the weight of, say, Loyalty and Tradition/Authority as just as important, likely more important if they're combined. It's not the economic calculations that divide us, it's our basic moral stances.

The key to Getting Things Done is to focus on areas where these values can be aligned between the different groups, which isn't necessarily good because it can merely represent effective manipulation: Hitler was able to combine a sense of outrage over the unFairness of Germany's position with Loyalty, Tradition/Authority, and Purity to override a nation's instinct to Care for others and do no Harm. OTH, FDR was able to combine multiple values to mobilize the USA in the effort to stop the Nazis.

At the grassroots level, you can get broader support for measures that appeal to multiple values. If you can get six-for-six (hard, because they easily conflict), you've got a winner.

A simpler coalition: liberals and libertarians for same-sex marriage. Conservatives oppose it due to weighting Loyalty (ingroup), Tradition, and Purity together more highly than Fairness by itself. Liberals think it's only Fair, and libertarians consider it a matter of Liberty. In fifty years the conservatives will mostly be on board, because by then it will be probably be Traditional and gays less of an outgroup, so it will become a wash for them (and they'll probably use it as an example of how tolerant conservatives are).

For what it's worth, I just think the man is on to something, and it's worth knowing why certain things seem to always end in an impasse...some things we're never going to agree on unless our value system changes, and that is a very gradual process, IMHO.

 

[LTC8K6]

http://www.youtube.com/watch?v=o-0lAhnoDlU

Eat the Rich...

 

[Mister Agenda]

The current environment in the US is that there are too many dollars available for investment and too few being spent so spending it may be better. Unless you burry the money in your back yard it isn’t really possible to “do nothing” with it.

Could be. I think investors aren't investing and consumers aren't spending for pretty much the same reasons, though. I can see how upping the capital gains rate could encourage people to take money out of their investments (or put less money into them) and buy stuff you only have to pay sales tax on. Maybe the rich can give the yacht and private plane industries a boost.