Buffett: Tax the Rich

[LTC8K6]

Wins the thread.

If someone very rich (or indeed not so rich) decided to invest in your business, then they'd be running about the same risk to their money as you, but would only be paying a portion of the tax. Oh, and you're doing all the work.

http://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp#axzz1VHhfyy4E

 

[WildCat]

At least one person argued that capital gains should incur less taxes because investing is risky. From post #43:

jimtron: "Why should someone making $40k a year pay a higher percentage of taxes than a billionaire?"

LTC8K6:

You really interpreted it that way?

 

[WildCat]

With a tax shelter, the idea is to keep the money (or its value in property) and reduce/avoid its associated tax burden.

Who controls the Gates Foundation?

 

[WildCat]

I'm self employed. My wages aren't guaranteed. There's a chance my clients won't pay for the services they contracted for. I have to purchase the goods I sell and invest in supplies to provide services. The government considers my net profits to be wage income. It would seem to contradict your version of economics.

None of that changes the fact that you are not making capital investments. You are making a wage. You are not tieing your money up in capital investments for a year or more, and assuming a risk that the money you invested will disapear in part or in whole.

 

[WildCat]

If someone very rich (or indeed not so rich) decided to invest in your business, then they'd be running about the same risk to their money as you, but would only be paying a portion of the tax. Oh, and you're doing all the work.

No. Skeptigirl is a contract employee. She has no capital investments at risk.

 

[Skepticemea]

None of that changes the fact that you are not making capital investments. You are making a wage. You are not tieing your money up in capital investments for a year or more, and assuming a risk that the money you invested will disapear in part or in whole.

Billionaires are actually poorer than those earning 30k a year?

Seems the American tax system is set up to encourage people to gamble with their future.

 

[3point14]

No. Skeptigirl is a contract employee. She has no capital investments at risk.

So she doesn't invest in materials, training, a place of business and services?

 

[Mister Agenda]

Billionaires are actually poorer than those earning 30k a year?

Seems the American tax system is set up to encourage people to gamble with their future.

1. Of course not.

2. It's set up to encourage people to invest in potentially productive enterprises, yes.

 

[jimtron]

Earlier in the thread Respect was asking why Buffet being a billionaire is relevant, which I misunderstood before. If he had earned his billions while paying a tax not lower than middle class people--say 35-40%, I wouldn't necessarily have a problem. I'm not saying that because he already has billions, that it's not fair for him to pay 15% capital gains.

I'm saying that he is only paying 18% on millions of dollars of income (last year for example), while others are paying 30% on hundreds of thousands of dollars of income.

Maybe that was already obvious, but I just realized I wasn't getting the question about him being a billionaire before.

 

[Skepticemea]

1. Of course not.

2. It's set up to encourage people to invest in potentially productive enterprises, yes.

So, to put it baldly, you're stating that someone earning over 6 million in income should be allowed to keep more of that income in percentage terms than a soldier (for example) due to the risks that were taken in realising that income?

Investing in the equities market is gambling. It has nothing to do with wealth creation as the wealth is "created" by the companies they are investing in. At least, in Buffet's defence on this, he is in it for long term appreciation rather than short term gains.

 

[Babbylonian]

Who controls the Gates Foundation?

Irrelevant but here they are. The only important question to ask is where the money goes and that information can be found in the foundation's annual reports.

For the record, BTW, according to the Gates Foundation FAQ Warren Buffett took no tax benefit from his contribution to the foundation. It's being given in installments and the estimated value of the total pledged gift (of Berkshire Hathaway shares) when the installments began was $31 billion, each installment so far being worth about $1.5-1.8 billion.

 

[Mister Agenda]

On the double taxation issue, which I don't have a bet on, maybe it would be helpful to scale back a bit. Say I save up $10,000 dollars, after contributing to my 401K and Roth IRA. It's earned money which I have paid income and payroll taxes on already. I invest in my buddy's Real Estate business and make $1,000 dollars after a year. I've tied up my $10,000 for a year, foregoing consumption, and risked losing part or even all of my investment. But since I was smart or lucky and invested wisely, I'm taxed on the return I've gotten.

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.

 

[Skepticemea]

I think WBs argument is being lost in the entrenchments evident here. I read it as he believes that the "pain" was going to be shared, but those whose income is derived via investments rather than wage-based have been left alone. Yes the value of those investments can go down as well as up, but I think the "risk" element is red herring here. He still earned over $6m, taxed at 17.6%. If he'd made no income he'd have paid no tax.

 

[Mister Agenda]

So, to put it baldly, you're stating that someone earning over 6 million in income should be allowed to keep more of that income in percentage terms than a soldier (for example) due to the risks that were taken in realising that income?

Investing in the equities market is gambling. It has nothing to do with wealth creation as the wealth is "created" by the companies they are investing in. At least, in Buffet's defence on this, he is in it for long term appreciation rather than short term gains.

1. I'm saying that you're making an appeal to emotion. If the goal is to resolve the debt crisis and move out of recession, policies that move us ethically in that direction are preferable to ones that don't. If the millionaire is investing the money, she is doing exactly what low capital gains taxes are supposed to encourage. If you just don't like the wealthy having more money than soldiers and don't regard them as entitled to what they have, it would make sense to go after it directly, say with a one-time 1% tax on all holdings over 2 million dollars, which would probably rake in several hundred billion dollars. Maybe it could be done once without severe economic consequences.


2. The phrase 'has nothing to do with wealth creation' followed by the phrase 'the wealth is 'created' by the companies they are investing in' creates a contradiction.

 

[jimtron]

I think WBs argument is being lost in the entrenchments evident here. I read it as he believes that the "pain" was going to be shared, but those whose income is derived via investments rather than wage-based have been left alone. Yes the value of those investments can go down as well as up, but I think the "risk" element is red herring here. He still earned over $6m, taxed at 17.6%. If he'd made no income he'd have paid no tax.

I agree, except he didn't earn $6m--that's what he paid in taxes.

Here's a quote from Buffet's NYT article again:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

 

[Skepticemea]

1. I'm saying that you're making an appeal to emotion. If the goal is to resolve the debt crisis and move out of recession, policies that move us ethically in that direction are preferable to ones that don't. If the millionaire is investing the money, she is doing exactly what low capital gains taxes are supposed to encourage. If you just don't like the wealthy having more money than soldiers and don't regard them as entitled to what they have, it would make sense to go after it directly, say with a one-time 1% tax on all holdings over 2 million dollars, which would probably rake in several hundred billion dollars. Maybe it could be done once without severe economic consequences.


2. The phrase 'has nothing to do with wealth creation' followed by the phrase 'the wealth is 'created' by the companies they are investing in' creates a contradiction.

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.

 

[Skepticemea]

I agree, except he didn't earn $6m--that's what he paid in taxes.

Here's a quote from Buffet's NYT article again:

Thx jimtron, my confusion can be boundless at times.

 

[respect]

So she doesn't invest in materials, training, a place of business and services?

She is free to set up her business differently if she would like. As it is, she undoubtedly has plenty of tax write offs but is earning a wage as a contractor. Capital gains would come from selling some (or all) of her investment.

 

[respect]

Earlier in the thread Respect was asking why Buffet being a billionaire is relevant, which I misunderstood before. If he had earned his billions while paying a tax not lower than middle class people--say 35-40%, I wouldn't necessarily have a problem. I'm not saying that because he already has billions, that it's not fair for him to pay 15% capital gains.

I'm saying that he is only paying 18% on millions of dollars of income (last year for example), while others are paying 30% on hundreds of thousands of dollars of income.

Maybe that was already obvious, but I just realized I wasn't getting the question about him being a billionaire before.

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.

 

[3point14]

She is free to set up her business differently if she would like. As it is, she undoubtedly has plenty of tax write offs but is earning a wage as a contractor. Capital gains would come from selling some (or all) of her investment.

Now we're just messing with semantics.

Both the worker and the investor invest money. The worker also invests time and effort. Both put their money at risk in the case that the business fails. Indeed, the investor often has many fingers in many pies and the failure of their investment in small business doesn't hurt them nearly as much as it does the person doing the actual work.

Why treat one any differently to the other? Certainly from a tax point of view.