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On August 17 2011 13:07 domovoi wrote:Show nested quote +On August 17 2011 13:00 sunprince wrote:Here's a simple chart for you that demonstrates Buffet's argument: ![[image loading]](http://www.impactefficiency.com/wp-content/uploads/2010/02/2007_IncomeTaxRates_ByShare.png) I understand and sympathize with Buffet's argument. It doesn't mean the US lacks a progressive taxation system, and the chart is consistent with that once you get passed the misleading axes and realize that the further right you get, the less people each axes represents. Not to mention that capital gains isn't the same as income. Here's a simple exercise for you: Let's say capital gains is 50% and income tax is 50%. I make $2 today. 50% is taxed immediately, so I have $1. If I invest it rather than spend it, then wait for it to double ($2), when I take it out I'm left with $1.50. This is the same as taxing income at 62.5% if I choose to invest. $2 -> $.75 (invest)-> $1.50 On the other hand, if I had spent the $1 immediately, it's just a 50% income tax.
Um, but, scale everything by about 7 zeros, and then continue the story.
So now you have $15 million and can easily stop doing anything that'd require you to call the money you make "income". You take out $5 million to live, while the rest doubles again over the course of some X years.
Now you have another $10 million in capital gains, and it's ONLY taxed at 50%. That gives you $15 million total after taxes. Rinse and repeat. See the problem here?
Once you get enough assets, you might never get taxed at your "first" 50% income rate again. You're using those yearly seven-figure "capital gains" as your real income, but it's not being taxed as such.
Now, replace the 50% capital gains with 15% capital gains, and you've got a huge mismatch:
- Startup income of $20 million, income taxed 50% to $10 million after tax, which is invested.
- Investment doubles: gain $10 million, pay 15% ($1.5m) in capital gains tax, so $8.5 million after tax.
- Cash out $5 million, reinvest the $3.5 million remaining, for $13.5 million invested
- Investment doubles: gain $13.5 million, pay about $2 million in tax, almost $11.5 million after tax.
- Cash out $5 million, reinvest, almost $20 million invested, etc.
Now you've paid just $13.5 million on $10 million cash out and $20 million invested - you're already below the 50% tax rate! Keep going and eventually the 50% tax hit at the start becomes measly compared having all your new "income" taxed at just 15%.
[edit] Doh! Fixing math...
[edit2] Clarify last sentence, formatting
[edit3] Doh, you used 50% capital gains instead of 15%; fixing stuff again...
[edit4] Okay, I see why I'm getting a bit confused trying to extend your example all the way. Most people calculate the tax rate as tax paid divided by revenue before taxes- so in my extension, I was trying to show that you can rinse and repeat and keep yourself in a 15% tax rate for almost all your gains except the income very start.
But you back-derived what the capital gains tax "would have been" in terms of the startup income you could have invested. That's not kosher. Firstly, it's like a backwards opportunity cost. You'd have to justify it with something like, "the capital gains tax is like an additional 12.5% income tax on my startup cash because the government could have taxed my startup cash an extra 12.5% and then invested it like I did". I don't think it works in that direction. (It's really not useful to use hindsight to compute past opportunity cost - it's only useful as a tool to help plan the future, after all.)
Also, notice that as you go around the loop and earn more and more, your "tax" measurement gets closer and closer to 100% because you're paying more and more tax but your denominator (startup cash) is always constant. (Or more precisely, you'd need to calculate the limit of 1 - (afterTaxWorth/neverTaxedWorth) out into the future, and then plug in something like this for after-tax, this for never-tax, and thus this for the limit.) If you play around with those links, you can see that even the tiniest capital gains tax (0.1% and zero income tax) becomes eventually equivalent to 100% startup income tax. So you manage to live off investing your startup income...while all the while, the government slowly imposes a 100% tax on that startup income? I think that's a bit ludicrous on its face and invalidates the concept...but who knows, it might convince you that capital gains taxes shouldn't exist at all. :p
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Russian Federation266 Posts
And what's the reason to give more money to government, while it's awfully ineffective investor? It's more likely you will see negative outcome for each buck it spends. When government stockpiles a lot of money, there are like 3 most likely ways it will be spent: military budget, welfare programs and corrupt schemes to get money into officials' or affiliated parties' pockets. None of these has good effects on economy and society.
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Why raise taxes on the rich?
Why does nobody ever suggest LOWERING taxes on everyone else until they're taxed as lightly as the richest are? That would equally lead to an evenly shared burden for all.
And then we could fix the hugely bloated, inefficient-as-hell, special-interest-catering, welfare-spending "government" we have at its core?
If the US government was such a horrible investor we would need fewer taxes in the first place.
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On August 17 2011 16:09 hi19hi19 wrote:
Why raise taxes on the rich?
Why does nobody ever suggest LOWERING taxes on everyone else until they're taxed as lightly as the richest are? That would equally lead to an evenly shared burden for all.
And then we could fix the hugely bloated, inefficient-as-hell, special-interest-catering, welfare-spending "government" we have at its core?
If the US government was such a horrible investor we would need fewer taxes in the first place.
Have you any idea of either the US economy nad its problems or economics in general? because lowering taxes is not the solution.
P.S. Warren Buffet is such a G lol
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meh its just a publicity stunt. 40% income is just a drop in the bucket for Warren Buffet and the rest of the upper-upper class, as well as for the national debt assuming he even pays. 40% Wealth? Hell 10% wealth. Then we'd be singing a different tune. (and so would he)
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A very famous person makes a blindingly obvious statement. People do the following:
- Criticise him and his lifestyle without actually having a clue about how he lives
- Tell us it won't really affect the defecit anyway
- Tell us what in "ineffificent investor" (lol) the governement is
and so on. I despair sometimes. His point is blindingly simple and completely valid. The only people that manage to find points of contention with such a simple statement are those with agendas. Common sense, it isn't really that common.
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On August 17 2011 14:59 BuddhaMonk wrote:Show nested quote +On August 17 2011 14:32 Kaitlin wrote:On August 17 2011 14:12 FallDownMarigold wrote:On August 17 2011 13:33 Kaitlin wrote:On August 17 2011 13:32 FallDownMarigold wrote:On August 17 2011 13:29 Kaitlin wrote:On August 17 2011 13:21 riotjune wrote:
Warren Buffett could have willed his entire fortune to his children or his dog, but he plans to give his family a fraction (they will still get by comfortably) and the rest to charity. The rich have no formal societal obligation to the poor, but it'd almost be a crime if they didn't help out those who are less fortunate. If you can help out the lot of society since you possess the wealth and power to do so, sure why not. He might be rich, but he has and will probably donate more money to charity than any of us ever will.
Buffett could be selfish and trying to further his legacy. But it's still better than keeping everything for himself or his family. I'm not going to criticize his decision to donate. I don't think he's that bad of a guy, he definitely deserves the comfort of his lifestyle more so than those who never gave up a cent for a good cause. Maybe this will set a good example and people will be more generous and help out others because they can. You do realize that by directing his assets to go to charity after he dies, he is telling the government they don't get $1 in estate taxes. He's making the point in his actions that We, The People, prefer to spend our money the way we see fit as compared to letting the government spend it, better than any Right-Wing, Tea Party Conservative ever could. He's publicly calling for higher taxes be paid by himself and those like him, but his actions are to pay absolutely none when he dies. And he is praised for it. How do you know? How do I know what ? Everything you claimed. How do you know? I do not know how I could be clearer. You explicated Buffett's actions so vividly...surely it's based upon some hard evidence? Or is that just sort of what it feels like because it looks like it works out in that light, with that spin? You claim Buffett's actions are founded in symbolism - hence my allusion to "explication" the way a student might explicate an author's poem (who might also be very far from the author's true intent). I want to know why you think Buffett's gesture is to "stick it to the Gov." Surely you must have hard evidence, perhaps a statement by Buffett or something, somewhere, regarding this particular matter. His words in the OP are that he and people like him should contribute more to the government. His public statements about his intentions to give all or nearly all of his estate to charity prevent the government from collecting any estate taxes. I don't recall saying his actions are "founded in symbolism" or that his gesture is to "stick it to the Gov". It's simply the effect of his choice that the Government gets nothing in estate taxes from a man who is preaching with comments in the OP that he and others like him should pay more. The fact that you're going on and on about estate taxes, which are totally beside the point that Buffett is making, leads me to believe you have no good argument for the actual issue. Forget about Warren Buffett. Do you believe that the super rich should pay the same amount as the middle class, in terms of percentage of earnings, wherever that earning comes from? This is the issue, and for some odd reason you seem to want to dodge that issue and go on about how Warren Buffett is this or that. Forget about him, address the issue.
The only reason estate taxes were brought up was to point out Buffett's hypocrisy, comparing his recent statement, which was the point of the OP, to his previous statements about his desire for how his vast fortune will be handled when he dies. His statement in the OP calls for him and people like him to pay more taxes, yet he plans his affairs in such a way to pay not one dollar upon his death. I'm sorry if you don't understand what I'm pointing out.
As for my thoughts on how much the super rich should pay as a % of earnings, compared to the middle class, it's not a simple question. Tax laws get very complicated because politicians want to 1) encourage certain activities, 2) discourage certain activities, 3) provide welfare through the tax code, and whatever other goals.
For all the complaints about the complexity of the tax code and the perception that rich don't pay high enough % of their income, to change the taxing structure so that different income types such as capital gains, dividends, social security benefits, tax-exempt interest are not taxed at different rates will have "unintended consequences". For example, municipal bonds are tax exempt sources of income, which are favored by high income taxpayers for obvious reasons. To tax this income, just like any other source of income, removes the attraction to these investors and makes it much more difficult for these state and local governments to issue bonds. They will have to pay higher rates of interest to provide the incentive for investment, which results in higher costs to the government, leading to either a need to cut other government programs or raise taxes themselves. And we're back to square one. This shit just isn't so easy to come out and say rich should pay higher %'s than the middle class. The fact is that the rich direct their activities to maximize their profits, as any successful business does.
Of course, I believe the rich can afford to pay a higher % of their income than the middle class. But the current system implements a very progressive tax rate structure, where the rates increase for higher "brackets" of income. Buffett comes out with this bullshit statement, to stir up a frenzy to help the Administration raise taxes, and the general public simply doesn't understand the "unintended consequences" of such actions. The problem is, and will always be, that these politicians pay back campaign contributors though pork barrel projects and make their cronies rich by their actions, all the while increasing spending along the way, because spending is how they get power. Until that is changed, we will always have a problem with looking for more tax revenue.
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We read this together in economics class today haha
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On August 17 2011 15:52 Evilmystic wrote:
And what's the reason to give more money to government, while it's awfully ineffective investor? It's more likely you will see negative outcome for each buck it spends. When government stockpiles a lot of money, there are like 3 most likely ways it will be spent: military budget, welfare programs and corrupt schemes to get money into officials' or affiliated parties' pockets. None of these has good effects on economy and society.
Governments aren't there to invest efficiently. They are there to look after citizens and provide things like infrastructure and education. Obviously you don't want the government to piss it away on bad investments but your starting criteria for judging are wrong.
The military protects people, the welfare programs look after the needy. Here, the govenment is doing its job. Your last part about the corrupt schemes doesn't really hold up for serious discussion.
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Leaving his money to a foundation is an irresponsible thing for him to do because he essentially passed the responsibility of how his wealth should be distributed/invested to someone else. IMO, it is where and how he invests his fortune that matters more than how much of it he invests. He needs to invest most of his fortune in things that matter NOW rather than at some obscure future date after he dies.
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On August 17 2011 16:25 Kaitlin wrote:
The only reason estate taxes were brought up was to point out Buffett's hypocrisy [...] he plans his affairs in such a way to pay not one dollar upon his death.
[...]
The fact is that the rich direct their activities to maximize their profits, as any successful business does.
You just invalidated the first statement with the last. Congrats!
He lives in a system, is a self-interested agent and plays by the rules. Doesn't mean he has to like the rules or cannot criticize them.
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Buffet is right. Period. Also, people should reaize tat it is not reallyabout "raising" taxes but taking back tax cuts, that is, returning to normal.
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Russian Federation266 Posts
On August 17 2011 16:32 Deja Thoris wrote:Show nested quote +On August 17 2011 15:52 Evilmystic wrote:
And what's the reason to give more money to government, while it's awfully ineffective investor? It's more likely you will see negative outcome for each buck it spends. When government stockpiles a lot of money, there are like 3 most likely ways it will be spent: military budget, welfare programs and corrupt schemes to get money into officials' or affiliated parties' pockets. None of these has good effects on economy and society. Governments aren't there to invest efficiently. They are there to look after citizens and provide things like infrastructure and education. Obviously you don't want the government to piss it away on bad investments but your starting criteria for judging are wrong. The military protects people, the welfare programs look after the needy. Here, the govenment is doing its job. Your last part about the corrupt schemes doesn't really hold up for serious discussion.
Governments are there to regulate public relationships (ensure fulfillment of contracts mostly) and to protect their citizens from violence and private property from misappropriation. They also have to participate in international relationships on behalf of their people. It's very questionable that government should have any other functions and in case it has, they should be economically efficient investments in order to not put any additional burden on taxpayers.
With this general idea in mind, it's acceptable to have limited welfare programs as they are effective means of preventing violence to some extent. The same goes for military spendings, they are good as long as they are effective means of protection and guarantee fulfillment of international treaties. But if you cross a thin line after which you spend too much in these fields, there will be plenty of negative side-effects. Military industry will lobby carrying out military operations abroad if you let it grow too big, increasing its influence over government. And if your welfare programs are too broad, there will be people who parasite on them instead of getting proper jobs.
At the same time government with too much money tends to get overgrown with bureaucracy, losing ability to make quick changes if necessary and making it more susceptible to corruption.
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On August 17 2011 13:07 domovoi wrote:Show nested quote +On August 17 2011 13:00 sunprince wrote:Here's a simple chart for you that demonstrates Buffet's argument: I understand and sympathize with Buffet's argument. It doesn't mean the US lacks a progressive taxation system, and the chart is consistent with that once you get passed the misleading axes and realize that the further right you get, the less people each axes represents. Not to mention that capital gains isn't the same as income. Here's a simple exercise for you: Let's say capital gains is 50% and income tax is 50%. I make $2 today. 50% is taxed immediately, so I have $1. If I invest it rather than spend it, then wait for it to double ($2), when I take it out I'm left with $1.50. This is the same as taxing income at 62.5% if I choose to invest. $2 -> $.75 (invest)-> $1.50 On the other hand, if I had spent the $1 immediately, it's just a 50% income tax.
Wait dude that cant be right.
If you earn $2, get taxed for $1, invest the remaining $1 and wait for it to double, you would be earning a total of $3 of income. Youd have $2 earned income and $1 of capital gains. Having $1.50 left over is exactly 50% of your total $3 of income. Youre still being taxed at 50%, not the 62.5% you claim.
I also dont think absolutes can be ignored either. If you just spend the money or keep it without investing, you would be left with $1 worth of goods/cash which is less than $1.50 you would have if you invested
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Why the hell are so many people whining about totally unrelated nonsense?
On August 17 2011 17:02 Evilmystic wrote:Show nested quote +On August 17 2011 16:32 Deja Thoris wrote:On August 17 2011 15:52 Evilmystic wrote:
And what's the reason to give more money to government, while it's awfully ineffective investor? It's more likely you will see negative outcome for each buck it spends. When government stockpiles a lot of money, there are like 3 most likely ways it will be spent: military budget, welfare programs and corrupt schemes to get money into officials' or affiliated parties' pockets. None of these has good effects on economy and society. Governments aren't there to invest efficiently. They are there to look after citizens and provide things like infrastructure and education. Obviously you don't want the government to piss it away on bad investments but your starting criteria for judging are wrong. The military protects people, the welfare programs look after the needy. Here, the govenment is doing its job. Your last part about the corrupt schemes doesn't really hold up for serious discussion. Governments are there to regulate public relationships (ensure fulfillment of contracts mostly) and to protect their citizens from violence and private property from misappropriation. They also have to participate in international relationships on behalf of their people. It's very questionable that government should have any other functions and in case it has, they should be economically efficient investments in order to not put any additional burden on taxpayers. With this general idea in mind, it's acceptable to have limited welfare programs as they are effective means of preventing violence to some extent. The same goes for military spendings, they are good as long as they are effective means of protection and guarantee fulfillment of international treaties. But if you cross a thin line after which you spend too much in these fields, there will be plenty of negative side-effects. Military industry will lobby carrying out military operations abroad if you let it grow too big, increasing its influence over government. And if your welfare programs are too broad, there will be people who parasite on them instead of getting proper jobs. At the same time government with too much money tends to get overgrown with bureaucracy, losing ability to make quick changes if necessary and making it more susceptible to corruption.
You have some good points. However wouldn't balancing things out (progressive taxes) be helpful to the situation if only to lessen the burden of the people with lower income?
In any case, wouldn't giving the government some more money be better than letting them keep it themselves? Currently a lot are struggling financially, and that includes the government.
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On August 17 2011 14:32 Kaitlin wrote:It's simply the effect of his choice that the Government gets nothing in estate taxes from a man who is preaching with comments in the OP that he and others like him should pay more.
They are separate issues. You can believe that the government should be taxing the rich more while also preferring to put your money directly towards certain causes rather than letting the government eat much of it. There is no logical inconsistency with this.
This is especially true if you believe that you have a moral obligation to help people everywhere with your money, given that money going to the US government will basically only go towards helping US citizens.
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There is no such thing as a tax on just the rich.
If the rich are as greedy as proponents of tax increases would have you believe, you'd think they'd want to preserve their income right? How do they do that? Raise prices on the goods and services that you and I purchase.
The government makes more money from increased tax revenue. The rich break even. The poor and middle class end up losing as they pay more to fill their cars with gas and their stomachs with food.
The fact of the matter is, the government could take 100% of the wealthiest people in the country's income, and it wouldn't be able to run the country for more than one year.
That's right, our spending levels are so unsustainable that taking EVERYTHING from rich people wouldn't be able to fund us for more than a year.
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On August 17 2011 16:37 nodnod wrote:
Leaving his money to a foundation is an irresponsible thing for him to do because he essentially passed the responsibility of how his wealth should be distributed/invested to someone else. IMO, it is where and how he invests his fortune that matters more than how much of it he invests. He needs to invest most of his fortune in things that matter NOW rather than at some obscure future date after he dies.
no
"investing" in the now is something politicians do. it is what got us into this mess and it is the mindset that is preventing us from getting out of it. kicking the can down the road only will only work for so long. by the time generation y grows up, the burden may be too heavy to pass along
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On August 17 2011 19:05 tiffany wrote:Show nested quote +On August 17 2011 16:37 nodnod wrote:
Leaving his money to a foundation is an irresponsible thing for him to do because he essentially passed the responsibility of how his wealth should be distributed/invested to someone else. IMO, it is where and how he invests his fortune that matters more than how much of it he invests. He needs to invest most of his fortune in things that matter NOW rather than at some obscure future date after he dies. no "investing" in the now is something politicians do. it is what got us into this mess and it is the mindset that is preventing us from getting out of it. kicking the can down the road only will only work for so long. by the time generation y grows up, the burden may be too heavy to pass along
that's another way of looking at it. these type of things rarely have a 'correct answer', so I can't say 'no' to your comment.
you're correct in the sense that investing in the now with only short-term gain in mind is what politicians do and what we should try to avoid. in Warren Buffett's case, I'm saying he should start investing in the future now rather than hoarding all his wealth until after he dies. he could argue that he's investing his wealth further to generate more wealth to bequeath to the future, but how is this different from the short-term gain we've just talked about? Then again, he's actually made a number of business decisions that have positive impacts on the environment, e.g., cancelling coal power stations. so good on him, but I feel more of us can start making the changes we'd like to make now rather than leaving them till later.
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90% tax on _all incomes_ for the super-rich.
Warren Buffet is at least a realist, which is lacking in so many conservatives nowadays who see tax as theft. (Which is so incredibly stupid)
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EPT
