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Warren Buffet is "wrong" on taxes
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Warren Buffet is "wrong" on taxes

  #1 (permalink)
Fortitudo et Honor
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Warren Buffet is "wrong" on taxes

Stephen Moore: Warren Buffett Is Wrong on Taxes - WSJ.com

The Oracle of Omaha is at it again. On July 7, Warren Buffett told Bloomberg: "I think the rich have a responsibility to pay higher tax rates." Then he groused that his wealthy friends are "paying lower tax rates than the people who are serving us the food." Mr. Buffett has been voicing this complaint for years, once observing that his personal tax rate of 17.7% is lower than that of his receptionist (30%).

During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.

I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.
IRS data for 2008, for example, show that households in the top 10% of earners (above about $114,000) paid 19% of their income to the feds. Those in the top 1% (above $380,000) paid 23.3%. The top 0.1% of earners, with incomes of $2 million or more, end up paying a slightly lower tax of 22.7%, because they get more of their income from investments (more about this below).

So what about the rest of us? According to IRS data, a median-income household ($35,000) in 2008 paid about 4% of its income in federal income tax.

Mr. Buffett may have been referring to all federal taxes, not just income taxes, when he said the rich pay less than others. His secretary and most workers in America do pay a lot in Social Security and Medicare payroll taxes, but even accounting for them the federal system is highly progressive.
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According to the Congressional Budget Office (CBO), middle-class families in 2007 (earning between $34,000 and $50,000) paid an effective 14.3% of their income in all federal taxes. The top 5% of income earners paid 27.9% and the top 1% paid 29.5%. And what about the highest earners? Americans with annual incomes above $2 million paid an average 32% of their income in federal taxes in 2005 (the most recent year for which data are available).
So how does Mr. Buffett arrive at such a low personal tax rate? He may have been referring to a 2010 IRS study of the 400 richest American taxpayers, a list he's probably on. It showed those people paid an effective federal income tax of 18.1% in 2008.

Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.
Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.

The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.

To his credit, Mr. Buffett has criticized President Obama's near-obsessive calls for higher taxes on corporate jets. As Mr. Buffet correctly noted, the writeoffs companies take for capital expenditures such as jets are legitimate business expenses.

Overall, though, Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #2 (permalink)
Market Wizard
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"The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits."

But that is assuming the corporation pays 35%, which in most cases is not true.

And this is a poorly written article. It keeps jumping to different year data throughout the article.

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  #3 (permalink)
Fortitudo et Honor
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ron99 View Post
"The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits."

But that is assuming the corporation pays 35%, which in most cases is not true.

And this is a poorly written article. It keeps jumping to different year data throughout the article.

The various reasons that corporations do not pay full taxes are because the government is trying to manipulate marketplaces....

They villify the oil companies for tax breaks, but the oil companies are simply enjoying the same tax breaks that all US manufacturers enjoy to stimulate job growth, move in new directions like clean energy, etc.

Furthermore, fully taxing corporations not only kills jobs, but also passes those taxes along to the consumers driving prices higher.

Cap gains taxes are also not indexed for inflation, so there's an additional burden that's not addressed.

The bottom line is that very few politicians present the entire truth when it comes to their agenda, which is the same as equivocating (a half truth to be wholly true) and that's pretty much the same thing as a lie.

What the article doesn't address is the philosophical debate about whether or not rich people should have to pay higher taxes in the first place. It simply skips right over it, which is what socialist Democrats want.

It's a slippery slope. I cringe at the government or the majority determining just who is deserving of benefits and just who is deserving of paying more than their share.

Citizens should be wary of any government that determines who's too rich for their own good. Before you know it, when the poor of this country greatly outnumber the middle class, it'll be the middle class that has more money than they should and are required to pay an exorbinant amount of taxes.

We need to transition to a consumption based tax system, which has countless benefits, not least of which is that it's philosophically fair.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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Market Wizard
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A consumption based tax unfairly taxes the poor at a higher rate than the rich because they spend more of what they earn than the rich do.

Oil companies get oil subsidies that other companies don't get. Something they don't need now because of the high price of oil. The subsidies were needed when oil was below $40, but not now.

The bottom 50% of this country have a median income of $16k. How do you expect them to live and pay more tax?

If more taxes or corporations kills jobs, then why was the country doing so well when tax rates were higher?

Since corporations are earning record profits, why would a few percent higher tax rate kill jobs? Since CEOs are earning record salaries, why would the costs need to be passed on to the consumer?

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  #5 (permalink)
Fortitudo et Honor
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ron99 View Post
A consumption based tax unfairly taxes the poor at a higher rate than the rich because they spend more of what they earn than the rich do.

Oil companies get oil subsidies that other companies don't get. Something they don't need now because of the high price of oil. The subsidies were needed when oil was below $40, but not now.

The bottom 50% of this country have a median income of $16k. How do you expect them to live and pay more tax?

If more taxes or corporations kills jobs, then why was the country doing so well when tax rates were higher?

Since corporations are earning record profits, why would a few percent higher tax rate kill jobs? Since CEOs are earning record salaries, why would the costs need to be passed on to the consumer?

Where are you coming up with your facts? Oil company subsidies? The facts are that when politicians talk about the "tax breaks" that oil companies receive, it's the same umbrella as all US manufacturers and corporations.

Secondly, you cannot base everything off the tax rates. You need to look at the tax revenues compared to GDP. Historically, we have held (for 50 years) around 18% of GDP was collected by the government, and even then it was running a deficit. Bush lowered the tax rates and we still took in above average revenues.

Thirdly, Democrats always love to quote the Clinton era, as if the greatest single economic expansion in the history of the modern world was common. Anyone would agree to raise taxes if you could somehow guarantee that we'd see an economic revolution like the dot.com era where productivity grew by leaps and bounds via efficiencies from communications and computing. Clinton was to the economy what Barry Switzer was to the Cowboys. You or I could have coached the Cowboys the year they won the super bowl under Barry Switzer and it wouldn't have made a difference.

Fourthly, I do not subscribe to the notion that my success or failure is tied to anyone else (including the government). Democrats and social liberals act as if my prosperity is somehow at the convenience of the government, as if any money I make belongs to the government and whatever they let me keep, I should be thankful for.

Our founding fathers crafted the Constitution to prevent what's ongoing today. The document was there to solidify our rights and liberties AGAINST an overbearing government.

EVEN IF, I were to subscribe to the notion that I owe less fortunate members of society some of my property, I do not subscribe to the notion that the government is the best or most effective method of making that happen.

You cannot have liberty and have dependence...they're diametrically opposing. You cannot be free and also dependant upon the government or others....

Democrats and socialists want equal outcomes...not equal opportunity. They're not satisifed with providing everyone the same opportunities, they won't be happy until everyone has the same outcome.

They also want freedom and liberty, but do not want to accept any sort of personal responsibility. People who make meager salaries do so because they choose to do so.

There's nothing stopping them from making whatever they want to make. It's a personal choice. If you can't make it or survive in the US, then God help you, because you can't make it or survive anywhere.

I personally feel obligated to help others and I do, as much as I can. But I do not think that gives me the right to push my views upon anyone. I don't know everyone's story, so it'd be pretty arrogant for me to dictate how much someone else should give (or if they should give at all). And even if I did feel that way, the government is a TERRIBLE vehicle/mechanism for just about anything.

Consumption based systems ARE fair. Poor people spend much less, therefore they contribute less. Rich people spend more, therefore they contribute more.

If you want to be TOTALLY thorough about it, we'd all contribute equally...but at least a consumption based system gives higher contributors SOME form of respite from their undue burden...they're at least getting the joy of consuming more.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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