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With regard to W. Buffett's recent comments about taxes:

During what RealMoney.com contributor Chris Edmonds called an "ad hoc press conference" prior to Berkshire's annual shareholders meeting, Buffett said: "We [as in the U.S.A.] are going to spend $2.2 trillion this year; it's just a question of where it comes from. And, frankly, I don't think enough of it comes from people like me and too much comes from people who work in our shoe factories."


Reuters further reported that Buffett also said: Bush "is not changing the amount the American public sends the government, just changing who does it," and unfairly to the benefit of rich people.
http://www.thestreet.com/pf/markets/aarontaskfree/10085637.html


Has Mr Buffett seen these numbers?

The top "50% of wage earners" is anyone with an AGI of $27,000 or more. They earn 87% of all the country's income and pay 96% of all the country's taxes.

The top 25% has an AGI of $55,000. They earn 67% of all the country's income and pay 84% of the country's taxes.

The top 10% has an AGI of $92,000. They earn 46% of all the country's income and pay 67% of the country's taxes.


The top 5% has an AGI of 128,000. They earn 35% of all the country's income and pay 56% of the country's taxes.


The top 1% has an AGI of 313,000. They earn 21% of all the country's income and pay 37% of the country's taxes.


The countries highest wage earners (top 1%) pay 37% of all taxes paid while the bottom HALF pay only 4%. That is amazing. There is no such thing as tax cuts for the poor. They barely pay anything now.

The best thing the federal government can do is to let Buffett keep more of his money. If anyone has the capacity to grow the economy, create jobs, wealth, and prosperity, Mr Buffett can. He could deploy it for far more public benefit than the govt. Give the money to the govt and you have given it to the biggest destroyer of capital in the history of the world. If you could give the US govt a ROE or ROIC what would it be? We haven't done so well with social security or medicare, have we.

Yea, we all need to ante up for the support of education, infrastructure, defense, social programs and the like. However, why punish financial success and reward financial underachievement. I am not suggesting a flat tax, but isn't a flat tax more fair than the current system?

Frank
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I read the link, but it wasn't clear if Mr. Buffet was talking about all taxes, or only income taxes.

Your figures seem to be only talking about income taxes.

-CB
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I read the link, but it wasn't clear if Mr. Buffet was talking about all taxes, or only income taxes.

Your figures seem to be only talking about income taxes.

-CB


What's the difference? If you include other taxes, the wealthy still pay an incredibly disproportionate share of taxes in this country.
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So who's stopping him from paying more than the required amount? I'm sure he can find enough like-minded wealthy people to voluntarily contribute huge sums that they wouldn't need to pass tax hikes to put the hurt on middle class small business owners.

I will bet Buffett pays accountants a fair sum in order to minimize his taxes. I'm sure he has trusts and tax shelters in order to avoid voluntarily paying the money he desperately wishes the government would forcibly take from him.

As soon as he publishes his 1040s and writes a check to the U.S. Treasury for more than he owes, he will gain the credibility needed for his argument.
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As soon as he publishes his 1040s and writes a check to the U.S. Treasury for more than he owes, he will gain the credibility needed for his argument.

No, he is merely following the wise guidance of Judge Learned Hand.

“Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
Commissioner v. Newman, 159 F.2d 848 (2d Cir. 1947). Judge Learned Hand
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I agree with Hand, but I see a logical inconsistency in Buffett's position. Buffett wants the government to force him to do something he's not willing to do voluntarily.

It's the same as Buffett lobbying for a speed limit of 45 mph, while he personally drives 70 mph.
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I agree with Hand, but I see a logical inconsistency in Buffett's position. Buffett wants the government to force him to do something he's not willing to do voluntarily.

It's the same as Buffett lobbying for a speed limit of 45 mph, while he personally drives 70 mph.


No, there is no logical inconsistency, and your argument about the speed limit is poor. While it may be immoral to speed and put other people's lives in jeopardy, it certainly isn't immoral to not want to voluntarily pay more taxes than you are required by law.
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I agree with Hand, but I see a logical inconsistency in Buffett's position. Buffett wants the government to force him to do something he's not willing to do voluntarily.

No, that's not the point of taxes.

Tax policy is about how we should structure our society to pay for the requirements of living in a decent society. It's different than charitable giving. Tax decisions should be made by the community as a whole, not by individuals.

When someone is criticizing tax policy, saying that in the aggregate the burdens are distributed poorly, it is not an appropriate rejoinder to say that they should contribute more on an individual level. That's comparing apples and oranges.

KrissyLou
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No, there is no logical inconsistency, and your argument about the speed limit is poor.

There definitely is an inconsistency. Buffett wants the rich to pay more taxes. He lobbies the government to this end. Then he minimizes the taxes he pays. If he feels that he has a moral obligation as a rich person to pay high taxes, he could certainly act morally by paying extra that the government isn't requiring. He doesn't do this.

While it may be immoral to speed and put other people's lives in jeopardy, it certainly isn't immoral to not want to voluntarily pay more taxes than you are required by law.

I agree, but you missed my point. If Buffett wanted a lower speed limit, he could certainly drive slower in an attempt to encourage others. The public safety issue is a red herring.
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When someone is criticizing tax policy, saying that in the aggregate the burdens are distributed poorly, it is not an appropriate rejoinder to say that they should contribute more on an individual level. That's comparing apples and oranges.

Yes and no. I agree that tax policy is set as a society and therefore we all have a say in how each other live our lives. Therefore, poor people will be able to dictate the taxes of the rich, and vice versa. The problem I have is that Buffett says one thing and lives his own life by a different standard.

If an environmentalist drives a single-seat car that burns hydrogen because it's better for the environment, then I have no problem with that person lobbying the government for stricter emission and fuel efficiency standards. However, I do have a problem if that person drives a 1970 VW bus that puts out more fumes than a fleet of semi trucks, or if they have the new GM MonsterBus with seating for 18 and gets 1/4 mile to the gallon.
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No, there is no logical inconsistency, and your argument about the speed limit is poor.

There definitely is an inconsistency. Buffett wants the rich to pay more taxes. He lobbies the government to this end. Then he minimizes the taxes he pays. If he feels that he has a moral obligation as a rich person to pay high taxes, he could certainly act morally by paying extra that the government isn't requiring. He doesn't do this.


When has Buffett ever lobbied the government to raise taxes on the rich? He may have mentioned it in the shareholders meeting, but I don't recall him *ever* lobbying the government. When has he ever said that he has a moral obligation as a rich person to pay high taxes? It's one thing to think that the system would be improved if the wealthy had to pay higher taxes; it's quite another to think it is a *moral* obligation.

Why should he unilaterally pay higher taxes? After all, it would have very little impact. Only if *all* the wealthy were required to pay higher taxes would there be a substantial impact.

While it may be immoral to speed and put other people's lives in jeopardy, it certainly isn't immoral to not want to voluntarily pay more taxes than you are required by law.

I agree, but you missed my point. If Buffett wanted a lower speed limit, he could certainly drive slower in an attempt to encourage others. The public safety issue is a red herring.


So Buffett should pay higher taxes than he is legally required to encourage others to do so? That is just plain ridiculous. It would have virtually no impact.

This conversation is over.
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When has Buffett ever lobbied the government to raise taxes on the rich? He may have mentioned it in the shareholders meeting, but I don't recall him *ever* lobbying the government.

Buffett met with Senate Democrats in March to discuss his opposition to the Bush tax cut. Even if he never met with government officials, his public statements are widely reported. I assume he wishes to sway people, including politicians, to his side of this issue.

When has he ever said that he has a moral obligation as a rich person to pay high taxes? It's one thing to think that the system would be improved if the wealthy had to pay higher taxes; it's quite another to think it is a *moral* obligation.

Buffett uses the word "fair" most often to criticize tax cuts. “I don't think you can make it so unfair that a man living entirely on dividends will pay zero tax while a cab driver has to work 16 hours a day to barely feed a family,” he said last week. That means he's framing this issue not only as economic, but moral as well.

Why should he unilaterally pay higher taxes? After all, it would have very little impact. Only if *all* the wealthy were required to pay higher taxes would there be a substantial impact.

Don't underestimate his impact. The second wealthiest man in the world can generate quite a tax bill, if he wanted to. However, you have once again missed my point. The point is not how many programs he could personally fund. The point is that he shouldn't insist that higher brackets get no tax cut while he minimizes his own taxes. What he is practicing now is hypocracy.
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Yes and no. I agree that tax policy is set as a society and therefore we all have a say in how each other live our lives. Therefore, poor people will be able to dictate the taxes of the rich, and vice versa. The problem I have is that Buffett says one thing and lives his own life by a different standard.

Question for you. Like just about all states, my state is facing enormous financial strains. And the governor has sworn that tax increases are not an option. I think that we simply have to raise taxes in order to fulfill our social obligations. (Yes, I do believe that we have social obligations to each other. Staunch libertarians can stop listening at this point.)

That having been said, when I filled out my tax returns I took all the deductions to which I am legally entitled. And when I was filling out my state tax returns I was rather surprised to see an optional tax rate. The statutory tax rate was 5.3% or I could pay 5.8% instead. (Not sure if those numbers are exactly right, but they're reasonably close.) I paid the lower, statutory rate, although I would vote for a tax increase.

I also donated to charity an amount vastly greater than the entirety of my state taxes.

Am I a hypocrite?

(This is a real question. I will think you're a bit odd if you say "yes" but I won't be offended.)

KrissyLou
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The countries highest wage earners (top 1%) pay 37% of all taxes paid while the bottom HALF pay only 4%. That is amazing. There is no such thing as tax cuts for the poor. They barely pay anything now.


If you're talking about the federal tax brackets, then you're pretty much right.

However our politicians try to throw out as many bones as possible. Tax credits for kids, perhaps a "rebate" for "whatever reason" could put a few hundy on the pockets of those who ain't really paying much in the way of federal taxes.

However, if you assume that Social Security is in fact a shell game and the funds input have nothing to do with the funds put out later...then the combination of

Sales Taxes, Property Taxes, Income Taxes, Cap Gains Taxes, FICA Taxes, State Taxes

Get everyone close to the 22% tax bracket.

The overall tax burden for is much flatter than most tax complainers (count me as 1) will admit. I believe the combined tax hit range by quintile ranges something like 18.5% - 23%.

Anyone have fresh numbers?



ET
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krissylou,

You should be commended because your money will probably have a greater impact with a private charity than it would have with the state government.

http://boards.fool.com/Message.asp?mid=19032314

Frank
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Am I a hypocrite?

It depends. If you spent a reasonable amount of time and money filling out your tax forms and took mainly the common deductions, then no. If, however, you hired an army of accountants to move your money to offshore investments that are not taxable, use generation skipping trusts to avoid inheritance taxes, and other tax reducing schemes not available to the common man, then yes.

To be fair to Buffett, the most recent article I've read criticizing these practices was focused on George Soros, who joins Buffett in the cries to soak the rich. But I think the point is still valid.
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It depends. If you spent a reasonable amount of time and money filling out your tax forms and took mainly the common deductions, then no. If, however, you hired an army of accountants to move your money to offshore investments that are not taxable, use generation skipping trusts to avoid inheritance taxes, and other tax reducing schemes not available to the common man, then yes.

I see your point. I disagree, but I see where you're coming from. (FWIW, my financial situation is currently simple enough that my tax deductions are all pretty standard. But I think the principle is the same whether you're talking about common deductions or more arcane but perfectly legal ones.) I don't think that it's inconsistent to say "these loopholes should be closed for everyone. But while they're still part of the statutory scheme I'm not going to be the only sap who doesn't use the tax shelters that I'm legally entitled to."

Here's an analogy. I rent an apartment in a three-level house and our lease says that tenants are responsible for snow removal. (5 people live in the entire house.) If one person shovels, we all get the benefits of it whether we're the guy who shovels or not. So we'd all much rather that someone else shovels. So things don't get shoveled very much. I would have liked having the sidewalk cleared off, but I didn't want to be the only sap who did it. What we should have done is set up some sort of rotation so that we all equally shared the burdens of shovelling and we all would have been happier.

Taxes work the same way. We may think that a higher tax rate is appropriate for people in our situation, but still don't want to be the only person who takes the hit for everyone else when others in our situation reap the same benefits but aren't paying for them.

With that, I think I've said about all I have to say on the subject and from here on out we just have to agree to disagree.

KrissyLou
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FWIW, my financial situation is currently simple enough that my tax deductions are all pretty standard.

Sorry to hear that, but I share your plight.

I'll rephrase your analogy to my point of view. Your apartment building has snow out front. Nobody will voluntarily shovel the walk. You then decide that the lease should be changed so that the person in the nicest apartment (you) should be required to shovel the walk. You're now lobbying for the lease to require you to do something you won't do voluntarily.

I'm not disagreeing in this thread that the overall level of taxation is too high or low. I take exception with the argument of Buffett, Soros, Gates, and the like that it is unfair and immoral to give tax cuts to the wealthy. Especially when the ones complaining go to great lengths to minimize their own personal taxes.

With that, I think I've said about all I have to say on the subject and from here on out we just have to agree to disagree.

Me too.
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fc95082: "With regard to W. Buffett's recent comments about taxes:

During what RealMoney.com contributor Chris Edmonds called an "ad hoc press conference" prior to Berkshire's annual shareholders meeting, Buffett said: "We [as in the U.S.A.] are going to spend $2.2 trillion this year; it's just a question of where it comes from. And, frankly, I don't think enough of it comes from people like me and too much comes from people who work in our shoe factories."

Reuters further reported that Buffett also said: Bush "is not changing the amount the American public sends the government, just changing who does it," and unfairly to the benefit of rich people.
http://www.thestreet.com/pf/markets/aarontaskfree/10085637.html

Has Mr Buffett seen these numbers?

The top "50% of wage earners" is anyone with an AGI of $27,000 or more. They earn 87% of all the country's income and pay 96% of all the country's taxes."


Do you believe that the workers in his shoe factories report AGI less than 27k?

You have also used the top 1% and top 5% to skew the balance of the picture.

"The top 25% has an AGI of $55,000. They earn 67% of all the country's income and pay 84% of the country's taxes.

The top 10% has an AGI of $92,000. They earn 46% of all the country's income and pay 67% of the country's taxes.

The top 5% has an AGI of 128,000. They earn 35% of all the country's income and pay 56% of the country's taxes.

The top 1% has an AGI of 313,000. They earn 21% of all the country's income and pay 37% of the country's taxes."


Technically correct but misleading. Same data, recast to isolate each group.

Year 2000 data: http://www.taxfoundation.org/prtopincometable.html#TotalIncomeTaxShare

The top 1% made 21% of total AGI and paid 37% of FIT
The next 4% made 15% of total AGI and paid 19% of FIT
The next 5% made 11% of total AGI and paid 11% of FIT
The next 15% made 21% of total AGI and paid 17% of FIT
The next 25% made 20% of total AGI and paid 12% of FIT
and the bottom 50% made 13% of total AGI and paid 4% of FIT

So, as far as FIT is concerned, the top 5% of AGI paid proportionally more (much more for the top 1%) than the share of income reported and the bottom 90% paid proportionally less (much less for the bottom 50%). than the share of income reported

http://www.taxfoundation.org/prtopincometable.html#TotalIncomeTaxShare

Given the personal exemption and standard deduction, I am unsure why this is surprising.

In addition, as another poster noted, this speaks only to FIT and not all other federal taxes, especially the 6.2% SS portion which is capped at roughly 84k, this year, IIRC, so it is considerably smaller percentage for someone in the top 1%.

"The countries highest wage earners (top 1%) pay 37% of all taxes paid while the bottom HALF pay only 4%. That is amazing. There is no such thing as tax cuts for the poor. They barely pay anything now."

Only if you ignore everything except FIT.

In addition, you did not look at effective rate. For top 1% was roughly 27.5% [same source] for year 2000, so even after paying FIT that you find outrageous, the last person into the top 1% still had an after-FIT income of $226,925, nearly twice as much as the before tax cut-off for the top 5% category and more than 8x the pre-tax income for the median.

The analyses that I have seen generally suggest that unless you have several kids or a working for pay spouse, the net effect of GWB tax cuts will reduce the tax burdens for the top 5% (but mostly the top 1%) and dump it onto the next 45% (i.e., those above the median and below the top 5% in AGI) without any real increase to the bottom 50%. IOW, it will only exacerbate Buffet's point.

Regards, JAFO

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There is no such thing as tax cuts for the poor. They barely pay anything now.
it's all relative. tax cuts for the poor means the poor gets to buy food to live.



isn't a flat tax more fair than the current system?
no.


mr burns
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There is no such thing as tax cuts for the poor. They barely pay anything now.
it's all relative. tax cuts for the poor means the poor gets to buy food to live.


I believe what the original poster was complaining about was the liberal transmutation of tax policy into welfare policy. Welfare spending has become unpopular, so liberals started pushing "tax cuts". The problem is that a liberal's idea of a tax cut is to take someone who pays little or no taxes and give that person money they never paid in. In other words, negative taxes. That's really welfare, not tax cuts.
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Welfare spending has become unpopular, so liberals started pushing "tax cuts". The problem is that a liberal's idea of a tax cut is to take someone who pays little or no taxes and give that person money they never paid in. In other words, negative taxes. That's really welfare, not tax cuts.

Well, there is such a concept as a negative income tax -- a really good form of welfare that encourages work instead of providing economic disincentives for entering the workforce.

But what I hear a lot about from Democratic politicians is tax cuts targeted towards the middle class (a tricky concept when nearly everyone considers themselves middle class whether they earn $25,000 per year or $250,000 per year). There are a lot of people in that category who do pay significant taxes but wouldn't be affected at all by dropping the top tax bracket. And things like the Lifetime Learning Credit, adoption credits, deduction for interest on school loans, etc., are targeted towards them.

I haven't studied the issue carefully but I think most of those are nonrefundable. (I know the Lifetime Learning Credit is.) So they don't constitute welfare but only lower the tax bill for people who do pay taxes.

KrissyLou
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