Warren Buffett has been all over the business press recently suggesting that the very rich, those on the Forbes 400 list, are taxed advantageously to the rest of the workforce. That it makes no sense that his tax bill as a percentage of income is lower than that of his secretary or housekeeper.
He is absolutely right.
It makes absolutely no sense that he, or I should pay a smaller percentage of our income than those who go to work 8 hours a day and have to save as much as they can to afford a vacation every year and stress out about whether or not they can pay their rent, mortgage or college for their kids.
Its also wrong that those who must live paycheck to paycheck find themselves paying the same amount of taxes on consumables as the super rich. That 8pct sales tax on life's basic necessities is real time cash out of pocket, a far greater percentage of income and much more expensive money than the federal taxes we pay the following April 15th.
I would be perfectly fine paying a higher percentage of income, both in federal income taxes and as part of a consumption tax on luxury items. If Warren wants to buy or build a yacht for a hundred million dollars. Nail him with a 10pct federal tax surcharge. If I want to buy a Gulfstream Jet for 40mm dollars. Nail me with a 10pct federal surcharge above and beyond current taxes. There are plenty of items, from jewelry to 100k plus cars to 10mm dollars or more first, 2nd and 3rd homes. If you can afford to buy these kind of goodies, and choose to, cough it up.
Will i avoid the Gulfstream or Warren the Yacht because of the surcharge ? Will I drive a used car instead of my new expensive Lexus Hybrid. Nope. You are rich when you know that money is no good unless you can enjoy it. No one on the Forbes 400 or near by is going to let a 10 percent more increase in the cost of a luxury item get in the way of enjoying the lives they have always dreamed of.
The perspective that Hillary Clinton is offering that 250k in annual earnings qualifies you as rich is not only ridiculous but its a huge disincentive to those who work their asses off every day and have accomplished a salary that rewards their hard work. It also will impact millions who can least afford it.
I will tell you who will suffer the most if a "tax increase for the wealthy" starts at only 250k. The 50 plus year old executive who has spent the last 25 to 35 years working his or her butt off to reach a 250k salary. The 60 year old executive who is already scared shitless that their job could be eliminated tomorrow and that they have not saved enough for retirement.
Is that who you want to impact Hillary ? Men and women who are approaching retirement already in fear of job security and their futures ?
Not a good idea.
Instead, go after those of us who are really rich.
I'm OK with paying either higher taxes at my level of income OR paying a consumption tax on luxury items that cost more than the 250k threshold that Hillary thinks is the level of income that defines rich. But my agreement to pay more taxes comes with a caveat.
Right now I hate paying taxes because I feel like I'm giving money to a known crack addict. However much you give, its not enough. They will buy their crack, get a short term high and soon be back asking for more.
The federal government , whether in Republican or Democratic hands is the same way. No matter how much you give, they are always asking for more, more, more. Always spending on the ridiculous, without remorse and without the ability to restrain itself. Just like a drug addict.
If you are going to raise my taxes, I want somethings in return.
Raise my taxes by 1 pct, by every 1 pct you cut federal spending. Your choice of raising taxes on luxury items, or on annual income of 10mm dollars per year or more. Cutting spending means the government needs to raise less which allows you to raise the income threshold on which you charge this "Forbes 400 surcharge"
And I want 1 more thing. I want transparency. The way the government publishes information on money it spends ,receives and owes is a joke. No one in this country has any real knowledge of how much our country really owes. There are so many hidden and unpublished liabilities that if our country were a public company, someone would go to jail.
The accounting data of this country is public domain information. There is no reason why it can't be published if not in real time on a government website, than at least quarterly. Money coming in . Money going out. Money that is owed to us and from us. It is currently being recorded somewhere , and someone has responsibility to collect it or pay it. So it can be published.
Then every quarter, our federal government can publish an Income Statement and Balance Sheet according to GAAP principles. It wont be perfect, but it will be a hell of a lot better than what we have today.
Without complete transparency, politicians will do what politicians always do. They find ways to play with our hard earned tax dollars and to put a lien on our current and future earnings, and that of our kids and grand kids just so they can get elected and re-elected. That's just wrong.
So if Warren Buffett wants the Forbes 400 Rich to pay more taxes, great. Than Warren also needs to ask the two candidates he is supporting to do the same thing he would ask of any company he is investing in, show him accurate , up to the minute accounting data with transparent information supporting every number.
When that happens the government can take more of my money if they need it. My guess however is that when the citizens of this country see how much we really owe and where the money is being spent, and the short and long term implications of our politicians spending like addicts, they may start voting for those who respect the value of a dollar.
Will your candidates agree to this Warren ?
I also have one more tax suggestion that I think will create so many jobs in this country that it really wont matter what else our politicians do.
If we really want to stimulate job creation in this country, take the same approach to small business with fewer than 25 employees that we take to Internet taxes. Outlaw them.
No taxes of any kind on small businesses with fewer than 25 employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings
The only taxes they would collect and remit are sales taxes, the employee's portion of payroll taxes and of course they would still file personal income taxes on their individual earnings.
Today to start a business today is so frustratingly tax and paperwork burdensome that it requires hiring experts on taxes ,state and local filings just to get started. That is more of an impediment than trying to actually make the business work as a going concern. It also pushes businesses underground so that they can operate on a cash basis and away from the tax collector. I would rather have entrepreneurs think twice about their 26th employee than whether or not they think its worth the hassle to start up a licensed business.
Those are my ideas. I have no illusions that any could actually happen.
UPDATE: For some reason some people seem to confuse the Luxury Tax of 1990 which put surcharges on minimal pricing thresholds of 10k for jewelry, 100k for boats and 25k for planes with what I am suggesting.
Thresholds that low are not what I had in mind when i offered a 100mm dollar yacht and a 40mm dollar jet as examples. For those who would rather conclude rather than ask, lets just say that nothing with a cost of under 10mm dollars would be subject to a surcharge. . And I will remind everyone that I would only support this IF government spending was reduced and transparency was introduced. For some shocking reason bloggers who have linked to this post don't seem to comprehend the whole of the post.
Warren Buffett , Taxes and the Presidency
Reader Comments
(Page 1)2. Mark,
If due to some perceived guilt you are so gung-ho in raising taxes on the uber-wealthy such as yourself and Warren Buffet --- here is a suggestion for you: Why not simply donate whatever excess you want -- say $4 million (10% of your $40 million Gulfstream purchase) to, not a charity, but rather the government.
What is stopping you?
Posted at 7:56PM on Dec 11th 2007 by Varangy
3. Just because you can afford the tax doesn't mean you'll want to pay it. You'll find ways around it. Instead of buying new, you'll buy used. Even if you persist in buying new, others won't be so "charitable" with their hard-earned money. After all, it isn't honorable or admirable to pay taxes that could easily be avoided.
And guess what, the industry that produces these new "luxury" products will get hit. Or should I say, their employees (who are not rich by any stretch of the definition) will get hit. They'll lose their jobs.
Couldn't happen? It already did in the "luxury" yacht industry.
Gotta be careful about those unintended consequences...
Posted at 7:58PM on Dec 11th 2007 by Brent Logan
4. Couple of points.
Marginal taxes on high earners - the equivalent of today's $250K earners - were enormous back in the 50s/60s (at one point close to 90%). What Clinton is proposing would put us around Reagan-era taxes, and experience tells us it was not a huge hit. I'm not saying that means she's right, but your criticism could use a bit of historical perspective.
As far as cutting spending: OK, so what would you cut? I don't buy the "no transparency" argument; I think it's a matter of no interest on the part of the public. Everybody wants to cut spending, until it's the project that helps their state, or the services that they use, or the student loan program, or whatever. A lot of people spend a lot of time digging through those federal documents and reporting back to the public - the public mostly ignores it and watches a pundit on Fox rail against one particular item. We have one of the most transparent governments in human history, and a public that's not interested in the details, and that's a more fundamental problem than can bd solved by better forms and reports.
(Jeez, that sounded cynical.)
But you're right - the whole thing could certainly be simplified. What worries me is stuff like Huckabee's lame-brained "fair tax" (which basically is very regressive and screws the middle class) which is simpler... but otherwise a disaster.
We have a pretty good deal tax-wise in this country, but let's face it, nobody ever went wrong running for office complaining about taxes.
Posted at 8:00PM on Dec 11th 2007 by John Whiteside
5. What the US (and other) tax system doesn't need is more taxes, more tax bands or more rules. It needs a simplification. An Economist article last year estimated tax collection to cost between 10-20% of tax revenue due to tax complexity.
Make tax a simpler deal: fewer taxes and tax bands, few to no exemption or "special rules" to specific industries or interest groups.
That way you could lower the headline tax rates for everyone and still raise the same or a higher amount in effective tax revenue (and make your tax return on a post card).
The tax system has been tinkered with to death, but politicians defying interest groups and lobbyists by removing special rules might be too much to ask for..
6. Couple quick suggestions:
How about a simple flat tax that kicks in say, if you make more than $50K per year. Every child gets you and additional $10K exemption.
If you are poor, you are not taxed at all. The middle and upper classes bear the tax burden.
You wanna create jobs? Let's make corporate income tax zero. Who pays corporate income tax ---- hint: it is not corporations.
It is either capital, labor or shareholders. The first and the third are significantly more mobile than labor. Make corporate income tax zero, watch real wages increase and jobs be created.
Posted at 8:14PM on Dec 11th 2007 by Varangy
7. Putting an extra tax on luxury items will not work. In fact, it was tried before. So the uber-rich shifted their purchases like yaghts from US facilities to overseas facilities where they would not have to pay the tax. As a result, US luxury businesses folded and many talented people lost their jobs.
So a luxury tax would ultimately hurt a lot of "little guys" but not impact the rich, or raise the sums, as expected.
Haste to say it but a higher tax rate not only for income but also dividends/capitol gains would be what is required.
Posted at 8:19PM on Dec 11th 2007 by Elizabeth
8. You could not be more right Mark. As the owner of several businesses all I can say is that it is an absolute tragedy how burdensome it is to start a business. If the government made it easier I would gladly give it half the fees I normally pay to accountants, lawyers and consultants.That would be a win-win situation. And I would gladly pay a consumption tax when I am able to afford that Gulfstream. The politicians should encourage business, not weigh it down. This would benefit everyone.
Tom
Posted at 8:24PM on Dec 11th 2007 by Tom B
9. How about making departments of the Federal Government responsible for funding themselves? The only condition being all departments must re-invest in US companies and manpower.
No outsourcing.
Then take all income tax revenue and use to settle debts with other countries until all balances are zeroed out.
Once that is complete, use all revenue to fund national health care.
Government must make a pledge not to spend one more dollar that is brought in.
d
Posted at 8:38PM on Dec 11th 2007 by dan
10. Mark,
I've been wishing myself for a presidential candidate who "respects the value of a dollar". I'm not a political guru, but from what I've seen and heard, there is only one candidate who has even mentioned the value of the dollar--that's Ron Paul. He claims the "drug addict spending" you mentioned is driving the value of the dollar way down and setting us up for some serious inflation. His proposed solution is to downsize the government in a big way--I tend to agree.
11. Here's a concept... how about NO taxes? Reel in government spending and let inflation take the place of taxes. Ron Paul is our best prospect regarding tax laws, say goodbye to the IRS.
http://www.RonPaul2008.com
12. Small business is very hard, Ireland has grants that RETURN 50% of expenses for startups. I visited with my accountant today and its the most confusing mess of loop holes anyone could dream up. You speak like a true businessman, great article!
Posted at 9:09PM on Dec 11th 2007 by Allan Branch
13. If you feel you or Warren's tax is too low, there is nothing stopping you from throwing in a little extra. Or is it only OK with you when it is made compulsory?
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Posted at 10:18PM on Dec 11th 2007 by Jerry
14. Mark,
Your frustrations with the tax code are well placed as is your assertion that the federal gov't needs to curb spending. Looking at the current presidential candidates, its not going to happen this election cycle. If the rep wins, our tax dollars go to the war on terror. If a dem wins, our tax dollars go toward some sort of universal health care (I'll admit that I haven't paid attention to their plans mostly because bigger gov't is the last thing I want). Either way, freedom loving people lose.
I also agree with the transparency of spending being lacking. Here are some "good" gov't resources:
http://www.whitehouse.gov/omb/budget/fy2008/budget.html
http://www.fms.treas.gov/fr/index.html
If you click around, you can find a balance sheet from this past year (where it claims we spent less than the previous year - something doesn't seem right with that information). If any accountants want to help me sort through the data, I would love to display the info in graph form online (I'm a web programmer).
You might also check out:
http://www.thebudgetgraph.com/
2008 budget has 717 billion in military spending and 358 billion on non-military. The numbers are just mind blowing!
Oh, and it only took 11 comments to mention Ron Paul...I love the guy and he's getting my vote in the primary but unless something major happens, 75% of people will still not have heard of him.
Posted at 10:23PM on Dec 11th 2007 by Scott S
15. I have been thinking about transparency and our tax dollars for some time! This could be especially helpful with local governments who have the ability to waste also. They just do it on a smaller scale.
Warren Buffett is right. The fact that a few Rush Limbaugh listening teachers at my school disagree with him is all the proof I need that he's right.
Posted at 10:27PM on Dec 11th 2007 by david freer
17. Super rich guilty syndrome is what Warren and Mark suffer from.
The rich people in America, the top 10%, already pay 65% of all income taxes. I write about this here, http://www.eclecticismo.com/hhblog/2007/01/some-facts-that-are-painful-to.html, on my blog.
The real problem in America is that we continue to elect politicians who continue to spend more money than the government receives in revenue.
It is that simple. You could take away all the money Mark, Warren and Billy G. have accumulated and without real fiduciary reform our government would be still be asking for more money from the tax payers.
So go ahead, make fun of the simple answer. But forty years of debt based government economics ain't going to make a lie the truth.
I'll see you in the soup line in 15-20 years.
From MCL
did you even read the entire post ?. The only way Im will to agree to more taxes is in exchange for transparency AND reductions in spending
18. There's a fix for this problem, and Warren Buffett has nailed it: the introduction of a progressive consumption tax. As I'm sure a few of you have heard, such a plan is now undergoing public debate - it's called the FairTax Act of 2007 (HR 25 / S 1025): http://snipr.com/irsgone
Though the legislation has been re-introduced in every session of Congress since 1999 - and has increased its co-sponsorship in every Congress (72 presently), its become a big part of the presidential race, with Mike Gravel on the left ( http://snipr.com/gravelpart2 ) and Mike Huckabee on the right ( http://snipr.com/fthuckabeeonirs ).
But is FairTax FAIRER? To provide substantive answers, Prof.'s Kotlikoff and Rapson (10/06) have concluded ( from http://snipurl.com/kotcomparetaxrates ),
"...the FairTax imposes much lower average taxes on working-age households than does the current system. The FairTax broadens the tax base from what is now primarily a system of labor income taxation to a system that taxes, albeit indirectly, both labor income and existing wealth. By including existing wealth in the effective tax base, much of which is owned by rich and middle-class elderly households, the FairTax is able to tax labor income at a lower effective rate and, thereby, lower the average lifetime tax rates facing working-age Americans.
"Consider, as an example, a single household age 30 earning $50,000. The household’s average tax rate under the current system is 21.1 percent. It’s 13.5 percent under the FairTax. Since the FairTax would preserve the purchasing power of Social Security benefits and also provide a tax rebate, older low-income workers who will live primarily or exclusively on Social Security would be better off. As an example, the average remaining lifetime tax rate for an age 60 married couple with $20,000 of earnings falls from its current value of 7.2 percent to -11.0 percent under the FairTax. As another example, compare the current 24.0 percent remaining lifetime average tax rate of a married age 45 couple with $100,000 in earnings to the 14.7 percent rate that arises under the FairTax."
Further, per Jokischa and Kotlikoff (2005 http://snipurl.com/kotftmacromicro ),
"...once one moves to generations postdating the baby boomers there are positive welfare gains for all income groups in each cohort. Under a 23 percent FairTax policy, the poorest members of the generation born in 1990 enjoy a 13.5 percent welfare gain. Their middle-class and rich contemporaries experience 5 and 2 percent welfare gains, respectively. The welfare gains are largest for future generations. Take the cohort born in 2030. The poorest members of this cohort enjoy a huge 26 percent improvement in their well-being. For middle class members of this birth group, there's a 12 percent welfare gain. And for the richest members of the group, the gain is 5 percent."
As things stand at present, Americans labor under nothing less than "tax slavery," having our wages confiscated every working hour, as reflected in our paychecks every two weeks.
Thus, from the above, we can see that citizens will never pay the full FairTax rate (23 cents from every retail dollar spent). For example, if the median household income for 2006 was $48,201, and the average household size is comprised of 3 persons. We'll average the prebate between $329 (single adult, 2 children) and $458 (married couple, 1 child), or $393.50/mo ( http://snipurl.com/ftcalc ). If this family spent their entire $48,201, 23% FairTax ($48,201x23%) would equal $11,086. However, the prebate returns $3,948 reducing the tax paid to $7,138, or 14.8%.
The current income-based tax system is also more expensive to run, because of the manner in which the tax code is gamed by politicians and lobbyists. Politicians realize great power, and attract constituencies for support, by granting tax favors (i.e., credits, deductions, exemptions) through lobbyists. Fully, fifty-three percent (that's 53%!) of Washington lobbyists are there because of the tax code! The tax code is continually changing, making it more complex and more difficult to understand. And, the salaries and costs of tax lawyers and lobbyists end up in the prices of the products and services we buy. Additionally, the time and money required to keep records, file returns, report for audits, retain accounting and legal help, pay IRS penalties and interest, is time and money lost for other productive, or recreational, activities. Depriving us of the use of withheld wages increases our expenses through zero-interest withholding, inflation, return preparation time, and interest paid on credit cards and loans that otherwise may not have been necessary. Summed up, the cost of tax compliance, nationally, has been estimated to range anywhere from $265 billion to twice that amount, depending on the extent to which tax-avoidance consultation is sought and utilized. These expenses constitute a substantial "hidden tax" which is incomprehensible to the average working American. And the FairTax gets rid of all of it for most Americans, and most of it for business owners.
It is our belief that government should serve We, the People, with a fair tax system that will not enable politicians to pit poor against rich (creating barriers to achieve wealth, adding tax penalty to the sacrifices made for personal success). Nor do we want politicians to continue using business as a tool to hide taxes from consumers, often villifying business, which discourages entrepreneuship, personal achievement, economic growth. Liberty and happiness depends on restoring the fruits of labor to those who produce them. We believe that the tax function should align with economic growth, not against it, that government should be paid for in the same manner as working Americans - when, and because, something is sold.
Many of us have joined FairTax.org ( http://snipr.com/becomeamember ) in order to build a national movement to free ourselves, our family pocketbooks, and our businesses from confiscation of income, and punishment of productivity. And this we say to our federal representatives, "Either scrap the code ( http://snipr.com/scrapthecode ) and enact the FairTax, or we intend on replacing you with someone who will."
19. Mark,
I think the ideas you present in this post are spot on. I especailly like the idea of having an Income Statement/ Balance Sheet for our government, as well as no taxes for small businesses. Brilliant. Best blog post I have read in weeks. Thanks for this.
-Brent
20. I agree with Cuban's points completely. I also share his pessimism. I don't see any candidate apt to make this situation really right.
I don't understand why there isn't a tax bracket somewhere around the point where 6% spins off average income. In Raleigh the average household makes somewhere around $80K/year. So once one makes more than $1.3M or so, they could passively be average. If we are going to have a tiered system, why not make this "rich" level somewhere around 1.4M or so? $250,000 is WAY too low.
People who actually PAY taxes feel far more invested in this country than those who don't. Given that 50% of wage earners don't actually pay any income tax, it's no wonder why voter turnout is so low. Raising taxes ever so slightly on that 20th to 50th percentile, just to get their attention, would do wonders for this country as well.
Posted at 11:32PM on Dec 11th 2007 by Dana
1. You say "Will i avoid the Gulfstream or Warren the Yacht because of the surcharge?" History says that you will avoid buying it in the US. Just such a tax was placed on yachts in 1990, and the net result was that the yacht-building industry in the US was almost destroyed. People just bought them overseas instead, or didn't buy them. So the tax was repealed in 1992, and it took years for the industry to recover.
Having said that, I would have zero problems if we were to switch to a flat tax, where you'd pay the same percentage of your income as I would. But that will never happen in this country - politicians like to do social engineering with tax laws too much.
Posted at 7:52PM on Dec 11th 2007 by Skip