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Big Picture: Warren Buffett on Taxes

"Our leaders have asked for 'shared sacrifice.' But when they did the asking, they spared me."

That's how Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) CEO Warren Buffett began a New York Times op-ed this week, repeating a call he's made in the past: His taxes, and those of other millionaires and billionaires, should be higher than they are now.

He elaborated:                                       

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we megarich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as 'carried interest,' thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they'd been long-term investors. ...

Last year about 80 percent of [federal] revenues came from personal income taxes and payroll taxes. The megarich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It's a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot. ...

Last year my federal tax bill ... 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.

This topic stirs up emotions so strong it's hardly worth discussing with peers. Most think taxes are either too high, or too low, and nothing will change their opinions -- end of story, with an almost religious level of conviction.

So rather than debate whether Buffett's right, I thought I'd share five pieces of data that put the topic into context. 

Before that, let's get two things out of the way. One, Buffett explicitly says deep spending cuts are necessary. He calls this "job one" for the Congressional super-committee tasked with completing the recent debt-ceiling deal. Two, whenever Buffett calls for higher taxes, many respond with what they think is a clever rebuttal: "If he wants to pay more, he's welcome to donate his money to the IRS!" Folks, this totally misses the point.

Now some numbers. First up is taxes as a share of the economy:

Source: Tax Policy Center.

A big irony in the tax debate is that many waited until taxes were at historic lows before complaining about how high they are. Between last decade's tax cuts, the recession's hit to employment, and the more recent payroll tax cut, total taxes are now far below long-term averages, and have played a significant role in blowing open the current deficit. When one looks at what forecasters in 2001 predicted today's budget would look like, and compare that to what's actually happening today, lower tax revenue accounts for half of the increase in current deficits.

This chart underscores a similar point. Top marginal tax rates on both income and capital gains are at or near a post-World War II low:

Source: Tax Policy Center.

To be sure, no one, including Buffett, is suggesting we go back anywhere near the tax rates seen in the 1950s and 1960s. The current proposal to raise marginal rates on top earners from 35% to 39% would barely be visible on this chart. And that proposal is slated to hit a small sliver of Americans -- perhaps 3% of wage earners.

But what happens to the economy when you do that? Many say raising marginal rates will slow investment, stifle economic growth, and kill job creation. Buffett disagrees:

I have worked with investors for 60 years and I have yet to see anyone -- not even when capital gains rates were 39.9 percent in 1976-77 -- shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation.

This is probably his most controversial point. A few numbers put it into context:

Sources: Tax Policy Center, Federal Reserve, and author's calculations.

If there is a correlation between marginal tax rates and economic growth, it's the opposite of what most think: The United States achieved the fastest economic growth when marginal tax rates were the highest.

Now, this isn't suggesting that higher taxes leads to higher growth; that's silly, and no one's making that argument. But it backs up the idea that tax rates are just one of thousands of variables contributing to economic growth, and one that, historically, hasn't been the most consequential. Far more important are things such as population growth, demographics, labor productivity, creativity, consumer confidence, and -- immediately after World War II -- the lack of production capacity in bombed out countries. Do tax rates matter for growth? Yes, but not nearly as much as some think.

As Buffett notes, the same is true for gross private investment:

Sources: Tax Policy Center, Federal Reserve, and author's calculations.

And jobs:

Sources: Tax Policy Center, Federal Reserve, and author's calculations.

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," Buffett wrote.

What do you think?

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Follow him on Twitter @TMFHousel.The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On August 16, 2011, at 3:34 PM, UtahConservative wrote:

    I have prepared taxes for many years and I have seen many unfairnesses at the lower end of the income spectrum. These result from so-called "refundable credits", where the taxpayers can receive a refund even though they paid in no tax; for example, the Earned Income Credit, the $8,000 Homebuyer Credit, part of the child tax credit and education credits.

    These refundable credits are unfair because they don't require any sacrifice or pain on the part of the taxpayers.

    How can Congress cut spending in a serious way, like we need them to, when a large portion of the voters don't have any motivation to question Federal spending since they don't feel any of the pain?

    I agree the tax structure should require more of Mr. Buffett. However, the super rich would not plug very much of the current deficit.

    Secondly, we need everybody to pay more: rich, middle class, and poor. I know very few who (like Mr. Buffett) are willing to pay more in tax. Good for him for volunteering.

    Most of the time, the arguments are that taxes should be increased - on somebody else. I consider that immoral. Since that attitude has become institutionalized, I fear it will be very difficult for any significant deficit reduction unless it is forced on us by external circumstances.

    When my payroll taxes were lowered in January giving me an extra hundred a month or so, I enjoyed it but at the same time felt like it was bad for America because it underfunds the current Social Security recipients and is increasing the debt for future taxpayers (myself and my children included). So I for one am willing for my taxes to go up.

    How about you?

  • Report this Comment On August 16, 2011, at 3:37 PM, DoctorLewis4 wrote:

    Once again Warren is right. He is a true patriot, and a great American.

  • Report this Comment On August 16, 2011, at 4:23 PM, DukeTG wrote:

    I used to have a hard time with the EIC and the other refundable credits, but you have to remember that while the very poor pay no *income* tax, they surely are paying payroll taxes. That's part of Buffets larger point: many people ignore payroll taxes when computing their effective tax rate, but they're probably more than what people pay in actual income tax as you slide down the income scale. And there are no deductions or credits for those taxes.

    So in that respect, I'm really OK with the refundable credits, because I doubt when you take payroll taxes into account they are still coming out ahead.

  • Report this Comment On August 16, 2011, at 4:24 PM, genericname23 wrote:

    There is so much wrong with this debate about Buffet's comments it is hard to list them all.

    1. why is anyone surprised that a democrat is calling for higher taxes on the rich? That is their MO. The surprising thing is that he isn't also crying about spending cuts, he isn’t demonizing the “rich”, and he isn't calling families that make $250k a year “rich”.

    2. People telling Buffet to go ahead and send his money in to the treasury are only missing the point if you want to ignore their point. My point is this - I get the feeling he considers this a moral issue. If he does, he should go ahead and pay 40-50% even without changes to the tax code. This strikes me as similar to an environmentalist who believes that recycling is the moral thing to do, but then he goes around bragging about how little he recycles because there is no law requiring recycling.

    3. Everybody talks about historically low top marginal rates. Marginal rates mean very little. The effective tax rates of the “high income” earners didn’t change much when they went from like 70% to 28% because very few people actually paid those high marginal rates. There were numerous tax shelters that prevented people from paying those high rates. Also, when adjusted for inflation, those top rates generally kicked in at higher incomes. So to point to marginal rates as proof that we have much lower taxes today (on the rich or anybody else) is just wrong. If you want to claim that taxes are historically low, look at EFFECTIVE TAX rates and not marginal rates. Using marginal rates to discuss whether taxes are too high or too low is dishonest.

    Look at table 1-a under “effective individual income tax rate” and correlate the period with the 42% drop in top marginal rates (70% in 1979 to 28% in 1990), and you will see why citing top marginal rates to make arguments about tax burdens is dishonest. The top 1% of income earners went from an effective income taxation of 21.8% to 19.9% over that period. A drop in top marginal income tax rates from 70% to 28% (42%) only dropped the effective income tax rate of the top 1% by 1.9%.

    4. The historically low tax arguments almost always leave out state and local taxes and fees. If you want to claim that taxes are historically low, do a global survey of all taxes paid by Americans. Also, include taxes and fees on business that are passed along to consumers. Only looking at federal taxes is dishonest and sloppy.

    5. Even if enacted, Buffet’s proposed tax increases wouldn’t make much of a difference to the nation’s finances because so few people make over $1 million a year.

    I could go on but I won’t. Most will continue to believe what they want to believe and spout their fallacious talking points regardless of arguments to the contrary.

  • Report this Comment On August 16, 2011, at 4:25 PM, DukeTG wrote:

    This is not to say that everyone needs to pay more, not just the rich, because that's clearly true.

    But chances are that the poor will do most of their "paying" through the loss of programs from which they would have benefited otherwise.

  • Report this Comment On August 16, 2011, at 4:35 PM, cmfhousel wrote:

    Marginal taxes are extremely important in this debate because they are what influence the decision to invest an additional dollar, and most of criticism about raising taxes is about the impact it could have on business investment. Moreover, the effective rate of the group Buffett mentions has indeed fallen by nearly half over the past twenty years, from 30% to 17%.

    Further, citing federal tax revenue isn't dishonest in an article on federal tax revenue.

    As to not making a dent, Buffett's proposal would bring in $600 billion over a decade, or about a third of what Congress's recent debt-ceiling deal achieved.

  • Report this Comment On August 16, 2011, at 4:48 PM, catoismymotor wrote:

    Does WB's compensation package influence his tax bill? Are those beneath him paid differently and thus exposed to more taxes?

  • Report this Comment On August 16, 2011, at 4:49 PM, cmfhousel wrote:


    The majority of Buffett's income is from dividends and capital gains, which are taxed at a max 15%. Those who work under him mostly earn wage income, which is taxed as high as 35%. That's where most of the discrepancy comes from.

  • Report this Comment On August 16, 2011, at 4:58 PM, Lifesofine wrote:

    It's about time that someone with both money and power spoke intelligently and compassionately, offering a solution involving "self-sacrafice" to tip the financial scales a bit in the direction of the millions of American Underdogs.

    I have facebooked this with hopes that his stance goes Viral.

    Call me a socialist. I'm also all for getting what I go for. If I had a lot---I'd give a lot more.

    Warren for president!!! (just kidding...but my long gone Dad --the novice investor-- would've been right behind his philosophy.)

    It's a dog eat dog world, I guess...if you're a dog.

  • Report this Comment On August 16, 2011, at 4:59 PM, dm112 wrote:

    Higher tax rates encourage business to invest, rather than paying the tax. If tax rates are low, there is no penalty for taking out the profit. We can't cut enough to make up for the deficit. We can only grow our way out, and that requires investment. Cutting investment in research and education leaves us weaker, and less likely to recover. There is no lack of things that need to be done, or people who need to do them. Money has never been cheaper to borrow. And profits are available to invest. Raising revenue and promoting investment would accomplish tangible good, and spur the growth we need.

    Cutting spending alone reinforces fear and a downward spiral. How far down do you find a new foundation for recovery? Its not there.

  • Report this Comment On August 16, 2011, at 5:14 PM, canadacomments wrote:

    Although I know that I am not an American citizen, I invest a great proportion of my portfolio in U.S. companies, and our economy here in Canada moves more or less in lock step with the USA, hence I feel that I can comment.

    @genericname23: the seventh word in your first item betrays you and brings down the rest of your convoluted argument. You seek to confuse the issue by bringing in way too many variables.

    I don't think that you will find any foreign commentator who will state that the USA is other than a low tax country. I would like to pay lower taxes but you have (eventually) to pay for your high standard of living and your low prices on gas, food, and other things. If you think that you are paying high prices I suggest that you visit other developed countries in the world.

    As usual your analysis and presentation of facts is insightful, Morgan. Keep it up although I know that you run the risk of being run over by the Tea Party.


  • Report this Comment On August 16, 2011, at 5:29 PM, MateoTorgy wrote:

    I'd like to respond to the first responsive comment above, which states that the current tax structure is unfair not because of the many loopholes or the ridiculously low capital gains rate (15%) -- benefits that are applicable exclusively to the rich, but because poor people don't pay enough. The tax preparer thinks the tax laws are unfair because they "don't require any sacrifice or pain on the part of the taxpayers" who qualify for things like the earned income credit (EIC).

    Our society has reached new lows in terms of ignorance and lack of empathy.


    According to the Tax Policy Center's Roberton Williams, "a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax."

    In other words, the people about whom some of you complain as beneficiaries of an unfair tax system are already below the poverty level, BEFORE DEDUCTIONS. Their gross income (not AGI), with children, makes them impoverished by definition. And you idiots have the callousness to accuse them of exploiting an unfair tax system, while owners of LLCs, S-Corps, etc., zero out their AGI, and avoid taxes altogether, by claiming everyday expenses (clothing, gas, food, lodging, season tickets, Florida condo) as "business expense" deductions.

    Warren Buffet is right. And some of you are simply oblivious d-bags.

  • Report this Comment On August 16, 2011, at 7:01 PM, CMFStan8331 wrote:

    A perceptive, well-reasoned article. Buffet is dead on the mark, as usual. Another point often overlooked is that most states and local governments in the U.S. charge sales tax, which is regressive in nature and adds greatly to the overall tax burden of those at the lower income levels. I do think we need talk about a comprehensive package of reforms - looking at one issue in isolation often makes it easier for those who wish to oppose any solution.

    Painful, permanent spending cuts must be made, but we have to be smart and avoid cutting things that will harm future growth. For example, our physical infrastructure is crumbling right now. If we refuse to spend adequately and allow it to deteriorate even further, we will eventually pay a steep price for our foolishness.

    A small increase in the marginal rate for those in the highest income tier makes great sense, but it makes even MORE sense as part of a comprehensive reform package. No package that includes only pain for the rich is likely to pass Congress, so we have to consider a package with elements that appeal to both major parties.

    We need to lower the corporate tax rate significantly to bring more corporate funds back into this country. We are still the world's greatest economic power but we are no longer a 1000 lb. gorilla surrounded by field mice and we can't afford to keep acting like we are. Most of the lost revenue from a lower rate could be made up from eliminating loopholes and various tax expenditures.

    In terms of personal taxes, I believe we really need to add a new, longer-term rate tier to capital gains. The current one year long-term rate could go up slightly to 18-20%, but we could simultaneously add a new tier somewhere from 3 - 5 years that could be taxed at or not much above the current long-term rate of 15%. That would raise some revenue AND help promote market stability and true long-term investing.

    The only thing preventing us from getting our fiscal house in order is ideological fervor and the childish idea that your "side" (whichever side that may be) is going to achieve total victory by overwhelming the opposition with the force of your rhetoric. In a political environment where many folks on either side refuse to even listen to each other there's absolutely zero chance of that sort of massive persuasion, no matter how loudly one shouts.

  • Report this Comment On August 16, 2011, at 7:03 PM, Squirespeaks wrote:

    The Bush tax cuts were not paid for, neither were those two wars. Add to that the lowered revenue from a weak economy, and you've got a broke gov't. Would it be so bad to let the tax cuts expire? I mean, it's not like business was so bad in 1998, right?

  • Report this Comment On August 16, 2011, at 8:10 PM, UtahConservative wrote:


    1. For your information, Congress has expanded the Earned Income Credit to the point that many people get refunds of money they never paid in, EVEN AFTER subtracting payroll taxes. Add to this additional child tax credit and education credits and the situation gets even more dramatic.

    2. A middle-class example I have seen of unfairness was when a couple earning $100,000 paid zero tax but got a refund of $8,000 for buying a new home.

    3. Jiggling the tax code is not the way to care for the poor.

  • Report this Comment On August 16, 2011, at 8:24 PM, NOTvuffett wrote:

    I get so tired of this... for all you fools that think you don't pay enough taxes you can just write a check. Here wait, I will get the link for you. Google

    You can send a check there that is supposed to go directly towards relief of the public debt. There are also handy stats there like the amount in 2010 donated to this noble effort was appx. $2.8 mil.

    Let me whip out my handy dandy calculator... oh wait, too many digits for it, lol. Deficit this year $1.65trillion, 1000 billion in a trillion, and 1000 million in a billion. Going back to the 2010 data of $2.8million in can do the math, many thousands of times less than the deficit

    i guess the rich don't want to shoulder another burden, and neither do you. hipocrites.

  • Report this Comment On August 16, 2011, at 8:42 PM, GreenBerets wrote:

    As Ronald Reagan said, it's not that taxes are too low, it's that the government spends too much.

  • Report this Comment On August 16, 2011, at 8:50 PM, philly98 wrote:

    I think age may be catching up with WB. The high capital gains taxes in the late 70's was catastrophic for the stock market. The high interest rates that brought us 20% interest in money market funds and 13-14% interest rates on mortgages added to the problems. WB is also losing it if he is suggesting raising taxes in this environment. Now is not the time to raise taxes when most of us normal folks are struggling. He doesn't have a clue of what the average American thinks when he/she is making an investment. At my tiny level, the tax rate means a lot. If capital gains tax goes up to the 76-77 rates, a lot of us drop out of the game. Maybe WB and his rich buddies don't care, but it means a lot to the rest of us.

  • Report this Comment On August 16, 2011, at 8:53 PM, cmfhousel wrote:

    <<As Ronald Reagan said, it's not that taxes are too low, it's that the government spends too much.>>

    FYI, government spending as a % of GDP increased substantially under Reagan. In fact, spending as a % of GDP is slated to be at the same level this fiscal year as it was in 1983.

  • Report this Comment On August 16, 2011, at 8:57 PM, cmfhousel wrote:

    <<Now is not the time to raise taxes when most of us normal folks are struggling. He doesn't have a clue of what the average American thinks when he/she is making an investment. >>

    To be fair, he explicitly does not want to raise taxes on average Americans. From his op-ed:

    "I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get."

  • Report this Comment On August 16, 2011, at 10:06 PM, philly98 wrote:

    TMF: read my comments again, this time take it slowly. I was talking about his silly comments on raising the capital gains tax. Raising the capital gains tax effects us small investors much more than it does WB and his rich buddies. In the late 70's it drove many small investors out of the market and clearly played a role in the recession of the late 70's which certainly hurt the poor and middle class much more than it hurt the rich. It also was a recession that all but insured that Jimmy Carter would not be re-elected.

  • Report this Comment On August 16, 2011, at 10:14 PM, cmfhousel wrote:

    ^ No one is proposing raising capital gains taxes on average Americans. Those in the 10% or 15% income tax bracket currently pay no capital gains tax at all, and as far as I know no one has proposed changing that.

    Furthermore, being driven out of the market because of capital gains tax makes little sense. A 10% gain taxed at 39% is better than a 0% gain tax-free. People maximize their income.

  • Report this Comment On August 16, 2011, at 11:01 PM, Clint35 wrote:

    I completely agree with Buffet. It seems the rich make the most and pay the least. But I don't think they should have to pay more than the poor or the middle class. All I want is for everyone to pay the exact same percentage. In my opinion that's the only fair way to do it. Simplify the idiotic tax code so it makes sense. Do away with all the stupid loopholes and ridiculous deductions that don't make any sense. But I'm sure it'll never be fair or make sense because most of our political "leaders" are jerks and idiots. I think they proved that during all the debt ceiling mumbo jumbo. But hey, good article Morgan.

  • Report this Comment On August 16, 2011, at 11:20 PM, philly98 wrote:

    Again, read carefully... his comments were that the high capital gains taxes of 76-77 did not effect investment in the market. That is just not true, the high capital gains tax coupled with the devastatingly high interest rates had serious effect on investing in the market in the late 70s. People could not buy houses because of the 13/14% mortgages and were making more money investing in CD's and money market accounts than they were investing in the market. It made all the sense in the world to invest in money market funds and not in stocks. The mistake was as the interest rates were rising, the capital gains tax was increased, and that had a chilling effect on investment in the stock market which kept the dow in the 700's. My initial comment was that WB mis-stated (or mis-remembered) the effect that raising the capital gains tax had in 76-77. My comments were based on what happened in the late 70's why it made his comments on THAT SPECIFIC subject just not true. I have no argument with most of what else he says... it is... one more time... just not true that the capital gains tax increase of 76-77 had no effect on investment in the market in the late 70s. The market remained stagnate until after the capital gains tax cuts of 1981 and that plus getting interest rates under control set the market off with more investments (and investors) and higher prices. His comments, on this specific topic, are just not true.

  • Report this Comment On August 16, 2011, at 11:50 PM, prose976 wrote:

    What a hypocrite. If Buffett want to pay more in taxes, he should just write a check for the amount extra he feels is justified. Simple solution to his soapboxing.

  • Report this Comment On August 17, 2011, at 12:25 AM, BordLyron wrote:


    <i>A middle-class example I have seen of unfairness was when a couple earning $100,000 paid zero tax but got a refund of $8,000 for buying a new home.</i>

    I would be keen to know the source of this. I failed to find anything by Googling...


  • Report this Comment On August 17, 2011, at 12:26 AM, BordLyron wrote:


    <suff here>Admission that he didn't know that this is a purely text arena.</end of stuff>

  • Report this Comment On August 17, 2011, at 1:19 AM, XMFConnor wrote:
  • Report this Comment On August 17, 2011, at 3:32 AM, miguelito22 wrote:

    The article and comments miss the point, which Buffet is cleverly hiding -- tax rates aren't nearly as important as income and expense characteristics. Tax lawyers and accountants make their big bucks on helping Warren and his friends characterize and time their income and expenses so as to pay whatever amount of tax suits them. That's what all the trusts and LLCs and partnerships are about. That's why business entities have varied fiscal years and different accounting rules than individuals. Raise the rates all you want -- the super-rich and large corporations won't pay any more, but average citizens and small business owners will.

    Simple example -- business expenses. Virtually anything a business spends is deductible (sooner or later), including $2 million birthday parties for the CEO. Individuals on the other hand cannot deduct most of the ordinary and necessary costs of working (commuting expenses, special clothes, cleaning bills, meals, etc.). Yet, for some special categories (e.g., moving expenses), individuals have to be able to be considered to be in the business of being an employee.

    Bottom line is that tinkering around the edges of the current tax system will NOT generate sufficient new tax revenue or business expansion to dig us out of the current and future debt hole.

    Remember Rule #1 -- stop digging.

  • Report this Comment On August 17, 2011, at 7:43 AM, JeremieP1 wrote:

    We need tax reform that includes broadening the base (no reason 50% should not pay any taxes) and close loopholes such as a 15% cap gains tax (20% would increase multi-billionaire Buffett to about the same as a middle income family).

    To go along with that we need significant entitlement reform. This is pretty clear. Now lets do it.

  • Report this Comment On August 17, 2011, at 8:21 AM, Lifesofine wrote:

    Two things:

    1. Buffett knows that if he only changed his own actions(pay more) it wouldn't be enough to seriously impact a system in crisis. He is aiming higher, and to moralize about " why doesn't he just do it himself, then? " is in my opinion, kind of pointless.

    2. Do we really need to call each other names when we think a fool's opinion is ridiculous? Debate is great---name calling is offensive. We can do better in a small forum like this.

  • Report this Comment On August 17, 2011, at 9:08 AM, philly98 wrote:

    My comments are not an attack on WB (or anyone else), in fact WB has made me a lot of money over these many years. My comments were that in one area I think he misrepresented what happened, to make his point stronger. At the time, the capital gains tax increase in the late 70's did have an effect on the market and on investing in the market... his comment about that particular time was wrong. But, it is important to hear his message. For the economy as a whole, small income tax increases (or decreases) are not as important as other developments in the economy. The internet boom is what made us prosper in the 90's, it had nothing to do with changes in the tax structure. Indeed, in the late 90's the internet and tech bust, along with the housing market was at the heart of the rescission of 2000-2001. The subprime mortgage crisis and the meltdown of the crazy housing market caused the latest 2007-and on rescission. Taxes had little, if any effect in these periods. Raising taxes during an economic crisis is questionable strategy and it remains even more questionable whether it actually raises revenue or not. WB is on the mark about the income taxes, the question is when. He also is very clear that as important as anything else, spending needs to be brought under control. If this doesn't happen and taxes are raised

    in this current economy... we will be in a bigger mess than we are today.

  • Report this Comment On August 17, 2011, at 9:31 AM, 1RuleNoRules wrote:


    The supply side arugment says that at some point as tax rates rise, revenue increases slows and then declines. The affect of compounding growth demands lowest rates possible to maximize revenue over the long term. Your graph show rates but what is happening to revenues as the rates change.

    Your arugments are thus invalid.

    Your charts fail.

    Through ignorance or deciet you propagate socialist/Keyisan dogma.

  • Report this Comment On August 17, 2011, at 9:32 AM, philly98 wrote:

    Of course on my last comment I meant recessions and not rescissions - god do I hate this Mac auto spell check... you would think that I would just turn it off. Sorry for the inconvenience.

  • Report this Comment On August 17, 2011, at 9:41 AM, aeventyr wrote:

    How about spending our tax money responsibly? Sure a few more bucks won't kill. But geez, could you get it right for a change?

  • Report this Comment On August 17, 2011, at 11:12 AM, philly98 wrote:

    Interesting article in WSJ calling out WB.

  • Report this Comment On August 17, 2011, at 11:22 AM, overley wrote:

    How about taking a thermonuclear device to the entire tax code, institute a progressive tax rate with no deductions or credits. A low flat corporate tax rate that is internationally competetive with no deductions and no loopholes. Estimate how much federal revenue will be generated, and only spend what you bring in. Prioritize the spending and eliminate everything that is nonessential. Return all revenue for social programs to the individual states with no strings attached. Radical idea no. It will never happen because most of the political contributions are for special treatment under the tax code.

  • Report this Comment On August 17, 2011, at 11:26 AM, Tygered wrote:

    Another superb article, Morgan. Now you just need to tell it to the teaheads in DC and make them listen, if that is at all possible.

    Thanks for a good perspective on what is wrong in this country.

  • Report this Comment On August 17, 2011, at 11:39 AM, deckdawg wrote:

    Morgan, the chart on Fed Taxes as a % of GDP doesn't mean much without a fairly detailed account of how it is calculated. What taxes does it include? Does it include Social Security & Medicare taxes? Tariffs? And, here's a really, really big one ... unfunded mandates. If the Fed gov is requiring spending by states on Medicaid, education or anything else ... and we're listing that tax as a state tax ... that's a bit deceptive. In many areas (Medicaid and education being the most obvious) states are required to fund certain things in order to get the "matching" federal dollars to support it. A more interesting chart would depict the percentage of the economy composed by all levels of government combined. Forget about revenue for a moment ... if 40% of all money is spent by government (at some level), that is eventually going to have to be paid for ... either now or later. And, I think that is the fundamental discussion going on in the country today ... it's not really about taxes ... it's about how large & powerful the Federal government should be. It is a discussion that was heated & intense before the American Revolutionary war was even over ... and continues with varying degrees of intensity down to this day.. It's a healthy discussion, and if it ever stops it means we've either dissolved the Union, or collapsed into a decaying one party social welfare society.

  • Report this Comment On August 17, 2011, at 11:50 AM, PhulishMortal wrote:

    "Two, whenever Buffett calls for higher taxes, many respond with what they think is a clever rebuttal: "If he wants to pay more, he's welcome to donate his money to the IRS!" Folks, this totally misses the point."

    And then in the comments:

    "What a hypocrite. If Buffett want to pay more in taxes, he should just write a check for the amount extra he feels is justified. Simple solution to his soapboxing."


  • Report this Comment On August 17, 2011, at 12:13 PM, financeguy85 wrote:


    Great stuff here, but I feel bad for you. Making a rational, intelligent argument that in fact, the wealthy are not paying their fair share, is almost useless. Our society has been completely brainwashed by conservative media. When presented with an argument such as yours, they'll simply regurgitate the boilerplate nonsense of something along the lines of "well Reagan always said the problem was too much spending" or "you can't raise taxes in this economy." Even middle class people will repeat these phrases, which is exactly what the super rich want them to do so that they can win enough votes to continue their own agenda. Unfortunately the reality is now that America is not smart enough to understand the truth behind these issues. Sad.

  • Report this Comment On August 17, 2011, at 12:14 PM, Dtwoolley wrote:

    Just stop the nonsense and let the private sector get people back to work to raise revenues, and stop talking about taxing anyone anymore. If Buffet wants to pay more, then let him. It is not reasonable for people to pay more then half of their income (Fed, State, Local) to the government.

  • Report this Comment On August 17, 2011, at 12:23 PM, SFAmiler wrote:

    Why raise taxes? It really makes no sense in this economy.

    Why can't we focus on closing the loopholes that allow corporations to make billions but pay nothing? If we did that, then we could even lower our corporate tax rate and still increase revenues.

  • Report this Comment On August 17, 2011, at 12:32 PM, Reddrummer wrote:

    Buffett is a great investor and a great business mind, but that doesn't mean that he is a master of the tax code. For some reason he doesn't factor in that most of his income was also taxed at another level (the corporate tax). You have to consider that with the capital gains/dividend taxes that he pays.

    Also, its really easy for him to say that he should pay more taxes, because what does an extra $10M or even $100M in his pocket matter. He's made his money, his lifestyle is set. In fact I would argue that his opinion is irrelevant on the tax code because none of the changes will ever impact his lifestyle.

  • Report this Comment On August 17, 2011, at 12:36 PM, Reddrummer wrote:

    philly98 I have read that article before, and that is a must read

  • Report this Comment On August 17, 2011, at 12:46 PM, cmfhousel wrote:

    <<Also, its really easy for him to say that he should pay more taxes, because what does an extra $10M or even $100M in his pocket matter. He's made his money, his lifestyle is set. In fact I would argue that his opinion is irrelevant on the tax code because none of the changes will ever impact his lifestyle.>>

    He's only proposing changing the tax code on people for which that would apply to.

  • Report this Comment On August 17, 2011, at 12:53 PM, TheDumbMoney wrote:

    Morgan, would love to see an article on why people who say Buffett should "just donate some money" or that he's "hypocritical" for donating his money to charity when he dies rather than to the government, are morons, and why those points are completely irrelevant to the point he is making, and are essentially just attempts to distract.

    As to the first point, it makes no sense for him to unilaterally donate, it solves no fiscal problem. The problem is structural, and much larger numbers are involved.

    As to the second point, he is not saying he thinks the government is the most efficient user of capital, so the point is simply irrelevant.

    Oh and to the morons who say Buffett is just carrying water for administration because he got "bailed out," first, he didn't, and second, he has leaned Democrat for forty years.

  • Report this Comment On August 17, 2011, at 12:54 PM, TheDumbMoney wrote:

    Nevermind, you already addressed at least the first point.

  • Report this Comment On August 17, 2011, at 1:02 PM, cabezas100 wrote:

    Well done Warren Buffett for having the courage to make a common sense argument that seems obvious to everyone outside the US. How long will Americans continue to let the Tea Party rhetoric hold the economy hostage?

  • Report this Comment On August 17, 2011, at 1:32 PM, deckdawg wrote:

    Morgan, I'm still trying to understand your tax chart. In my own experience, my taxes seem to have gone up substantially (but, of course, you can't go by your own experience all the time.) I received my first pay check in 1966. Seems like a much bigger bite is missing today. I found this chart at the tax policy center web site:

    According to this chart, Social Security and Medicare taxes have more than doubled since 1966 (this does seem to match my perceptions pretty well). In addition, the amount of income subject to the tax has been adjusted each year to make sure that the vast majority of working Americans have all of their income subject to the tax, year in and year out. (This also lines up pretty well with my personal experience). Almost no one receiving a paycheck can escape this tax ... deductions are powerless against it. The only exceptions are many government employees who are immune from the tax, and certain powerful members of the Democrat party (such as Timothy Geithner) who simply ignore their obligation to pay the tax ... who do you have to know to pull that off?)

    Anyway, I can't understand how your chart could be correct when the most universal Federal Tax rate has more than doubled during the time period covered by the chart.



  • Report this Comment On August 17, 2011, at 1:34 PM, iPixel wrote:

    I very much respect what Warren Buffet is trying to do, however even though i'm a middle class citizen even I feel it's unfair for the "mega-rich" to pay out more. They already pay way more than we do as a sole tax payer. So if he wants his taxes increased. I want my taxes increased. It's our job as a middle class to support our governments finances however horrible, corrupt, idiotic etc... they might be. I hope our current situation will get the Govt. rear in gear before they have a riot of their own on their hands.

  • Report this Comment On August 17, 2011, at 1:37 PM, mdk0611 wrote:

    Morgan - Obviously there is not a 100% correlation between top marginal tax rates and GDP growth. Top marginal rates were high in the 50's but US industry was essentially competing against rubble in the rest of the world. You can grow regardless of what the top marginal rate is if you have no competition. And the, low, current 35% rate should be viewed in light of the fact that 3 years of it's short 8 year history has been spent in a recession that had nothing to do with tax rates.

    Let's have a little more balanced presentation, please.

  • Report this Comment On August 17, 2011, at 1:41 PM, cmfhousel wrote:

    <<Top marginal rates were high in the 50's but US industry was essentially competing against rubble in the rest of the world. You can grow regardless of what the top marginal rate is if you have no competition ... Let's have a little more balanced presentation, please.>>

    Please read the article before making accusatory comments.

    From the article:

    "Far more important are things such as population growth, demographics, labor productivity, creativity, consumer confidence, and -- immediately after World War II -- the lack of production capacity in bombed out countries. Do tax rates matter for growth? Yes, but not nearly as much as some think."

  • Report this Comment On August 17, 2011, at 1:47 PM, rtichy wrote:

    The biggest difference between now and the past is that capital gains and dividends are now "preferred" by the tax code against other kinds of income. It is the most regressive change we ever made to the tax code. These classes of income are now taxed below the "normal" rates for income at all income levels. For lower incomes they are taxed at 0%, for higher incomes they are taxed at 15%. This kind of income used to be called "unearned income" by the tax code, and it was not offset by deductions easily. This is because people with high incomes have a lot more of these types of income.

    Now "unearned income" (except interest) is "preferred income" in that it gets the lowest rates of taxation. Thus, the wealthiest get the lowest level of taxation, on a percentage of income basis.

  • Report this Comment On August 17, 2011, at 2:29 PM, Reddrummer wrote:



    <<Also, its really easy for him to say that he should pay more taxes, because what does an extra $10M or even $100M in his pocket matter. He's made his money, his lifestyle is set. In fact I would argue that his opinion is irrelevant on the tax code because none of the changes will ever impact his lifestyle.>>

    He's only proposing changing the tax code on people for which that would apply to. >>

    Sort of, he made his money on the current set of rules. He might have felt differently before he reached this level.

    Why should income be discriminated against based on the type of income or who makes it. If fairness is the goal, why not impose a flat tax. The rich will share a larger piece of the tax burden by having a larger income.

    The only explanation I can think of is that politicians want votes and there is the tyranny of the majority.

  • Report this Comment On August 17, 2011, at 2:39 PM, HemOncDoc wrote:

    TMFHousel brings up some interesting stats. Unfortunately, any stat can be shown to be inaccurate with others stats. The real issue in front of all of us is revenue minus expenses. I can't remember where I saw this, but I recall that revenues has been about 17-19% of GDP for decades. This despite tinkering with the tax code. Revenue is most closely linked with employment, not tax rates. The only way to increase revenues is to increase the number of tax payers, not the amount tax payers cough up to the government. That means dealing with our high unemployment rate. Do we need more revenue, yes! But the spending MUST be decreased BEFORE I'm willing to pay more. The other issue is that WB idea of a "millionaires and billionaires" is drastically different than Obama's (250,000 - 200,000.) I guess a Harvard education forgets to teach basic math.

  • Report this Comment On August 17, 2011, at 2:41 PM, overley wrote:

    <How long will Americans continue to let the Tea Party rhetoric hold the economy hostage?>

    We would not be having this conversation if not for the TEA Party. I personally feel I'm being held hostage to out of control federal spending that is projected to increase 7 trillion more in the next decade even with a millionaires tax. I am afraid for my children, who will be handed this bill because we can't control our national finances. So go ahead a pass the millionaires tax, but it will fix nothing unless we hold the politicians feet to the fire to balance the budget. If not, we are destined to become Greece.

  • Report this Comment On August 17, 2011, at 2:44 PM, uaku wrote:

    Mr. Buffett can speak because he does not need vote for next election, the politicians can not because they do. As simple as that. Lets do the right thing for America, kick the idiots out of the office and put some sensible people who can think rationally.

  • Report this Comment On August 17, 2011, at 2:59 PM, jpdal09 wrote:

    It also doesn't help the deficit that roughly half of wage earner pay no taxes but i digress

    There is no need to raise taxes of loop holes are closed. Now I currently don't have the time to look up facts and figures but I would bet that you could LOWER all tax rates while simplifying the tax code to eliminate loop holes and the "rich" people would probably end up paying more in taxes than they do now...just saying

    OR! (crasy idea) eliminate the income tax and impliment a VAT instead...just throwing that out there

  • Report this Comment On August 17, 2011, at 3:28 PM, DonkeyJunk wrote:

    Don't waste your time reading the conservative WSJ straw man response to the liberal NYT. To summarize, the article takes Buffet's tax increase proposal, trivializes the target group of the top 0.3% of earners (because what point is there in making a difference unless it's a huge difference) and instead applies it to Obama's proposed tax brackets, trying in one fell swoop to discredit both. It also restates the bewildering point that Buffet give his earnings to the IRS rather than charities, as if the purpose of the two (unless you are a profound cynic) are in any way comparable.

  • Report this Comment On August 17, 2011, at 3:57 PM, Loboho61 wrote:

    The whole key is not that people want to pay more, they want someone else to pay more. Bottom-line, that is it. All fingers point to the rich because they are an easy target, but not realistic.

    Anyone who has ever dealt with the "really" wealthy understands that you are not going to tax them more. They play by different rules than most everyone else. They can invest to simply lose. They can wait, hold their breath or create losses where none existed.

    Until a flat tax is iimplemented taxing the rich and expecting an impactful outcome is simply hyperbole and class warfair, which only promotes divisiveness. We need to address the real problems of this country. The longer we wait the worse it will get.

    Put Dave Ramsey in charge of the debt commission. I bet we find real spending cuts, real fast!

    Make the tough decisions. Address spending and unfunded liabilities. Address the national debt and free up 24% of every tax dollar so we can spend it where it should be spent, in the US, not paying foreign countries.

  • Report this Comment On August 17, 2011, at 4:15 PM, buddi wrote:

    Utahconservative wrote: they paid in no tax; for example, the Earned Income Credit, the $8,000 Homebuyer Credit, part of the child tax credit and education credits.

    These refundable credits are unfair because they don't require any sacrifice or pain on the part of the taxpayers.

    When I see breakfast cereal at nearly $5 and a neighbor is making $8/hr with 2 children, I kinda think that lower income folks are feeling a heck of alot more pain than us. And aren't first time home buyer credits just as worthy as Exxon's billions in tax welfare? When I went to college, tuition was $15/credit hour; today I couldn't imagine getting a young person through school if I were at the lower economic ladder. This is an incentive to get more of our citizens out of and off the entitlement programs you have hard feelings about.

    Having a hard time feeding your children is feeling the pain much more so than having to sell one of your private jets.

  • Report this Comment On August 17, 2011, at 4:44 PM, billqpgmr wrote:

    I know there are a lot of comments here, and most likely nobody will actually get down to read my points...which I think are a little different than most above.

    1. The real issue isn't so much who needs to be taxed, but what needs to be taxed, and who would be hit by those decisions. There are two main problems with the tax structure we currently have - - first, it is focused more on social engineering than it is on raising money, and

    - second, it is so complex that it amounts to a welfare and full employment program for CPA's and Tax professionals.

    - and third, it is sucking money out of the very people who create businesses and jobs, and invest in the country's future.

    2. Warren Buffet doesn't care how much taxes he pays, because it's not really any skin of his nose...he has his, he's in the game for fun more than profit (that's just keeping score, really), and that's true for All the super rich - the problem is defining where that line is, and it isn't at the income level, it's at the assets employed level.

    The corollary to that is that the real impact of building tax structure based on his comments and reacting by adjusting capital gains taxes and dividend taxes is that it builds the wall that prevents the middle class from growing into the moderately rich...

    3. Anyone who maintains that the only people who are impacted by increases to taxes on investments doesn't realize that all those pension funds, 401k's are impacted as well, not to mention dreamers like me who have been investing a little at a time over many years to build a nice dividend portfolio.

    4. MY foolish bottom line goes back to Adam Smith and the concept that the highest and best use of anything and anyone is best achieved in the market, rather than demand. That is to say, that more jobs will be created - and by extension more good for the economy and society as a whole - by Warren Buffett taking those taxes he thinks he should be paying and investing that money, rather than handing it to the government for it to be squandered in administrivia.

  • Report this Comment On August 17, 2011, at 5:39 PM, jrdow wrote:

    I never mind discussing whether we should raise taxes on the rich. But, as Housel noted in a comment above, raising taxes on the top two percent of income earners to pre-Bush Tax levels only nets ~ $60 Billion per year... or roughly 4% of this year's estimated deficit. So fine, let's talk about how great it would be to finally fix 4% of our problem.

    But then let's turn our attention to the other 96% of our original problem, shall we? What are we going to do about that part? Anybody?

    A humble suggestion: for every one post you write citing how the rich are unfairly squirrling away $600 Billion of OUR money every ten years, write another 24 discussing other solutions that save/generate approximately as much. Then we can get close to getting a handle on the problem.


  • Report this Comment On August 17, 2011, at 6:23 PM, The1MAGE wrote:

    One of the reasons the wealthy pay less in taxes then the middle class is because they can afford tax advisers, and good accountants. (Obviously there are other reasons.)

    A) I have to say the charts, while interesting are kind of in a vacuum, and as a result over-simplistic, so doesn't tell the whole story.

    2) I would like to know why, when it is pointed out that the wealthy pay less as a percentage in taxes then the middle class, that we need to increase tax on the wealthy, and not reduce it for the middle class?

    D) If we are going to throw the Federal budget into this, I need to know why I can follow a rational budget, while the government can't. I keep running into people who think that if they "rich" paid more, the deficit would go away, and that is just not true. in 2010 the entire Forbs 400 net worth was about equal to that years deficit. Not their income, but their entire net worth. (And with a big hunk of them not being Americans, the US can't quite tax them.)

    I just started into investing, (outside a 401k) and as a result I expect my tax rate to drop. As I get into real estate, I expect it to plunge. This is not because I am suddenly rich. (I am not.) But a result of me being more intelligent with my money. But while my rate will decline, I will still be paying more in taxes then I did last year, and eventually more then I am going to pay this year.

    My solution would be to cut tax on the middle class. Balance the budget. Eliminate certain tax breaks that are not fair. (If one person cannot get a tax break doing the same thing as another, that is not fair.) And then get as many people rich as possible.

    That last one is not only good for the people, but even at a lower tax bracket will cause tons of money to flow into the government. More then just adding more tax to the rich, which almost never works. (Tax revenue from the wealthy actually increased by $100 billion after Bush's tax cuts.)

  • Report this Comment On August 17, 2011, at 8:59 PM, jpdal09 wrote:

    Morgan, I just got out of my calc 3 exam and am in a fantastic mood so i'll play ball with you. I like your articles and I think you're a very smart guy but obviously, when it comes to macroeconomic policy i just can't agree with you. I see your data and how you logically come to the conclusion that you do but pretty graphs and charts can prove anyone's point on any side of any argument. Here's a pretty graph that says the "rich" already pay a vast majority of the taxes in this country and taking more is killing the goose that lays golden egg:

    And here's a lovely line graph showing that even though income taxes were cut on 2001 and capital gains and dividends taxes were cut in 2003, tax revenue continued to go up until the recession hit.

    And this little guy shows that increasing tax rates would not necessarily lead to higher income tax receipts:

    My point it, in my opinion I can have a strong argument for not raising taxes and in your opinion you have a strong argument that modest tax increase will not be that destructive. Numbers don't lie but they can be manipulated.

    On to point 2. As for W. Buffet decided to give away a massive part of his fortune to the Gates's charity foundation; I see this as his distrust of the government. Now bare with me. Obviously he can't really be called greedy and evasive because he is giving the money away so this doesn't exactly contradict his statement of increasing taxes, yet by doing this, he is denying the government this money when he dies as part of the death tax. This can only lead me to conclude that he has more confidence that a charity can do more positive things with this money than the government can.


  • Report this Comment On August 17, 2011, at 11:47 PM, SpaceVegetable wrote:

    @genericname23 makes some great points. One thing that probably gets overlooked is that a lot of the wealthy live in higher-cost areas (because that's where the most businesses are) and most likely pay a lot in local taxes, so IMHO, any perceived unfairness comes out in the wash.

    Personally, I see nothing fair in taking more of my dollar than yours simply because I earned more of them. Fair would be everyone paying the same %. And the whole argument about only rich people having capital gains is a crock. People forget that Grandma's pension and Dad's 401K are probably invested in the market, too. Buffet's arguments fall flat here.

    The attitude of @buddi is far more common these days, which is disheartening. Somehow, there's a perception out there that once you reach a certain level of income, you're suddenly "greedy" and should "share the wealth." Sorry, but I *earned* my wealth by busting my backside and I'll keep it in my own pocket, thank you very much.

    Sure, I'm sympathetic to the poor, but picking my pocket simply because I have more is unfair. The fact that someone else is poor is not my fault, so why should I have to suffer for it? What gives you the right to say I have "enough" and should give more? Everyone want to tax the guy who makes more than them, which is nothing more than envy and class warfare.

    It's tiring to hear the bleating about those "evil rich bastids not paying their fair share." Give me a break. They already pay the bulk of all the taxes in the country and still people want more. Honestly, there just aren't enough rich people to make a difference in the budget deficit, even if you confiscate every cent they have, so all the whining is pointless.

    Finally, what good will it do to give more to our spending addicted government? You don't give more of their vice to the addicted. We need to cut spending drastically, not send more money to those bozos in Congress to waste.

    No, I'm not in the top 1%, but probably in the top 10% in income. Income I earn. I grew up poor in a tenement, so I know what it's like to have nothing. I worked hard, studied hard, and now make good money and I resent people clamoring to take it from me because they think it's unfair that I have more than they do. Newflash: We're guaranteed equal opportunity in this country, not equal outcome.

  • Report this Comment On August 18, 2011, at 10:21 AM, TheDumbMoney wrote:

    @jpdal09, you said, "My point it, in my opinion I can have a strong argument for not raising taxes and in your opinion you have a strong argument that modest tax increase will not be that destructive. Numbers don't lie but they can be manipulated."

    Well let's just throw in the towel and go bowling then! So are you saying you just choose the Heritage Foundation's manipulated charts because they match you pre-determined prejudice? Or are you saying their charts are not misleading?

    By the way, none of your charts address the dividend or capital gains issues directly at all, and thus they fail to respond to Buffett's point at least.

    Also, your final chart, despite the Heritage Foundation's characterization of it (and also ignoring the fact that it ignores tons of exogenous inputs) actually does show a trend down in tax as a percent of GDP as the top marginal rate is lowered. Obviously the trend does not match the dramatic cut at the top margin, in part because that cut is by definition....marginal, and only relates to the top slice on total income.

    Don't get me wrong. I think we need to raise taxes on everybody over the long-term. (My main problem with Obama is that he is engaging in populist rhetoric implying we can solve the problem at the top tax brackets alone, because tax increases are so unpopular in our virtually anarchist political climate.) But we need to take a look at the full picture.

  • Report this Comment On August 18, 2011, at 11:14 AM, jpdal09 wrote:

    @dtaf, yes and yes I choose those charts to emphasize my point that we can all find "impartial data" that can support two sides of an argument. Sure I have pre-determined prejudices, we all do, sure charts...all charts..have short comings in the subjects that they cover and two people can look at the exact same data and come up with wholly different explanations of what they represent. In this point I'm agreeing with Morgan in the almost futility of the vicious debates that many people have on this topic because rarely will anyone's opinion change one way or the other in any short amount of time. Now that's not to say they their opinion will never change. My 20 years life experience has lead to the conclusions and opinions I now hold but who knows what I'll hold to be true 20 years from now? So I guess you could say my comment was one covering the human condition and stubburness and not exactly about the economic numbers.

    See you at the bowling alley!

  • Report this Comment On August 18, 2011, at 12:31 PM, jpdal09 wrote:

    And don't think I mean to say these conversations and debates are worthless, they are far from that. It's just that the effects of such discussions mostly happen over the long term

  • Report this Comment On August 18, 2011, at 3:04 PM, cflak wrote:

    I qualify that I'm not in the top 3%...Mr. Buffett, instead of complaining that taxes aren't high enough for you, why don't you do something good yourself with the money that would've gone to the government? I can guarrantee that you can help someone much better than through the gov't welfare program. Plus, the beneficiaries will appreciate it more than a welfare recipient.

    Why do people think that if they pay more taxes to an inefficient gov't that they are doing what's morally right? I say, less taxes so people that "can", gives to those who need help through the thousands of non-gov't organizations.

  • Report this Comment On August 18, 2011, at 5:53 PM, Mungbork wrote:

    Here's a thought...amazing that I have one, given how shell-shocked I am from the past month in the market. How about, for a period of one or two years only, make contributions to directly reduce the national debt tax deductible. So, if I give $100,000 to the government to apply to and only apply against the National Debt, I deduct it from my personal taxes, just like for a charity...or perhaps it could be some kind of tax credit. I wouldn't want to do this unless the budget was firmly under control, and spending was not going to increase during the same period. So, a moratorium on increased spending, and voluntary, tax-deductible contributions to reduce the debt.

    I know this sounds paradoxical, because tax revenue might be reduced because of the deductibility of contributions...I'm incapable of making those calculations, though, so it sounds good to me!

  • Report this Comment On August 18, 2011, at 6:05 PM, Mungbork wrote:

    By the way, to those of you spouting Heritage Foundation presentations:

    The fundamental thinking behind progressive tax rates, and the reason the bottom 50% pay so little in Federal Income Tax is that income at a level below that necessary to fulfill basic subsistence needs should not be taxed. If you think about it, people who make only enough money to provide their housing, food, and expenses of basic subsistence are justifiably excused from excess taxation because it would be taking away from their ability to survive. Granted, in the United States, basic survival seems to include a few trips to McDonald's, cable TV, and similarly inadvisable expenditures, but such expenditures are also fuel for our economy - and where do you draw the line as to what is necessary and what isn't? Do we want people in our country who are just barely getting by to live like the worst-off people in the third world?

    Anyway, once one accepts the idea that people at a subsistence level, within whatever economyh they are subsisting and at whatever level can be agreed upon as "subsistence", are unlikely candidates for taxation, the question changes. In the U.S. economy, why is it that half the population is living at subsistence level? And is that a good thing?

  • Report this Comment On August 18, 2011, at 6:10 PM, ShrikeTheFoolish wrote:


    I agree with you, and so does Mr. Buffett. He is currently in the process of setting up the channels to donate billions of his wealth to the Bill & Melinda Gates Foundation, which deals with promoting better education among other things.

  • Report this Comment On August 19, 2011, at 12:29 AM, imrnlil wrote:

    Wonderful, Mr. Buffet is charitable. But if he really feels he wants the government to have more of his money he is free to write them as large a check as he likes and send it to them. This article only makes the case for no income tax on anyone's income. Income tax is onerous, on everyone at every level.

  • Report this Comment On August 19, 2011, at 2:58 AM, genericname23 wrote:

    Canadacomments days - @genericname23: the seventh word in your first item betrays you and brings down the rest of your convoluted argument. You seek to confuse the issue by bringing in way too many variables.

    So using the word democrat somehow discredits a person? Buffet is a democrat. Sorry if the truth offends you. I notice you didn't refute anything I said, good job. I will chalk it up as a win for me.

    BTW - sorry if I confused you by "bringing in way to many variables."

  • Report this Comment On August 19, 2011, at 3:28 AM, genericname23 wrote:

    TMFhousel says-

    Marginal taxes are extremely important in this debate because they are what influence the decision to invest an additional dollar, and most of criticism about raising taxes is about the impact it could have on business investment. Moreover, the effective rate of the group Buffett mentions has indeed fallen by nearly half over the past twenty years, from 30% to 17%. ------- Seems you missed my point. Did you even read what I said about citing top marginal rates (yes, it was not about "marginal taxes" as your response says. I was talking about arguments that cite the top marginal tax rate as some kind of proof that we are undertaxed. It is dishonest. I was talking generally about that argument I always hear. Sorry my clearly expressed point went right over your head. And I have no idea what you are talking about when you say the group Buffett mentions whose effective rate has gone from 30% to 17%. what group? The effective income tax rate of the top 1% barely changed (1.9%) when the top marginal rates went down by 42%. Please actually read what I said if you want to respond. And those charts you are showing that have highest marginal rate v. GDP growth and jobs growth are ridiculous. As I said in my post, the stated top marginal tax rates don't mean much if nobody actually pays those rates. In the past, when we had the very high top marginal rates, we had all sorts of tax shelters that prevented people from paying those rates. So arguing that we can have great job growth and GDP growth with massively high taxes on the rich and supporting it with those top marginal rates charts is a fallacy if there was a way to get around those high tax rates.

    Further, citing federal tax revenue isn't dishonest in an article on federal tax revenue. -------- I don't remember saying anything like this.

    As to not making a dent, Buffett's proposal would bring in $600 billion over a decade, or about a third of what Congress's recent debt-ceiling deal achieved. ---------- nice bringing in the red herring of Congress's recent debt-ceiling deal. I never said anything about that and it is irrelevant to whether or not Buffet's proposed tax would make a significant difference in the deficit. Buffet's tax would mostly be a feel good tax to satisfy those who envy the rich and wouldn't even come close to solving our budget problems. To solve our problems, you must go where the meat is, and that is the middle class. If you have some numbers that say otherwise, show them.

    My opinion of just took a nosedive...

  • Report this Comment On August 19, 2011, at 2:50 PM, 4twocents wrote:

    Stan 8331 and Mateo Torgy, you and others here are why I'd much rather read the comments of investors. Regardless of what "side" people want to be on investors are more likely I'm finding to actually look at the big picture and make thoughtful comments.

    Personally I don't feel like there should be any sides. We are one country. And if we think of it as we do our own homes and families who sits at their kitchen table and blindly sticks to political views and argues like kindergardeners pouting and throwing sand?

    While I am sure there are more than enough table side arguements over money, for those with any financial know how or savy, they present their arguements based on real issues and concerns that affect the household and make decisions accordingly. Perhaps you really enjoy having 5 cable channels but realize you must let some go rather than cut the medical insurance for the kids. It really is that simple though I am sure most will agrue the point. Blind allegiance to one side or the other is stupid. We need to get our National financial house in order and not one of those argeuments or decisions needs to be motivated by petty political posturing, name calling and hissy fits. And while they are at it they need to be adding themselves to the sacrificing. Imagine what a different song would be sung about SS and Medicare if they were doomed to retire on it rather than the free for life tax payer paid perks they get? If they had to share the lot with everyone else I bet they'd figure it out pretty darn quick. And if cuts were made they would be well thought out solid cuts. How can any of them be trusted to cut spending or anything when nothing that effects their tax payer paid perks are on the table? Our entire government spends tax payer money, not just dems and not just republicans. Both sides created this mess and they didn't do this much squabling to get us to this point. They need to start working on decisions for US not their particular political side!

  • Report this Comment On August 19, 2011, at 3:13 PM, nottingham1051 wrote:

    These charts may show a correlation, but it does not persuade causation! There are myriad other factors affecting the GDP growth, and tax rate is just one of them. Of course, when the government spends more money, the GDP grows - you have a bigger government payroll, and you have more welfare spending and cost of government programs goes through the roof.

    The key issue here is that our governments, Federal and State, have grown too big and financially unsustainable. They try to do too many things, and doing them badly. Too many people are living on government checks – entitlement checks and paychecks – and these checks are printed without checks (no puns intended.)

    Raising taxes at this juncture will fuel that growth – perhaps to the point that the majority of voters are dependent on a government check for their livelihood and will reliably vote for higher taxes year after year. We must stop it before it is too late.

  • Report this Comment On August 19, 2011, at 4:26 PM, donbcms wrote:

    "Tea Party " people, start acting like your "namesakes"; I even have a "slogan" for you. "AX The TAX CODE". With its $1.1 TRILLION in "breaks", deductions, "loopholes", credits, etc,, and the top 400 taxpayers (2007) paying at the rate of 17%, (which is down from 26% in 1992); PLUS 45% paying NOTHING! ! So get out your "axes", and start bringing the Economy / Revenue UP, instead of tearing it down.

    Oh! ! Don't forget, a "FAIR FLAT TAX" would mean the "Caps" are OFF too.

  • Report this Comment On August 19, 2011, at 5:09 PM, donbcms wrote:

    "4twocents" Yes! IF ALL the Branches of the U.S. Govt. were on S/S, Medicare, etc. without the "perks" you can bet they'd FIX it. In the 1990's Congress took 1 million U.S. Postal Workers OFF Civil Service & ON to S/S, Medicare.

    "nottingham" Last 2 years, for people having to live on "government checks" (S/S,Retirement, etc.) NO COLA, but LESS coming in 'cause increased deductions! (Medicare, etc.) They say, same next year? ?

  • Report this Comment On August 19, 2011, at 5:14 PM, Harley117 wrote:

    I agree let's go ahead and increase the tax rates for millionares but it should not be at the $250K level. But here is the question that should be asked and that is what do you get in return? The federal government is the most inefficient institution that exists and they waste enough money balance the budget. If the government is just going to piss the money off on growing the size of government which saps resources from the private sector it should not be done.

    Furthermore, the currect tax rate structure will generate about 18.5% to GDP under normal economic conditions and that should be effect revenue for the government.

    Having said all of that we desperately need to reform the tax code and go to a flat tax. We need to lower the corporate tax rate and repatriate foreign profits.

  • Report this Comment On August 19, 2011, at 5:17 PM, Tverskaya wrote:

    My understanding is that Buffet is taxed at the rates of the underlying assets in his funds- therefore capital gains rates. He is given some sort of a carefully structured partnership (or similar) interest and then the partnership sells capital assets to pay him his "earnings". If a coporation gives stock options to an employee, gain is taxed as ordinary income unless the employee takes speficic steps.

    Why should hedge fund managers get their earnings taxed as capital gains instead of ordinary income?

    If buffet is so concerned, why hasn't he been lobbying to fix this "loophole"? Why didn't the democrat congress fix it in 2009? They could even just fix it for hedge fund managers or just for people who "earn" over $10 million per year.

    There isn't eough money to be had from the buffets of the world. So they will need to tax the rest of us. I'm sure that if I knew I would make a profit, I would do it even if I were taxed at 90%. But there is a concept of risk/reward. And also, with currency debauchment, capital assets gain nominal value even if their real value stays the same over time. Therefore, venturing into a multi-year project has built in taxes even if there is no increase in value.

    Throw in that politicians are not geniuses- except at getting re-elected- they are short term people who "invest" in politically popular boondoggles, so why should they be entrusted with more money?

    If Motley Fool is advocating that I need to pay higher taxes to these politicians, I need a new advocate.

  • Report this Comment On August 19, 2011, at 5:18 PM, mtf00l wrote:

    I enjoy the rant that it's the bottom 50% that is ailing the economy. Just a thought.

  • Report this Comment On August 19, 2011, at 7:32 PM, montanayahoo wrote:

    I'm currently in the top 0.1% of income earners and I pay an effective 33% income tax. Small business owners don't fit Buffett's mold.

  • Report this Comment On August 19, 2011, at 7:44 PM, drborst wrote:

    Morgan, Nicely done. Sometimes i think that if you get paid by the comment you'd be Buffett rich...

    But I had this strange sense that you wrote an article on taxes that somehow both under and over stated the impact of taxes on the economy.

    Why would corporations (including the one I work for) spend so much money on accountants and lobbyists to tweak the tax code? Because they want a competetive advantage. In the end, a coprporation doesn't care what the tax rate is, they only care how much they pay relative to their competetors.

    Also, I don't care much about my tax rate, but I would get really upset if I found out the guy working in the next cubicle pays a few percent less than I do.

  • Report this Comment On August 19, 2011, at 8:43 PM, donbcms wrote:

    NO DEFICIT = "AX The TAX CODE"...with its $1.1 TRILLION in "breaks". From 1992 to 2007 the AVERAGE federal income tax rate for ALL taxpayers declined to 9.3% from 9.9%. Going d.o..w...n ! !

  • Report this Comment On August 20, 2011, at 4:40 AM, Ignorantfools wrote:

    It's entertaining to read some of the comments posted. First of all Warren Buffet is a hipocrite, he takes advantage of the system and then complains about in order to promote is political view. He could and should pay himself a large salary for whatever work he does at Berkshire Hathaway then he would be paying 35% tax instead of living off his billions in investments and paying the 15% capital gains.

    Another point is that it is easy to talk about increasing taxes to a group that 95% live outside of but for those of you who need a quick math lesson here it is, the "hard working" rich people and not the multi billionaire people who knowingly cheat the system like the investors beloved Buffet pay 35% of their income (in addition to payroll taxes) so someone who makes 1 million a year pays $350,000 in taxes, that's just one person! 50% of Americans pay no taxes at all and a significant amount of the remainder pay very little but yet these people still enjoy the benefits of America like roads to drive on, parks to relax in, policemen and fireman to protect them, and so on and so on. Is that fair? Yet we have a president that continually says the "rich" need to pay their "fair share". What exactly does that mean when 50% pay nothing, why the free ride? If someone makes $100 a year a small portion of that should go to taxes, everyone should pay taxes. It's an honor and a privilege to pay taxes and live in the land of opportunity, it shouldn't be the land of entitlement.

  • Report this Comment On August 20, 2011, at 10:50 AM, Chippy55 wrote:

    Perhaps this is old news but worth revisiting: Warren Buffet OWNS 20 million shares of Moody's, but I don't see that revelation in the above article.

    So here's the facts: Standard and Poor's rightfully downgrades the U.S., but Warren and his 20 M shares say nothing, what's wrong with this picture?

    Mr. Buffet is free to write out a check to The Treasury any time he wants, voluntarily. The same goes with G.E., after all they didn't pay one thin dime in taxes on over $14 billion in earnings

    Bring that up in a room full of Liberals and the immediate response is, "Dick Cheney, Halliburton, t*t for tat", and the response to that of course is, "The Obama administration just gave Halliburton a contract, so what"?

    {Wow, The Fool's "profanity filter" doesn't like the word t*t for tat}

  • Report this Comment On August 21, 2011, at 12:53 AM, shckr7 wrote:

    Why does everyone say that dividends are taxed at 15%? As the Fool and Buffet hi self have stated, owning shares in a company should be viewed as buying the whole company yourself. When you own shares, you are an/the owner. So, this means if your organization had a profit and decided to reward it's owners, who themselves were taking a risk with a dividend - the organization needed to pay taxes on that money first. Many companies (most? Not sure, don't have the statistic) pay taxes in the 28-35% range. So, as the owner you pay 35% income tax and then another 15% on your personal income taxes. Which means the real tax rate on that dividend is ~45%. Before this tax law was in place, the actual tax rate on dividends was ~53%, given a 28% marginal tax rate - and this doesn't even include state tax.

    I can't really comment on S&P futures and hedge fund managers, etc, noted in WB's op-ed, but to suggest that taxes on dividends is low is either disingenuous or misinformed. In Buffet's case, I would think the latter is unlikely.

  • Report this Comment On August 21, 2011, at 10:21 AM, GtownRJ wrote:

    Warren is right in that deep spending cuts are necessary, in fact they are job one. If the "tax increase" are 1st the cuts will never come, as history tell us, the spending has always gone up more than the projected new revenue, and the new revenue is usually short of the projection. This leads to more Federal borrowing, and massive Government spending and borrowing (and money printing) are a type of tax anyways, and in some ways more of a hindrance to growth then a direct tax.

    So cut 1st!!!!

  • Report this Comment On August 21, 2011, at 12:21 PM, Tverskaya wrote:

    It's not a dividend- it's a partnership allocation of tax attributes. Hedge fund managers get an allocation of the partnership increases as their compensation. So, if the partnership has capital gains, the manager has capital gains. These are his "earnings", taxed at 15%. The rest of us earn "salaries" which are taxed at a max rate of 36 % or 37%. Warren doesn't take a salary. He probably spends more money on tax planning than the rest of us earn.

  • Report this Comment On August 21, 2011, at 12:57 PM, deadcarp wrote:

    Folks tend to forget but....

    time = money


    time = measure of your life

    Good old Warren wants you to ante up more of your life for "shared sacrifice".

    Half the population doesn't pay income tax. Shouldn't they sacrifice parts of their life?

    Does Warren sacrifice putting 52 billion into a self-serving foundation and avoiding taxes?

    Yes, I would be impressed if Warren would simply put 52 billion, or a significant part of his life, in a bottle and float it out into a sea if bureaucrats and politicians.

  • Report this Comment On August 21, 2011, at 1:24 PM, ibuildthings wrote:

    Its easy to wave the flag and talk about freedom and keeping what you earn, or compassion and taking care of our most vulnerable. The flag-waving on those topics crowds out the details that would teach us which sides to choose which times.

    Plenty of conservatives pork up plenty of money for the sake of compassion. Fewer believe that the government is a wise allocator of capital. It is less about how much money is spent and more about how the expenditures are chosen.

    Are we getting 10 times the education we used to by spending 10 times the money? Are our borders more secure? Crime down? All those poor in the inner cites being taken care of?

    When Buffett allocates capital, he does it by a business analysis method. When politicians allocate capital, they do it by political methods. This is the crux of the problem.

    Buffett knows this too. That is why when it comes to his own money, he chose the Gates Foundation, where he controls the spending, not Congress.

  • Report this Comment On August 21, 2011, at 1:29 PM, ibuildthings wrote:

    When everybody pays SOMETHING, then everybody has skin in the game. When everybody pays some amount of income tax, then everybody cares when a politician wants to start a new war or a new entitlement. When half the people don't pay, then half the people don't care about the cost.

  • Report this Comment On August 21, 2011, at 1:38 PM, wolves83 wrote:

    I am certainly not in the top wage earner category, but I make more than the national average. I am also a tax professional. I've seen many things with the various types of returns I have completed. I've seen families make 30K a year get a tax refund of over 9K, I've seen a person make 300K a year pay a tax bill of around 100K. Regardless of how much money the person makes, how is this fair?

    In effect, the EIC and other refundable credits are a "bailout' of low earning families. If people can't afford to have children, they shouldn't rely on government subsidies to finance the raising of these children. These refundable credits provide no incentive for people to better their situation or to earn more money. If I can make 30K a year plus 9K in credits, paying only payroll taxes on that 30K I am coming out with around 36K after tax. If I make 60K and contribute 10% to my 401K and pay my health ins premiums, do you know what my take home would be? Yep, around 30K. That 60K most likely involved a college education and a motivated spirit. If people see they can make the same amount (after taxes) with minimal effort, what do you think they are going to do? This system provides no incentive for people to better themselves.

    Social responsibility vs socialism.

  • Report this Comment On August 21, 2011, at 1:41 PM, wolves83 wrote:

    EDIT: In previous post, person making 60K a year ends up with around 36K after tax, not 30K.

  • Report this Comment On August 21, 2011, at 2:05 PM, ibuildthings wrote:

    Your continued reliance on the tax revenue versus GDP chart as a reason to raise taxes is puzzling for two reasons:

    1: Tax revenue is a function of tax rate AND economic activity. So tax revenue rises and falls with the economy. The economy doesn't rise if you raise taxes. If anything, it slows a little, because the predictable ROI on a given investment is lower.

    2: Cops, teachers, and soldiers are paid in dollars, not GDP coupons. They earned less in 2006 than they do now. The falling economy plus their higher wages are why that percentage changed. So the chart can't be a reason to jack up (or cut) taxes. It is irrelevant.

  • Report this Comment On August 21, 2011, at 2:38 PM, ibuildthings wrote:

    I am NOT arguing that we should never raise taxes. Taxes pay for things we need. But as long as politicians continue to use politics to allocate the tax revenues instead of business and common sense, we need to keep a tight hold on their drug of choice - other peoples' money.

    If business owners used the same kinds of arguments to decide how capital is allocated as politicians do, would you invest in those businesses? If airplane engineers used the same quality of arguments and personal attacks to settle disagreements on wing design, and steered jobs to donors instead of best manufacturers, would you ride on that plane?

    Until we can change the mindset of the political class to be more like engineers and business managers, we must not give them blank checks.

  • Report this Comment On August 21, 2011, at 5:12 PM, geezer27606 wrote:

    Our tax and entitlement systems are broken and must be fixed.

    Even the poorest earners pay over 15% employment tax while government checks are mailed to rich people who would not change their life style if they stopped. The tax system generates inadequate revenue, discourages domestic job creation, and rewards foreign job creation.

    It takes about $250000 in assets to create a job. Just divide assets by number of employees for any company; the data are readily available. Someone has to save and invest the money to pay for the assets. The $1.5 trillion held overseas by US companies will create about 6 million jobs somewhere. We should let this money come home tax free if it is invested in new US business activity.

    To end double taxation of dividends and tax avoidance with foreign operations, all US corporations should be taxed as S corporations with all their net income attributed proportionately to their shareholders to be taxed as ordinary income. Companies would simply pay a reasonable additional dividend to cover the personal tax liability. With no US corporate income tax domestic manufacturers would have an advantage in international markets.

    All income and employment taxes should be replaced with a flat tax of 23% on individual income over $10000 per person. A family of 4 earning $40000 would pay 0 tax instead of the $6280 they currently pay. The family would have to earn over $126000 for their new flat tax to equal the current 15.7 combined Social Security and Medicare taxes. The new flat tax would generate revenue equal to 18% of the GDP by taxing all discretionary income.

    We should means test entitlements and stop sending government checks to rich people. Entitlement payments to those who need them are more than simple charity. They encourage entrepreneurial risk taking by making the consequence of failure simply a reduced standard of living but not starvation and homelessness.

  • Report this Comment On August 21, 2011, at 11:18 PM, organjess wrote:

    Wow! There are a whole lot of comments here and yet NOBODY (except one who briefly mentioned it) has talked about how the FairTax could solve so many of these issues. I think more people need to know more about it. I know it will be politically challenging to pass it through Congress, but it could solve So Many Problems:

    Corporations wouldn't be taxed. Period. They could bring all their money home and reinvest and create jobs and we could have the lowest corporate taxes In The World. Think what that could do for us and how many global companies would want to set up shop in the U.S.A. And all those workers....would want to buy more stuff and therefore pay more taxes!

    The rich would no longer be the villains. If everyone is taxed on consumption, then the people who consume more (whom I would guess are richer) would naturally pay more. And the people who can't afford to buy new things would naturally pay less.

    The FairTax would gather taxes from tourists, druglords, illegal immigrants, and everyone else in this country who bought anything new. Think of that. Tourists can boost our tax revenue and criminals are no longer evading taxes on top of everything else.

    The FairTax would not tax used items so that poor people could buy what they need (used) and get a break. Also people would be encouraged to reuse and recycle and buy used if they want to save money. Good for the planet, good for the pocketbook.

    The FairTax would provide a prebate for all registered families. The only tax forms anyone would need to fill out is a one page basic info (name, salary, maybe some other small details.) Now people would be *rewarded* for filing their tax form and illegal immigrants would *want* to become legal (although I'm pretty sure they usually DO want to become legal anyways) because there's an economic benefit to them. The prebate covers the tax that the poor would pay on their basic necessities. (Oh wait: then we could get mad at the people who claim a prebate then live off the land and spend no money. hmm. What villains!)

    The FairTax is open and out there. We will all know exactly how much we are paying in taxes (approx 24% of the sales price on new items.) There will be no loopholes for homeowners or S corporations or investors or whomever else everyone is always mad at. There will be no hidden taxes in every product that we buy because the taxes are added on at the end of production in the final product instead of at every level (the hidden payroll taxes and other business taxes that every corporation pays.) (And, I must admit, I dream that all the power plays in Congress would have to be reset. So much of what goes on there is about hidden tax breaks and corporate loopholes and various subsidies for industries who don't seem to need it.....)

    Anyways, I could probably go on, but anyone who has an open enough mind can get the gist: the FairTax is worth fighting for. I may not agree with Tea Partiers or Republicans or Democrats, but I think the FairTax is a great idea whose time has come, especially in this mess we've gotten ourselves into.

  • Report this Comment On August 22, 2011, at 1:30 AM, muddlinthrough wrote:


    < It's a healthy discussion, and if it ever stops it means we've either dissolved the Union, or collapsed into a decaying one party social welfare society. >

    I think we're pretty much there. As Carlin pointed out, 'the poor are there to scare the hell out of the middle class.' Anyone making less than 7 figures pretty much feels that they haven't got it securely made.


    EXACTLY! +1.

    @PhulishMortal,, it's not a 'sigh.' It has weight if he says, 'I should pay higher taxes, and so should the super-rich, like Mr. Ellison whose yacht is paying some nice builders fees and dock fees but is an otherwise vain and unworthy pursuit for the half-billion dollar and counting price tag. To show that I'm not just a windbag pullybulbitting to see my own name in print, I've corralled the young imp, taken his ear and we've BOTH written checks of $100 million into this fund to set an example.'

    It's called leadership. And the day it happens, from Obama, Boner, thin-Reed, all-you-can-eat-from-the-Wall-Street-trough-Buffett, and the newly retired Shrub and the windbag Gorged, you can call me no longer disillusioned.

    I know, name-calling isn't polite or proper. But neither is a bunch of talk by those that can, but chose not to, in order to guilt those that do not, because they may or may not want or need to.

  • Report this Comment On August 22, 2011, at 1:53 AM, muddlinthrough wrote:


    BK-A had $8B 'made whole' from monies loaned to AIG that were made good when the USG bailed out said insurer.

    And, not exactly germane but eye-opening, I read through my PIMCO Total Return Fund quarterly prospectus for the first time in about 8 years...and found the number of CDS 'my' money is insuring (along with the other couple of million yahoos who have money in that fund) to be amazing. Who knew that while I was bitching about the hedge funds bringing down the global economy, my little-bitty 401(k) fund was making the deals possible?

    Sheesh. It'd be great if my Fidelity fund with my employer would let me buy individual stocks. But, that would be too much of a gamble. Far, far better that we raise taxes, raise my SSI, and the next guy after Obama can go on and make 'privatizing SSI/SS' a stump speech. And once that's passed, I'll be able to once again use those payroll taxes that have gone to SS and FICA and buy a few more funds, so guys like Buffett & Brett R. Harris can get their 1-2% of a couple of billion and I can hope that my 1-2% on the $100K I'll pay to tax will somehow magically grow to be enough to pay for dialysis when I'm 80.

    Or, a bullet and a nice coffin, which will probably be the going rate for the Soylent Green feeder stock group. :)

    (disclaimer: I do own the above fund; the guy Harris has his picture & signature in the booklet so I think it's fair-use if I cite his name for satire and hyberbole purposes. If not, I'm sure Housel or MF editorial staff will yank the comment.)

  • Report this Comment On August 22, 2011, at 2:20 AM, muddlinthrough wrote:


    <Far more important are things such as population growth, demographics, labor productivity, creativity, consumer confidence, and -- immediately after World War II -- the lack of production capacity in bombed out countries.>

    So, why does the chart start in 1956? You gave a 12-year time for catch-up?

    Also, the 'years when the tax rate was' with percentages is data-by-omission to show causality.

    Yes, there's a correlation that with high years, there's a couple more percentage points of GDP growth--but, there's also that interesting outlier that when it was even lower than now, it was higher.

    Hm...maybe there's something that's shifting the data.

    How about the Cold War, which kept millions of labor units 'off the market' and allowed the US workers to charge higher wages, even if the factory owners were unavailable to avoid paying them or taxes because of the Iron Curtain?

    Also, since we have a 'lack of repeatability' on the analysis, which is very convenient for saying, 'don't blame me that my model was insufficient,' let's say we raise taxes to 60%--it's a nice number, it's not-quite-twice where things are now. The argument is jobs will somehow magically appear. As the Economist pointed out a few weeks back, you couldn't move consumer electronics back to the US--the infrastructure is gone. What do most people want to splurge on, nowadays? Why, electronics. And data, to entertain. Not like we're building anything here, or teaching engineers to design new widgets.

    But, we can certainly come up with entrepeneurial fads--Chia Pet, anyone? Oh, those little vases will be made in China...because the US no longer has the infrastructure, the economic regulations and taxes of hiring and EEOC fees and unemployment. Sure, Obama gave a tax break to small businesses to hire new workers--but unless they can hire them for free, and get them to pay for the privilege of working...and unemployment numbers didn't budge.

    We now begin to see why tax farming and rent seeking become popular once a society becomes mature at a certain level. Enough pain, and SOMETHING happens. But without a vision, the people perish. We don't fight global wars, anymore, but we take on quagmires thousands of years old. We can't reform a single, corrupt government, but we will continue to send in cleanup troops to build and rebuild some basic infrastructure after an earthquake or natural disaster.

    Gates and Buffett know they won't change education--Gates made money hand over fist by destroying innovative competitors or co'opting them. Buffett made immense monies by buying low and selling high. Expecting either or these models to reform education, stamp out malaria, or otherwise change the world--is about as effective as an empire that fights just long enough to declare victory than go home.

    We get the politicians and the leaders we deserve, not the angels we want. Asking the rich to pay more taxes, for 60 billion this year which will never turn into the 600 billion forecasted as their tax advisors tell them how to work the new system that replaces the current one, is an entertaining way of bringing out the shouting in the comments section.

    It'd be interesting to know if you really believe it will work, or you just had fun drawing up some nice correlations with the data that may or may not have any causality (and it would be impossible to prove, anyway) in reality.

  • Report this Comment On August 22, 2011, at 3:24 PM, robwg wrote:

    Mr. buffet has been rolling out these remarks basically every year for the past decade. He has yet to send the government a check for the amount he thinks he should pay. This article offers a more believable reason for his position:

  • Report this Comment On August 22, 2011, at 5:06 PM, seacraft23 wrote:

    The classic Tax debate... Is it possible that high taxes, specifically on marginal income and capital gains might lead to higher growth?

    In other words, if you know lower taxes are possibly coming in the future, aren't investors incentivized to NOT take capital gains now, and instead plow that money back into investment, capital expenditure, etc. today?

    Isn't that how the tax incentives on a Roth IRA work?

    Unlike the "trickle down effect" for which no data exists, I bet a real economist could pretty easily show both correlation and causation between a high tax rate on realized capital gains and GDP growth.

  • Report this Comment On August 22, 2011, at 5:30 PM, grodger1 wrote:

    I think Mr. Buffett should manage the surplus in the social security trust fund. If we assume that the $3-6 trillion has not been stolen by the administrators of the fund and assume Mr Buffett's ROI of ~15%, then in about 10 years time the workers of America would own the means of production. The SSI tax rates could slowly be reduced to zero and we would have the richest middle class in history.

    Lot of assumptions here, sure, but we should be used to that given our reasons for subscribing to the Motley Fool...Investors assume lots of things!

  • Report this Comment On August 23, 2011, at 1:21 AM, trufool2 wrote:

    I have a lot of respect for Warren Buffet, both as an investor and as an all-around mench, but he is simply wrong about this issue.

    There are different tax rates for regular income (35% which I am sure he is paying on all his actual salary) and then 15% on capital gains and corporate dividends, where most of his income probably comes from. This is to say nothing of any tax-free municipal bonds, of which he is a big fan. (If he thinks he should pay more taxes, why does he buy such bonds?)

    Corporate dividends should not be taxed at all – not even 15%, because corporate income is already taxed and paid by the corporation at the 35% rate. Dividends therefore are taxed higher than any other income in the end. All taxes on corporate dividends is double taxation on the same earnings.

    Capital gains is a different matter. Capital gains taxes are low in order to encourage investment in risky enterprises. Since we want to make this incentive in general in this society it is available to Warren Buffet also. Arguably, there should be parity in income earned from labor and capital. Indeed, Reagan set Capital Gains taxes and regular income taxes at the same rate: 28%. This set no preference for income from capital gains versus salary. It was Clinton who lowered the capital gains rate to 20% (with a subsequent boost to investment results) and Bush who lowered it again to 15% where it is now.

    If Warren Buffet earned all of his income as regular salary, he would surely pay the 35% rate. Any discussion by him of how much tax he pays without explaining the constitution of his income is misleading. Changing the tax rules just to make sure that the super rich pay more regardless of the source of their income, would be counter-productive to the economy (if we believe that capital investment should be encouraged and rewarded with lower tax rates) and it would at most boost the government’s revenue by 50 billion per year. And this would be fleeting because the rich would simply move off-shore or buy more tax free municipal bonds, etc. in order to compensate for the changed rules. In any event 50 billion is not the answer to our government’s budget problem.

    Moreover, the fact that such a large percentage of the population pays no taxes at all creates a large constituency for government spending (at someone else's expense) without any sense of cost to themselves. This prevents political pressure from building up to cause our elected officials to balance the budget.

  • Report this Comment On August 23, 2011, at 11:24 AM, callawyer wrote:

    This article highlights an unfortunate disconnect affecting our body politic, one that threatens all of our financial futures. Many people do not understand that "socialism" - now, for some reason, a dirty word - is a foundation stone of every industrialized society. Roads, bridges, local police, utilities, schools, parks, sidewalks and town squares would not exist without socialism. I travel every year to Europe for motorcycling in the Alps, where the roads are the best in the world - we lost that status long ago. We no longer seem to have the will to tax ourselves a small amount more to achieve BOTH a more vibrant economy and a better life in our communities (think President Eisenhower). The demagogues seem to be in control, and I don't think those of us looking to make a lot of money from the market are benefiting from the demagoguery.

  • Report this Comment On August 23, 2011, at 5:36 PM, PeakOilBill wrote:

    The big problem is that most Americans have no concept how rich the really wealthy families in the USA actually are. Thousands are worth billions. I could tell you to watch the shocking CNBC documentary by David Faber entitled 'Untold Wealth: The Rise of the Super Rich in America" but it mysteriously disappeared from the list on the CNBC web site. The wealthy got rid of it. (I liked the $40,000 flat tire on the $2,300,000 sports car.) As a French intellectual once said, "The thing that surprises me about America is how most people don't vote in their own self-interest." Media control works. The USA is heading toward an economic collapse. Two things can avoid it. Spending cuts and tax increases. Spending cuts alone will lead to social disorder, a lot sooner than people think.

  • Report this Comment On August 23, 2011, at 7:09 PM, mtf00l wrote:

    I call shenanigans...

    Employees pay tax deducted from every paycheck. Yes, a refund comes after a specified period of time and filing specific paperwork to receive it.

    Corporations use a different system as do 'rich' persons. Corporations pay a higher rate after expenses. 'Rich' pay quarterly estimated tax payments. Additionally, they have just as many if not more loopholes than the 50% group.

  • Report this Comment On August 23, 2011, at 7:34 PM, Burkeh wrote:

    I found both the op-ed by Warren Buffett as well as this article to contain refreshing intelligence and rational thinking. When I originally saw the op-ed by WB, I posted to my Facebook page with the following comment: "It's nice to see someone willing to express their honest opinion even when it goes against their own self interest!" When I later saw the comments by some who said WB could cut a check to the government if he feels he is not paying enough in taxes, it reminded me of the type of responses one hears in a kindergarden class, when a toddler lacks any mature, intelligent, un-biased retort or response.

    Having been the CFO of both publicly held and private companies for 20 years, my experience has been that tax rates are very small components of business investment, hiring or other decisions. There are many other much more critical issues (like market demand, competition, financing, etc.) to be concerned with in running a business and being able to compete in competitive, free markets. The tax tail does not wag the dog! For privately held businesses, EBITDA is often looked at as a more important measurement of business prospects than Net Income. EBITDA stands for "Earnings Before Interest Taxes Depreciation and Amortization". The fact that Taxes are deducted from this critical measurement is a comment about its lack of importance to management, and to the people who judge management of companies. Management is focused on generating profits before tax, because that is the metric upon which most are judged. Since management can't control tax rates, they aren't held accountable for taxes. What business managers want, and need, is a level playing field. Whether capital gains tax rates are 15% or 30%, in my experience, has little, if any, bearing on business decisions, as long as it is the same level playing field for all competition.

  • Report this Comment On August 23, 2011, at 7:51 PM, golew wrote:

    Historically, federal taxes are about 18% of GDP. What fraction of the decline to the current 15% of GDP is due to the pitiful economic circumstances and what fraction is due to taxes that theoretically are not being collected because rates are too low? If 2.5% out of 3% is due to the economic, why bother with raising taxes? If 2.5% out of 3% is because the tax system isn't raising enough revenue, then the question becomes, "what are efficient (and fair) ways to raise taxes?"

  • Report this Comment On August 23, 2011, at 9:08 PM, wvowell wrote:

    What I would like to ask Mr. Buffett, since you want the billionaires to pay more "Why don't you start by writing a check to the US Federal Treasury?" Since the income tax is "voluntary", (there never has been a law enacted by congress requiring any of us to pay income taxes on our wages) why doesn't the great Mr. Buffett write a check and pay extra every year!!! PS Did you know that wages have never been considered income?

  • Report this Comment On August 23, 2011, at 9:14 PM, wvowell wrote:

    Need to correct something in my previous post about the Pompous Mr. Buffett and his hypocritical call for higher taxes on the rich. My last comment should have said "wages are not income, as far as our constitution is concerned". Don't belive me research it.

  • Report this Comment On August 23, 2011, at 9:29 PM, muddlinthrough wrote:


    "When I later saw the comments by some who said WB could cut a check to the government if he feels he is not paying enough in taxes, it reminded me of the type of responses one hears in a kindergarden class, when a toddler lacks any mature, intelligent, un-biased retort or response." Please go look at my post that mentions Ellison. We've already established that taxes from WB, et. al, will make a very small dent in the economy--or the debt--but, when everyone wants their kid to play professional sports where 1% of those turn into an entrepeneur of selling their image, like Jordan or Woods, or parlay the fame card into a successful investor career like Staubach or Nolan Ryan, there's something very much to be said about the cult of personality, and the individual choices made by that charismatic individual.

    The reason we don't believe the mouth is the checkbook is saying otherwise...therefore, why should the (non) example be followed or our own self-interest be avoided, when one is claiming and calling for a more selfless style, but playing by different rules because of their power and position?

    As you point out, taxes don't influence management. Housel did a lot of nice charts to say that they do, but you say it's an insightful piece.

    I don't have the answers; well, I have a hugely unpopular suggestion for solving the overshored non-taxable gains early on in Morgan's 'kill the MID article and lower marginal tax rates.'

    What I can do is I can call out someone else's specious argument.

    I'm willing to pay more taxes--I've never not paid them, so all Unca has to do is come up with a new tax code that raises what I pay. Ditto the state, local, water board, electric supplier, gas supplier, phone/internet/whatzit.

    Just don't give me baloney that the money I pay in will somehow solve the existing mess--it can't.

    And don't, like callawyer, tell me that if we'd only kept paying higher taxes, we'd still have the best roads. From what I can personally see, I have less accumulated from a two-income family than what my father did while raising one extra kid and having a stay-home wife and a blue collar job.

    Somewhere, taxes have increased, the total number of 'dollars' a person has may or may not have increased, but the suck of the national deficit, inflation in real terms if not dollars, because the government and my employer say there is and has been no significant inflation for 10 years.

    But somehow, if I keep sending my money in and start sending more, that's going to solve the problems so they can start making the world a better place for me, mine, and future generations.

    Can you see why, without calling me as having a childish viewpoint, I feel you have a certain naitivity that will only further perpetuate, not solve, the problem?

    Cynicism won't solve the problem, but it may protect me from a group think of irrational exhuberence. Leadership will be the only thing that solves the problem, and there's no one on the national or international stage that shows the spine and lack of moral turpitude to fix the problems.

    We don't need a messiah, but we do need better than what we have. Because when someone truly messianic arrives, if we haven't fixed the boat by then, they're going to completely sink it.

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