Buffett Speaks The Truth

[CuteOldGuy]

Enlighten us, WTF. At what level of taxation will the budget be balanced, and the debt retired?

[Doove]

Originally Posted by CuteOldGuy

Enlighten us, WTF. At what level of taxation will the budget be balanced, and the debt retired?

Allow me, WTF.

At the level where revenues exceed expenditures. Which ain't gonna happen by cutting spending alone.

[Munchmasterman]

Originally Posted by WTF

We spent to damn much on your education if you actually believe that it is only a spending problem

Most people miss that "O" word. Only.

Originally Posted by CuteOldGuy

Enlighten us, WTF. At what level of taxation will the budget be balanced, and the debt retired?

That depends on how much spending is cut.

[WTF]

Originally Posted by Doove

Allow me, WTF.

At the level where revenues exceed expenditures. Which ain't gonna happen by cutting spending alone.

Originally Posted by CuteOldGuy

Enlighten us, WTF. At what level of taxation will the budget be balanced, and the debt retired?

LOL.....yea old cutiepie needs to take a math course!

Oldman, Do we need to cut spending (including defense)? Youbetcha.

Do we need to raise taxes? Youbetcha

Do we need to cut benifits? You betcha


What part of that do you not understand? Bowels/Simpson had it right they said do all three or none.

It is like getting healthy if you are to fat. You need to weight train, cardio and diet to get back in shape. You have to do all three.

What you Tea Folks want is to just stop eating. WTF kinda of solution is that?

[Laz]

The Tea Party people want to see Congress actually cut spending before they trust them with more money. So far Congress has been unable to make any serious amount of cuts out of a huge bloated budget and you want us to trust them with more money. We have been down this same road for decades we no longer trust them.

[Texas Contrarian]

This thread -- as most do -- has drifted a bit from the original subject, which was Buffett's lament that he pays taxes at a rate lower than many middle-class Americans.

Getting back to that topic, here's a very simple question:

Do any of you believe for a minute that Buffett has any intention whatsoever of paying additional taxes amounting to anything more than a rounding error in comparison to his net worth?

Just think about a couple of things for a minute. His op-ed stated that he paid tax at a rate of about 17.4%, leaving him with a tax liability of about $7 million. That suggests that his "taxable income" was around $40 million. Let that sink in for just a minute. $40 million. Did any of you notice that that's less than one-tenth of one percent of Buffett's estimated $50 billion net worth? And almost certainly not much more than a couple of percentage points of the dividend income Berkshire Hathaway received?

The simple and obvious point is that you could raise tax rates back to 1990s levels and it would hardly make any difference to Buffett.

Another obvious point is that if Buffett really did want to pay more tax, he could own most of that stock directly rather than through a corporate holding company such as Berkshire Hathaway. Most people don't realize that such corporations get an 80% exclusion on dividend income paid by companies in which they have greater than a 20% stake. Thus businesses owned by Berkshire Hathaway can upstream large amounts of cash to the holding company, which in turn pays corporate tax on dividend income at a rate of only 20% of what an individual holder would pay.

That's a big part of the reason Buffett's company is such a fantastic compounding machine. He can amass wealth on a mostly tax free basis, and he's been doing it for decades. Of course, almost all of Buffett's net worth will go the the Gates foundation and other charitable causes. Good for him. He obviously feels that they'll choose a more deserving set of beneficiaries that the U.S. government. (Hard to disagree with that opinion!)

What Buffett is essentially saying is that he wants and expects you to pay more tax if you are moderately affluent (but not rich), but he will make other choices regarding what to do with his money. The same is the case with many other wealthy individuals. I'm not telling you that that's right or just or fair; I'm simply telling you that's the way it is.

On the other hand, if you're affluent (but not wealthy) you may have no way to easily and conveniently escape increased levels of taxation. If your income sources are primarily salary, fees, or commissions, you'll pay a higher rate. If you're wealthy and they're primarily capital gains, you'll have choices regarding timing of realization, selling in a tax year in which you can partially or wholly offset with losses, choosing instead to borrow against an appreciated asset, etc. Those are just a couple of the reasons capital gains tax rate increases never raise anywhere near the revenue predicted by their supporters.

Looking at the big picture, even if you were to raise income and capital gains taxes to the maximum extent politically practicable, but only on the top 2% of the income strata, you wouldn't cover more than about a nickel of every deficit dollar.

Everybody knows what's eventually going to have to happen. Politicians will resist doing so until forced, but they're going to have to tax the hell out of the middle class (and that's going to include people making much less than $250K/year).

Slice it any way you want, but there's simply no way around that.

[WTF]

Originally Posted by CaptainMidnight

Everybody knows what's eventually going to have to happen. Politicians will resist doing so until forced, but they're going to have to tax the hell out of the middle class (and that's going to include people making much less than $250K/year).

Slice it any way you want, but there's simply no way around that.

In other words, Bowels/Simpson.

[Texas Contrarian]

Originally Posted by WTF

In other words, Bowels/Simpson.

Yes, the Simpson-Bowles commission at least offered a good framework for discussion. (That's probably why it was essentially ignored and for all intents and purposes DOA.)

One key point is that they wanted to pretty much junk the existing tax code and start anew with a structure that would broaden the base and flatten the rates, thus getting rid of a lot of deductions and exclusions, and a lot of what we refer to as "tax expenditures."

It would be great to have an efficient tax structure that looks like it was created by prudent and reasonable people, not some monstrosity that's been junked up with more crap every year for decades!

[waverunner234]

Originally Posted by CaptainMidnight

It would be great to have an efficient tax structure that looks like it was created by prudent and reasonable people, not some monstrosity that's been junked up with more crap every year for decades!

Hell NO, one of my many qualities is providing tax advise to small businesses as an Enrolled Agent. We need a complicated tax structure so we have complicated tax returns so we can charge big bills and make lots of ladies happy because we are loaded with cash

[Texas Contrarian]

Originally Posted by waverunner234

Hell NO, one of my many qualities is providing tax advise to small businesses as an Enrolled Agent. We need a complicated tax structure so we have complicated tax returns so we can charge big bills and make lots of ladies happy because we are loaded with cash

LOL!

Yeah, you and my CPAs, as well as a couple of tax lawyers I know.

Somehow I suspect that you folks won't have much to worry about anytime soon!

[waverunner234]

Originally Posted by CaptainMidnight

LOL!

Yeah, you and my CPAs, as well as a couple of tax lawyers I know.

Somehow I suspect that you folks won't have much to worry about anytime soon!

Why?

[Texas Contrarian]

Originally Posted by waverunner234

Why?

Because I doubt that congress will do anything meaningful in the way of simplifying the tax code!

[waverunner234]

You're right, it gets more complicated every year. Even to the point were some tax preparers are complaining.

[nevergaveitathought]

does buffett really pay a tax rate less than his secretary, plain and simple, no.

excluding all the rigamarole of entities (one thing not considered is foreign entities and foreign tax), parent/subsidiary, dividend exclusions, etc., the simple truth is this:

1. 80% or more owned subsidiaries can transfer money (i.e. pay dividends) to their parent company, without additional tax. there is a 100% dividend exclusion from taxation. dividends received from less than 80% owned subsidiaries have less than a 100% exclusion, meaning the parent would report as taxable income either 20% or 30% of the otherwise qualifying dividend as income and pay tax on it all over again. if berkshire owns less than 80% of another corporation there is an element of double taxation, not a tax dodge as previously written. A less than 80% sub pays corporate tax and the less than 80% owning parent pays some tax on the money again. the reason for not having to pay tax on dividends received by a corporation from a 80% or more owned subsidiary is that they file a consolidated income tax return and add their revenues and expenses together to determine one consolidated taxable income. money transferred from one company to the other is akin to merely transferring money from one pocket to another. the parent and sub are one entity for tax purposes. if less than 80% is owned, they are treated as separate entities and only a partial exclusion is allowed. the reason there is any exclusion at all is because dividends are double taxed and ,of course, the partial exclusion is woefully short in making up the difference.

2. what tax would buffett have paid had all of his 40 million in taxable income been treated as "earned" income? much less than what was actually paid. one factor depends on the dividend exclusion, if any entity was less than 80% owned by berkshire, then more tax would have actually been paid to get buffett his 40 million than in my example, so im giving him every benefit.

3. corporate tax rates vary depending on taxable income, but in buffett's range the fairest rate to use for all purposes is 35%. there is a small surtax exemption for 100K or less amounts of income, all of which must be repaid as income rises and there is a range of taxable income taxed at 38% but for ease and again giving buffett every benefit, i'm using 35%.

4. there are many entities under berkshire's umbrella but for this purpose just assume one parent (berkshire) and one subsidary. it will work the same no matter how many subs. the only difference would be on the level of ownership of the sub as explained in 1. above. under 80% owned, the higher buffetts real tax, so i'm giving him every benefit again assuming an 80% or more owned sub.

5. so what amount of net income was needed at the corporate level to get buffett his $40 million the captain calculated? and what tax was paid to get him that amount? i know buffet had interest, maybe some salary, and a large portion of qualifying dividends. to get a rate of 17.4% a vast proportion of it was either qual. dividends or long-term capital gains.

to get buffett his $40 million net, a tax of 35% would have been paid at the corporate level. $40 million then represents 65% of the net taxable income at the corporate level. so the net taxable income to get buffett his dividend is $40 million divided by 65% or $61,538,461. And a corporate tax of $21,538,461 was paid on buffets share or interest, leaving $40 million available as a dividend. the tax would have been even more if any subsidiary was less than 80% owned by berkshire.

6. if you strip away all corporate structure, all dividend rates, etc, and consider buffett's earnings had he been a sole proprietor or a partner, he had $61,538,461 in real income and paid $21,538,461 (the actual corporate tax paid at the corporate level on the income needed to provide buffett 40 million in dividends) plus 17.4% of $40,000,000 (the tax on his return) or another $6,960,000 in tax again. so on his $61.5 million in "real" earnings, a tax of $28.5 million was paid. Buffetts real effective tax rate on his real effective income is 46%, the secretary didnt pay 46%. if he had been a sole proprietor or partner with no intervening corporate structure and his share of income was 61.5 million or received the 61.5 million as salary and no dividend max rate he wouldnt have paid 46% either. he would have paid no higher a rate than 35%

7. he netted, after everything, $33 million on the amount of net income needed to net that amount, which was $61.5 million, with the government getting the difference.

8. any remaining income retained by the various corporations not paid as dividends would be taxed at 35%, still most likely more than his secretary although if she's paid enough it could be 35% for her too.

[Texas Contrarian]

Just a couple of points:

Remember, Buffett only reported a "taxable income" of about $40 million. Since that's less than one-tenth of one percent of his net worth, the tax rate he pays on that income does not affect him in any material way.

The fact that he does not (at least overtly) pay tax on the unrealized capital gains on assets held by Berkshire Hathaway clearly allows it to act as an effective compounding machine.

But the larger issue, in my opinion, is the extent to which the corporate income tax affects the return on capital to all shareholders, including Buffett.

It is often stated that corporations act more as "tax collectors" than as taxpayers. Analysts and economists speak of "tax incidence." In other words, upon whom does the tax burden really fall?

The following links offer a couple of points to consider:

http://gregmankiw.blogspot.com/2006/...tax-rates.html

http://www.taxfoundation.org/research/show/119.html

There's long been debate over how much of the tax burden falls on shareholders, but it certainly isn't likely to be zero.

Therefore, it can reasonably be argued that Buffett, as well as all shareholders, pays some level of "invisible" tax on unrealized gains, even though it may not be very much -- at least expressed in percentage terms and in comparison to other tax burdens.

The shareholders "tax" would be the extent to which the corporate income tax affects the return on capital and isn't borne instead by consumers and employees.