Warren Buffett Provides Dangerous Fodder for Distortion
No doubt much will be made of this by the class warriors and the anti-capitalists. Of course what most media outlets won't mention is that Buffett's salary (somewhere around $100,000) is taxed at the highest rate of 35%. The other portion of his "pay" (somewhere around $46 million) is probably entirely investment income - some capital gains but mostly dividends that he receives by virtue of several decades worth of sinking money into investments - which is taxed at 15%. Naturally there are probably some odd items in there that bump his rate up to 17.7% as he states. If his $46 million "pay" were guaranteed, like his receptionist's is, he'd be ponying up 35% to Uncle Sam. But Warren spent his entire life making investments, forgoing guaranteed pay for pay that may or may not be there if his investments didn't pan out. Turns out they did pan out and through the miracle of compounding over decades he now has gargantuan business interests that spit out investment income to him.
The simplistic analysis is to look narrowly at the rate he pays versus his receptionist and ask, "is it fair?" But that is the wrong question. The right question is "at what rate of taxation of capital income do you discourage the next Warren Buffett?" The capital gains tax rate was 25% when the Sage of Omaha began to build up his capital by investing. Would he have embarked on the path that he did if the rate was, say, 50%? Would all the jobs that his business interests created along the way have been created if a young Warren Buffett determined that taxation on investment gains was too high a hurdle for even his brilliance? Same for all the taxes those businesses paid over the years, and ditto for the ridiculous sum of money that he has now left to charity. Would all that have happened if in 1956 the tax code scared him off into a career in, say, accounting? Would we, as a society, trade all those jobs, all that tax revenue, and all those charitable gifts to equalize Mr. Buffett's tax rate with that of his receptionist in the name of fairness? Maybe we would be just that foolish, but it would've been a grave mistake. In formulating tax policy, we need to consider the next Warren Buffett(s). Are we going to imbed proper incentives into the tax code to encourage a career just now getting started that will in time contribute in jobs, taxes (over the long term) and charitable resources what Warren Buffett has contributed up to now? Are we going to let a narrow, class warrior view of tax fairness slam the door on all that? We might if we are not careful.
UPDATE: Here is Prof. Mankiw's take.
UPPDATE: Don Luskin has more, and is, um, less kind.
UPPPDATE: IBD thinks Warren is just making stuff up.
The simplistic analysis is to look narrowly at the rate he pays versus his receptionist and ask, "is it fair?" But that is the wrong question. The right question is "at what rate of taxation of capital income do you discourage the next Warren Buffett?" The capital gains tax rate was 25% when the Sage of Omaha began to build up his capital by investing. Would he have embarked on the path that he did if the rate was, say, 50%? Would all the jobs that his business interests created along the way have been created if a young Warren Buffett determined that taxation on investment gains was too high a hurdle for even his brilliance? Same for all the taxes those businesses paid over the years, and ditto for the ridiculous sum of money that he has now left to charity. Would all that have happened if in 1956 the tax code scared him off into a career in, say, accounting? Would we, as a society, trade all those jobs, all that tax revenue, and all those charitable gifts to equalize Mr. Buffett's tax rate with that of his receptionist in the name of fairness? Maybe we would be just that foolish, but it would've been a grave mistake. In formulating tax policy, we need to consider the next Warren Buffett(s). Are we going to imbed proper incentives into the tax code to encourage a career just now getting started that will in time contribute in jobs, taxes (over the long term) and charitable resources what Warren Buffett has contributed up to now? Are we going to let a narrow, class warrior view of tax fairness slam the door on all that? We might if we are not careful.
UPDATE: Here is Prof. Mankiw's take.
UPPDATE: Don Luskin has more, and is, um, less kind.
UPPPDATE: IBD thinks Warren is just making stuff up.
posted by Donny Baseball at 4:04 PM
1 Comments:
from one of my old comments
If you are already super rich, then entrepreneurs and startups can be major threats to your wealth and power, i.e. the creative destruction process of capitalism is a threat to the super rich. One way to protect themselves is to push for stagnant policies. This means higher taxes, more regulation, etc. They would benefit from stagnation and socialism, i.e., once they are ahead, they turn around and start shooting everyone else's foot so that no one could get ahead of them. And they disguise this in the name of equality, helping the poor, etc. in order to get the votes; using our democratic system against capitalism. Very few could tell the difference. It's pure (evil) genius.
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