Warren Buffett: Lies to you about taxing the rich

[_bcspace]

Once again, billionaire investor Warren Buffett urges his fellow high-on-the-hoggers to pay more in taxes. “Only in Grover Norquist’s imagination,” says Buffett, do taxes make much of a difference in how people invest. “So let’s forget about the rich and ultra-rich going on strike and stuffing their ample funds under their mattresses if – gasp – capital gains rates and ordinary income rates are increased. The ultra-rich, including me, will forever pursue investment opportunities. …

“We need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that.”

So taxes, says Buffett, do not deter the ultra-rich “from pursuing investment opportunities.” Really?

The Weekly Standard’s Adam J. White writes about how tax considerations affect investment decisions by Buffett despite his assertion that tax considerations don’t much matter when it comes to investment decisions. White gives examples from Buffett’s biography “The Snowball,” written by Alice Schroeder:

“Early in his career, Buffett invested heavily – almost one-third of his early fund’s capital – in Sanborn Map, a company that mapped utility lines and such. … Buffett amassed more and more stock, and with control of the company finally in hand, he pressed the board of directors to split the company in two. …

“Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences – ‘let’s just swallow the tax,’ he suggested. To which Buffett replied (as he recounted to Schroeder): ‘And I said, “Wait a minute. Let’s – ‘Let’s’ is a contraction. It means ‘let us.’ But who is this us? If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get 10 shares’ worth of tax and I get 24,000 shares’ worth, forget it. …”‘

“Later in the book, (Schroeder) recounts how Buffett chose to structure his investments under Berkshire Hathaway’s corporate umbrella, rather than as part of his hedge fund’s general portfolio, precisely because of the tax advantages (emphasis added).”

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White quotes Buffett’s 1986 letter to his investors, where Buffett warned about the consequences of the1986 tax reform act: “If Berkshire, for example, were to be liquidated – which it most certainly won’t be – shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties had been sold in the past, assuming identical prices in each sale. Though this outcome is theoretical in our case, the change in the law will very materially affect many companies. Therefore, it also affects our evaluations of prospective investments. … My impression is that this important change in the law has not yet been fully comprehended by either investors or managers (emphasis added).”

Taxes matter – to Buffett.

Harvard’s Economic Department chairman, Greg Mankiw, writes that “Mr. Buffett never mentions doing anything to eliminate the tax-avoidance strategies that he uses most aggressively. In particular:

“1. His company, Berkshire Hathaway, never pays a dividend but instead retains all earnings. So the return on this investment is entirely in the form of capital gains. By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

“2. Mr. Buffett is a long-term investor, so he rarely sells and realizes a capital gain. His unrealized capital gains are untaxed.

“3. He is giving away much of his wealth to charity. He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

“4. When he dies, his heirs will get a stepped-up basis. The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating.

“To be sure, there are pros and cons of changing the provisions of the tax code of which Mr. Buffett takes advantage. Tax policy always involves difficult tradeoffs. But it seems odd to me that whenever Mr. Buffett talks about taxing the rich more, the ‘loopholes’ that he uses never seem to enter into the conversation.”

Guess who else thinks Buffett should pay more in taxes: the IRS.

Buffett’s Berkshire Hathaway has been fighting the IRS over the $1 billion in taxes the government claims it is owed, dating as far back as 2002. Last year, one of Berkshire Hathaway’s companies, NetJets, sued the IRS, demanding that the feds return $642.7 million in already paid taxes. And this year, the IRS sued NetJets, claiming it is owed $366.3 million in unpaid taxes.

Meanwhile, scientists at the National Institutes of Health are working feverishly to develop a cure, vaccine or treatment for this disease – that appears to afflict guilty/super-wealthy liberals – known in medical circles as “Buffettitis.” It’s early, and one risks being premature. But NIH just may have produced a workable solution: “Mr. Buffett, whip out your checkbook, and cut the U.S. Treasury a check. Given the state of the economy, let’s hope it doesn’t bounce.”

Buffettitis – is there a cure?

[_moksha]

Republicans might observe that like Roosevelt, Buffett is a traitor to his class. That would make Berkshire Hathaway a front for world communist domination.

This song from The Hamptons Story will help us heal:

ANITA singing

A boy like that
Who'd tax your brother
Forget that boy
And find another
One of your own kind
Stick to your own kind
A boy like that
Will give you sorrow
You'll meet Gordon Gecko tomorrow...

[_beastie]

Yeah, any student of US history knows that the era with the HIGHEST tax rates had abysmal economic growth as well.....

oh, wait.....

http://www.huppi.com/kangaroo/L-taxgrowth.htm

The U.S. emerged from World War II as the world's only economic superpower. From 1947 to 1973, it experienced phenomenally high growth; the GDP grew at an average of 3.4 percent a year. The top tax rate remained between 88 and 91 percent until 1964; afterwards, the rate was reduced to 70 percent, still stratospheric by today's standards.

The economy slowed down after 1973, for reasons that economists are still debating. But what is not debatable is that taxes started falling for the rich in 1978 (with a capital gains tax cut). Reagan accelerated these cuts with a vengeance: the top income tax rate was slashed from 70 to 28 percent. Bush and Clinton raised them somewhat, to 39.6 percent today. But that is still roughly half of what it was during the 50s and 60s.

And growth since 1973? It has remained stuck in low gear, dropping from 3.4 to 2.5 percent a year. Individual worker productivity has taken an even more severe hit, dropping from 2.8 percent in the postwar years to about 1 percent after 1973. Some point to the Reagan expansion (that is, the upturn in the business cycle that occurred between 1983 and 1989) as proof that low taxes result in boom times, but this claim is easily disproven. Reagan's expansion averaged 3.6 percent annual growth; earlier postwar expansions averaged 4.5 percent. Correlation is not causation, of course, but the point is that lower top rates on the rich have done nothing to revive the extraordinary growth of the postwar years.

[_Gadianton]

None of the commentary on Mr. Buffett's quote, not even the parts in blue, contradict Mr. Buffett's quote.

As Droopy would say, pull the arm again and try to come up with something other than three lemons.