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Warren Buffett has me Confused

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Re: Warren Buffett has me Confused

#41

Post by festivusr »

glenra wrote: post #38
jackpirate wrote: post #5

I think the author is making a small fallacy regarding investments. He assumes that as the capital gains tax rises, investment will fall because the investor will make less money. This seems true for small investors, who might decide to "not invest" their money, and instead find starting their own business will have a higher return than buying GOOG stock. But if I have $1 billion to invest, then I don't have the opti…

> If I have $1 billion to invest, then I don't have the option of "not investing" that money. It has to sit in stocks, bonds, or some other financial instrument. No it doesn't. I could buy an extensive auto collection. Or a yacht or some paintings. Something that is pretty much guaranteed to depreciate, but at least I'll get some use value out of it in the meantime. (This is why when Britain had top tax rates close t…

Buffett isn't suggesting punitive rates, just rates in line with the income taxes that an average working person pays.

Re: Warren Buffett has me Confused

#42

Post by tzs »

lionhearted wrote: post #23

For people saying "It won't make a difference on capital investment" I point you to the Windfall Profits Tax in Mongolia. It was a 68% tax on any mining deposits found. Well, so what? If you're profitable, who cares if some is taken off the top? But if you thought that, you'd be mistaken. Simplified example: You're thinking of building a mine. It's going to cost you $100M. There's a 50% chance the mine contains $220M…

That doesn't seem correct. For the second case, where the mine contains $220M in deposits, shouldn't it be:

    -$100M cost to build mine
    +$220M revenue from sale of deposits
    ------------------------------------
     $110M profit
That leaves you with $220M from the sale of deposits less $55 million for the 50% tax on the $110M profit, so you end up with $165 million.

So, starting with $100M to invest, half the time you end up with $0, half the time you end up with $165M, giving an average outcome of $82.5M, for an average return of -17.5%.

Without a tax, half the time you end up with $0, and half the time you end up with $220M, so the average outcome is $110M, for an average return of 10%.

Re: Warren Buffett has me Confused

#43

Post by glenra »

Locke1689 wrote: post #37
glenra wrote: post #34

Earlier quoted context omitted.

> in this case an explicit social contract It's explicit ? Great! Can you tell me exactly what this explicit contract says, who signed it, and how it is that whoever signed it managed to get my power of attorney?

The constitution and the laws are our written contracts with the government. There are several explicit means by which people make the social contract with government. The commonest is when your parents choose your residency and/or citizenship after your birth. In that case, your parents or guardians are contracting for you, exercising their power of custody. No further explicit action is required on your part to con…

That argument is fundamentally silly for all the reasons identified long ago by Lysander Spooner (http://en.wikipedia.org/wiki/Lysander_Spooner ) in _No Treason: the Constitution of No Authority_ ( http://lysanderspooner.org/node/44 ).

wikipedia quote: "Spooner bolstered his argument by noting that the federal government, as established by a legal contract, could not legally bind all persons living in the nation since none had ever signed their names or given their consent to it - that consent had always been assumed, which fails one of the most basic burdens of proof for a valid contract in the courtroom."

Adding "and the laws" is problematic because "the laws" are vague, unknowable, constantly changing and in fair part contradictory with one another and with the constitution.

The argument that the government contract even could work this way pretty much assumes what needs proving: that the government "owns" the country and all the land and people in it. If the government doesn't automatically own your land and your kids, it can't be assumed that you've contracted with the government by virtue of buying a house or being born. But if the government does own your land and your kids, no social contract is needed - your allegiance is already mandated without it.

Re: Warren Buffett has me Confused

#44

Post by festivusr »

DanielBMarkham wrote: post #40
tzs wrote: post #39

Here's where the author gets lost: Either Buffett is making a point so fine I have missed it, or he's just blowing smoke up my ass. He doesn't know people who don't invest when you decrease their return by a significant percentage? What? If he's not fighting for each percentage point here and there, just what the heck kind of investing is he doing? Can I get in on some of this action? This is in response to this stat…

What the author has overlooked is that taxes lower the effective return on all investments. If capital gains generating investment X is better than capital gains generating investment Y when capital gains is taxed at 15%, X will still be better than Y if capital gains is raise to 20% or even to the 39.9% it was in 1976, and so in choosing between X and Y, the rational investor will still choose X. This certainly migh…

"But for those making more than $1 million -- there were 236,883 such households in 2009 -- I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more -- there were 8,274 in 2009 -- I would suggest an additional increase in rate."

That is his recommendation. Is it not specific enough?

Re: Warren Buffett has me Confused

#45

Post by DanielBMarkham »

festivusr wrote: post #44
DanielBMarkham wrote: post #40

Earlier quoted context omitted.

What the author has overlooked is that taxes lower the effective return on all investments. If capital gains generating investment X is better than capital gains generating investment Y when capital gains is taxed at 15%, X will still be better than Y if capital gains is raise to 20% or even to the 39.9% it was in 1976, and so in choosing between X and Y, the rational investor will still choose X. This certainly migh…

"But for those making more than $1 million -- there were 236,883 such households in 2009 -- I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more -- there were 8,274 in 2009 -- I would suggest an additional increase in rate." That is his recommendation. Is it not specific enough?

By how much? 1 Percent? 20 Percent? Does "taxable income" include muni bonds? Ex-pat VCs? Enterprise zones? Minority-owned businesses? Sales of primary residences? And so on.

I'm not trying to be pedantic. The tax code is a mess. Simply saying you'd raise taxes on folks making more than a million of taxable income a year doesn't really say very much.

Something like an elimination of capital gains for startup investors and an increase to 35% of gains made over $5 Million per year would at least have some meat to it. Heck, just come up with a number. 20% rates good enough?

How can I evaluate "fair" based on that statement? Could you? I could make assumptions -- such as the definition of "taxable income" staying the same or perhaps the capital gains tax matching the income tax rate, but then I'm arguing with myself, because I'm adding detail that wasn't present.

Nobody needs a 30-page whitepaper. A couple of paragraphs with specifics isn't too much to ask. After all, it's the core of his argument.

Re: Warren Buffett has me Confused

#46

Post by festivusr »

DanielBMarkham wrote: post #30
Yxven wrote: post #21

Buffet says the mega rich aren't being taxed enough. Daniel assumes this means "raise the capital gains tax" and argues that it'd hurt a lot more than the mega rich. If there's anything government can do well, it's the ability to tax creatively. A simple solution (and I'm not saying it's the best solution) would be to expand the income tax to cover all forms of income (lowering it in the process) and eliminate the ca…

I didn't want to get into the discussion here on HN -- seems like everybody wants to fight the battle of taxes 2012. But I did want to point out that the purpose of my article was to demonstrate my confusion and ask you guys for help, not necessarily to state that policy would hurt more than the mega rich. I understand the reasons pro and con for tax reform -- it's a great topic. What I didn't understand is what the…

You said "I understand that people want higher taxes on the rich. I think it's stupid, but I'm not going to argue about it." This is not a question, it's a statement, and a provocative one at that. Saying you're not going to argue about it is not going to stop discussion on exactly that point.

You also said "His real argument is probably too snooty of an argument to make in print, but something tells me that's what he's really getting at. I wished he'd have just come out with it, though. It would have been a lot more honest."

This strongly implies that the author (Buffett) is dishonest in his arguments. I'd say that's calling him out.

Re: Warren Buffett has me Confused

#47

Post by seats »

cjy wrote: post #19
lionhearted wrote: post #12

Earlier quoted context omitted.

You picked the least interesting point of Markham's to disagree with. These two were more interesting: > Ok, I'm calling bullshit. What does "sensible investment" mean? Does it mean the amount invested, the risk, and the amount expected in return? Because last I checked, you'd take the amount you're getting in return and decrease it by your tax rate. He then goes on to note tax-deferred and tax-advantaged investments…

Well said. The guy also makes a good point that Buffett isn't clear what he is advocating. Does he want to raise the capital gains tax only on the mega rich or raise capital gains taxes for everyone which would have a disproportionate impact on the mega rich who get most of their income from capital gains? The former wouldn't raise that much revenue. The latter would encourage people to consume instead of investing t…

I thought Buffett was very clear -

"But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate."

Re: Warren Buffett has me Confused

#48

Post by festivusr »

DanielBMarkham wrote: post #45
festivusr wrote: post #44

Earlier quoted context omitted.

"But for those making more than $1 million -- there were 236,883 such households in 2009 -- I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more -- there were 8,274 in 2009 -- I would suggest an additional increase in rate." That is his recommendation. Is it not specific enough?

By how much? 1 Percent? 20 Percent? Does "taxable income" include muni bonds? Ex-pat VCs? Enterprise zones? Minority-owned businesses? Sales of primary residences? And so on. I'm not trying to be pedantic. The tax code is a mess. Simply saying you'd raise taxes on folks making more than a million of taxable income a year doesn't really say very much. Something like an elimination of capital gains for startup investor…

He posits that people making over a certain amount should be ponying up more in taxes. A reasonable assumption to make is that taxes would be raised in such a way that those people would be taxed more, and people who make less, wouldn't be. The specifics are irrelevant to the general argument.

Re: Warren Buffett has me Confused

#49

Post by DanielBMarkham »

festivusr wrote: post #48
DanielBMarkham wrote: post #45

Earlier quoted context omitted.

By how much? 1 Percent? 20 Percent? Does "taxable income" include muni bonds? Ex-pat VCs? Enterprise zones? Minority-owned businesses? Sales of primary residences? And so on. I'm not trying to be pedantic. The tax code is a mess. Simply saying you'd raise taxes on folks making more than a million of taxable income a year doesn't really say very much. Something like an elimination of capital gains for startup investor…

He posits that people making over a certain amount should be ponying up more in taxes. A reasonable assumption to make is that taxes would be raised in such a way that those people would be taxed more, and people who make less, wouldn't be. The specifics are irrelevant to the general argument.

You asked me a specific question: was that detailed enough?

The answer was no. Simply because it's detailed enough for you doesn't enter into it.

Unless you're prepared to say that those folks paying one dollar more is fair, then we have to have a number.

And note: Buffett didn't say they should pay more. He said the rates should be raised. These are two completely different concepts. You could raise the rates and have people move their money in such a way as to not pay any more at all. From Buffett's position, simply talking about rates, this would be an acceptable outcome.

I think we're at a spot where we can agree to disagree. Whether or not rich folks owe their fair share or not is a meaningless conversation unless and until you can actually start describing what you mean by "fair share." Without those details, it's just political feel-good bullshit, sadly. I expected more from Buffett.

Re: Warren Buffett has me Confused

#50

Post by DanielBMarkham »

festivusr wrote: post #46
DanielBMarkham wrote: post #30

Earlier quoted context omitted.

I didn't want to get into the discussion here on HN -- seems like everybody wants to fight the battle of taxes 2012. But I did want to point out that the purpose of my article was to demonstrate my confusion and ask you guys for help, not necessarily to state that policy would hurt more than the mega rich. I understand the reasons pro and con for tax reform -- it's a great topic. What I didn't understand is what the…

You said "I understand that people want higher taxes on the rich. I think it's stupid, but I'm not going to argue about it." This is not a question, it's a statement, and a provocative one at that. Saying you're not going to argue about it is not going to stop discussion on exactly that point. You also said "His real argument is probably too snooty of an argument to make in print, but something tells me that's what h…

"Honest" as in "straightforward," "direct" As opposed to convoluted or hard-to-interpret. Not honest as in telling the truth. If I tell you that it was about time to make an honest offer on a house, that doesn't mean that somehow you have been lying all along. The social utility argument was, in my mind, his best one. He should have been more direct about making it.

The first part was simply an expression of my bias. I owed that to the reader.

Good grief.

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