21–30 of 72 posts
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 capital gains tax.
The primary point of Buffett's article isn't even addressed here: most people pay a much higher percent of their income to the federal government than do the "mega-rich" (I do have to say that don't really like Buffett's term there) and, furthermore, that the economy didn't suffer one drop when the rates were more reasonable (and in fact, did much better than under the historically low capital gains rates of the last…
Buffett pays a lower percentage of income by choice . Meaning, he derives his income from investments that get taxed at the capital gains rate. Everyone else is free to make the same decision, but they don't. They "invest" in houses, cars and other lifestyle purchases and then rely on their daily job to provide their income...hence their tax rate being so high. Rather than punishing the rich for making smart decision…
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 in deposits and a 50% chance it's a total dud.
With no windfall profit tax, your average return is:
.5(-$100M) + .5($220M-$100M) = +$65M profit, for a 65% return.
Of course, you'll never get $65M. You'll either wind up -$100M or +$120M.
Buuuut, if the government taxes that at 50%, your new EV is:
.5(-$100M) + .5[($220M-100M)/2] = -$40M average return, for -40%.
Those aren't funny numbers. A 50% tax on profits drives capital out of risky-but-lucrative industries, since you're holding the bill if it fails but you're writing a fat check if it succeeds.
It's a simplification. In theory, you could maybe create a conglomerate that averages all sorts of bets like that together. But in reality, there will be some companies that have a 50% chance of losing everything, and a 50% chance of more than doubling your money... that work out mathematically with low-ish taxes, but aren't endeavored with higher taxes.
Mongolia repealed the windfall profits tax a few years ago, by the way, and billions of investment capital went in almost immediately into mining.
Let's start with the first argument: "His message seems to be 'I'm rich, and I want the super-rich like me to pay more in taxes.' That's great. Write a check." But him writing a check isn't the point. If Warren writes a check, we get that check's worth of new government income. If taxes are raised, for Warren's contribution of the same check, we get much larger pool of spending. Put more simply: plan (a) warren donat…
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…
Rather, taxes should be placed where they will do the least harm to the economy. Check out http://en.wikipedia.org/wiki/Optimal_tax. Ideally, taxes should be placed where they will not distort people's behavior. So, the relevant question is whether increasing taxes on capital gains will have a change investors behavior making the economy less efficient. Buffet says "My rich friends will invest no matter what!" But, he provides no evidence to support this. On the margin, some investments will not be worth it with a higher tax (as described by lionhearted). How big of a problem this is up for debate. But we shouldn't make tax decisions based on Buffet's anecdotal experience with rich friends.
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…
Anyone who has the imprudence to argue with Warren Buffett, the savviest investor of all-time, is most likely a victim of the Dunning-Kruger effect. If you can't understand why, then you also may be a victim of the same effect.
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…
Anyone who has the imprudence to argue with Warren Buffett, the savviest investor of all-time, is most likely a victim of the Dunning-Kruger effect. If you can't understand why, then you also may be a victim of the same effect.
So you can't argue with him about...
-Parenting?
-Philosophy?
-Regulation?
-Physical fitness?
> If you can't understand why, then you also may be a victim of the same effect.
Markham pointed out that capital is going to be invested differently if tax laws change.
I mean, duh, right? It's an obvious, correct, and important point that was overlooked in the OpEd for some reason.
If you disagree that changing tax laws is going to change capital investment, the burden is firmly on you to explain why instead of just saying "Dunning Kruger" which is basically a sophisticated way of calling someone an idiot.
So I'm holding by the "Godwin's Law II" suggestion - if you try to call someone out on Dunning Kruger, you lose. If you've got a good argument, just make it instead of calling names.
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…
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…
Also, comparing the US to Magnolia is a pretty dubious.
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…
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 hell Buffett was trying to argue: fairness, social efficiency, marxist philosophy, what?
As part of that, I felt that I had to come clean and show my position -- I think the entire debate is phony and just a way to control the masses. But I really, really didn't want to get into the politics. My interest as a writer and outhouse philosopher was the clarity of his piece, not the validity of the argument. (Commenter Ron came by the blog and made a great defense of Buffett's position. You should read it if you're interested.) Once we state our case clearly, then productive discussion has a chance to begin.
And it beats the living shit out of me how asking questions can somehow be taken as challenging Buffett or talking outside my expertise. The whole idea of asking questions is to demonstrate you don't have knowledge and to ask for help. People act as if I somehow called Buffett out. Geesh.