Note bene: since the effective tax rate on the wealthiest Americans is lower than that of almost everyone else because of how tax law treats investment income, Buffett's argument is for the time being indifferent between progressive and flat taxation.
Warren Buffett has me Confused
51–60 of 72 posts
Re: Warren Buffett has me Confused
#52I 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…
I've three gripes:
First, I suspect most mega-rich find investing in all conditions far more enjoyable than anything that money might be able to buy.
Second, even if they wanted to buy, it takes time to spend billions of dollars. In the mean time, that money will be put to work in some form of financial instrument. Even if it's only sitting in a bank, the bank will make a more lucrative investment with it.
Third, it's not like buying an expensive auto collection is wasted money. That money will be used to build the infrastructure of those companies. This has the same shocking benefits of "pure" investment, although it is probably mildly less efficient.
Re: Warren Buffett has me Confused
#53Earlier quoted context omitted.
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 ha…
Let's say I have a buddy, Bill, and we go out for dinner every so often. He doesn't make as much as me, but he fights me for the bill every time. I end up paying less than he does most of the time.
I tell my wife, "You know what, it's not fair that Bill pays so much all the time. I should pay more."
My wife then says, "Your argument is confusing, and what's more, it's feel-good bullshit. You didn't give me a specific number on how many dollars you'd want to pay. Would you pay with a credit card? Traveler's Cheque? Based on total after tip or before?"
The supposition between reasonable people should be that I pay some reasonable amount more than I have been paying, but I don't go over the top and foot the entire bill. Is it fair to ask how much more I'd be paying? Of course, and the final justification of just how fair the arrangement is would depend on that number, as you've said. However, it's perfectly reasonable to say someone should be paying more, and have a discussion on that topic, without having to go deep into the specifics of how much more.
Re: Warren Buffett has me Confused
#54Earlier quoted context omitted.
> 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…
I've three gripes: First, I suspect most mega-rich find investing in all conditions far more enjoyable than anything that money might be able to buy. Second, even if they wanted to buy, it takes time to spend billions of dollars. In the mean time, that money will be put to work in some form of financial instrument. Even if it's only sitting in a bank, the bank will make a more lucrative investment with it. Third, it'…
> First, I suspect most mega-rich find investing in all conditions far more enjoyable than anything that money might be able to buy.
Um, why would you suspect that? Do you find investing just to be investing more enjoyable than anything money could buy? Why would the mega-rich be any different?
> Third, it's not like buying an expensive auto collection is wasted money. That money will be used to build the infrastructure of those companies.
What I had in mind was an antique auto collection of the sort featured in reddit a few days ago. Buying a warehouse full of deusenbergs, corvairs, the taxi from seinfeld and a batmobile doesn't really "build the infrastructure of those companies" Anyway, by that logic wouldn't all consumption be beneficial? Going on a round-the-world cruise builds the infrastucture of the cruise company, right? Heck, pay a prostitute enough and she might buy a house with the income - that also "builds infrastructure"...
Re: Warren Buffett has me Confused
#55Earlier quoted context omitted.
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'd posit that your real point is exactly that which you say you don't want to argue. It's a strong statement and worthy of discussion.
Much more interesting to discuss that than how clear Buffett's argument is. (Which is quite clear, in my opinion.)
Re: Warren Buffett has me Confused
#56Earlier 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…
> 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.
It's saying a huge amount. The Republican position is that tax increases are COMPLETELY off the table (and they are defining closing tax loopholes as tax increases). Buffet is saying that tax increases should be on the table, and that the current tax system results in people at his wealth level paying a smaller percentage of their income as taxes than people in the middle class and that he doesn't think this is fair and that it should be possible to change this without dire consequences.
You seem to be dismissing this because he has not proposed detailed legislation to overhaul the tax code.
Re: Warren Buffett has me Confused
#57I 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…
If you are interested in an auto collection or yachts or paintings, you'd already be buying those. You aren't going to say "Dang...I was going to invest my $1 billion and earn $200 million/year, but these new taxes mean I'll only earn $180 million so screw that--I'm going to quit investing and become a car collector".
Re: Warren Buffett has me Confused
#58Earlier quoted context omitted.
"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'd posit that your real point is exactly that which you say you don't want to argue. It's a strong statement and worthy of discussion. Much more interesting to discuss that than how clear Buffett's argument is. (Which is quite clear, in my opinion.)
Last comment: this has long ago passed the point of diminishing returns.
I originally wrote "intellectually dishonest" mostly out of habit. It's a phrase I like. But then I looked at it and realized that was way too harsh of a statement. Buffett is not lying here. He's just a nice old man (probably a little on the cranky side) who wants to play at politics a bit.
I don't think there was any subterfuge or lying at all going on. What I think is that he could have used a good editor, but probably when you are worth 3 kazillion dollars it's tough to get somebody to take you out to the woodshed and tell you to tighten up your piece, make a thesis, and then support it. I have structural problems with the article, not concerns about the honesty of the author.
Re: Warren Buffett has me Confused
#59Earlier quoted context omitted.
> 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…
If you are interested in an auto collection or yachts or paintings, you'd already be buying those. You aren't going to say "Dang...I was going to invest my $1 billion and earn $200 million/year, but these new taxes mean I'll only earn $180 million so screw that--I'm going to quit investing and become a car collector".
It's quite possible for a small amount of additional tax to have a big impact on the expected value of investing. When you invest, you don't know you're going to make a specific positive rate of return; you have to make a guess as to whether the net benefit is positive. Depending on your risk profile, it might just be slightly positive net expected value, in which case adding just a bit more tax makes it neutral or negative.
BTW, if you're talking risk-free investment, that's around 2% now, not 20%. So the question is whether to invest $1 billion and earn $20 million. which would be $17 million under the existing capital gains tax (15%), but if you raised capital gains to match income tax rates it'd be less than $14 million. Which doesn't seem like much of a return on a billion dollar investment.
Re: Warren Buffett has me Confused
#60Earlier quoted context omitted.
I've three gripes: First, I suspect most mega-rich find investing in all conditions far more enjoyable than anything that money might be able to buy. Second, even if they wanted to buy, it takes time to spend billions of dollars. In the mean time, that money will be put to work in some form of financial instrument. Even if it's only sitting in a bank, the bank will make a more lucrative investment with it. Third, it'…
> First, I suspect most mega-rich find investing in all conditions far more enjoyable than anything that money might be able to buy. Um, why would you suspect that? Do you find investing just to be investing more enjoyable than anything money could buy? Why would the mega-rich be any different? > Third, it's not like buying an expensive auto collection is wasted money. That money will be used to build the infrastruct…
Um, why would you suspect that? Do you find investing just to be investing more enjoyable than anything money could buy? Why would the mega-rich be any different?
I picked my job because it is very enjoyable to me. I would do it for free if I had too. The job of the mega-rich is to invest. They are under no financial pressure (like say a Mexican immigrant) that forces them to take that job.
Anyway, by that logic...
I totally agree that it's not the best use of the money, and would definitely rather see it invested wisely. At the same time, it's not like the money's just being burned. It adds a small inefficiency into the investment cycle, but apparently Buffet thinks this inefficiency is not as big as most other people do.