Warren Buffett: Stop coddling the super rich
nytimes.com
nytimes.com
Services provided by the government are public goods. It's blindingly obvious that a single person cannot pay for those public goods. Just Buffett's own contributions, no matter how much he donates, will not be enough to solve our budget issue. It's called shared sacrifice because it's meaningless unless everyone participates.
It's like the neighborhood park (i.e. medicare/social security): Everyone wants one, but nobody wants to pay for it. In steps the neighborhood's rich kid (Buffett), who suggests that all the rich kids pitch in to pay for the park. If that happened, everyone would be made better off, but one kid alone isn't enough.
This is a very canonical problem of public services provisioning and funding. It's completely naive to sit back and suggest Buffett tackle the issue himself, because we all know that's ridiculous.
Open your eyes. The problem is not Buffett's to solve. But he recognizes that there is a problem.
Apologies for the harsh tone, but it baffles me how members of Hacker News can think so naively. The attacks on Buffett are utterly unfair and unjustified. We should all have an open mind and try to understand the proposal.
It's not just that the rich kids should pay for the park, it's that everyone but the rich kids are being asked to pay some extra.
Personally I would prefer a flat percentage rate of tax with an exception for very low incomes where it just isn't worth the governments time trying to collect it.
This would probably raise most peoples tax and lower rich peoples tax but I believe it is "fairer" for everybody to pay the same fixed proportion of their income. At the same time though I would simplify business taxes as well, get rid of loopholes, stop companies that do business in a country off shoring their profits. It is insane that some companies view their accounting departments as profit centers.
Flat tax economies boom, and they are progressive in the sense that there is no penalty for trying to earn more money.
That's not a flat tax, then, is it? It's progressive with two bands, 0% and x%.
There is a real case for tax simplification, but the progressive nature of income tax is probably the simplest thing in the entire tax code! It's the classification of different kinds of income and capital gains, exemptions and penalties for particular uses of money/assets that makes it challenging and is the reason there is real money in tax avoidance. Don't throw out the baby with the bath water.
Finally, a progressive tax means higher earners pay a larger proportion of their income than lower earners. It's hard to gauge the validity of your argument when your assertions run contrary to the definitions of the words you use.
Yes two bands, with the focus on making it attractive for people to earn money and pay tax, ideally the 0% band would be just enough to clothe, feed yourself and pay rent in a bad neighbourhood.
Progressive is a word that seems to mean different things to the left and the right, I notice you didn't define it.
As I said a flat tax is economically progressive because it doesn't discourage people from trying to earn more money.
At the moment you have people buying houses they don't need or using complex financial instruments just to do something with their money because if they don't they will get taxed more. Investing this money for the sake of it is not always beneficial to the economy or society, I favour a persons right to choose what to do with their own money.
I am coming from this from a libertarian perspective, whether you earn 50k a year or 500k the government should not be taking a higher percentage from you than other people. Especially considering that with a percentage rate whilst the proportion is the same, the actual amount of tax high earners pay is greater (which is socially progressive enough for me, but perhaps not for you). I believe I am using the word proportion correctly here, but if not please feel free to let me know how I have got it wrong.
Here in the UK the top rate of tax is 50%. I doubt I will ever be taxed at that rate but the government taking half a persons income scares me a little, no wonder people try to move their money around so the taxman can't get at it.
"Progressive" has a very specific meaning when you're discussing tax structure, independent of its political meaning. Specifically, a progressive tax is one in which the effective rate you pay rises with income.
I don't understand the line of thinking which effectively says "people don't want to earn £2 if they have to pay £1 in tax". Erm, you're still richer than you were if you didn't earn more. The only possible argument against this is if earning another £100k takes more amount of effort it took to earn your first £100k. But if you know anything about making money it doesn't work that way. With more capital comes greater opportunities. You can afford an accountant to manage your money, you have more investment options, and so forth; and you still have enough to spare for a comfortable lifestyle.
A flat tax implies that a dollar is worth just as much to Warren Buffett as it is to someone flipping burgers, which demonstrates a complete lack of perspective.
Put it this way: everyone's living expenses are, say, £12k. now if you're earning a median wage that leaves you £10k to invest how you like. If you're earning £50k you get to invest £38k. assuming the schemes offer the same rate of return, guess who is going to amass £50k first? Hint: it's not the guy who has to get a 5x return on his investment.
The higher rate income tax is an incentive to invest the money you receive back into the economy via business or charity, where it is taxed at a lower rate or even not at all, rather than spent on your own personal gain. Why should it scare you that the government would take that money? BTW, investment in financial instruments of dubious benefit is giving money to the financial system (this should really be obvious...) so it does contribute to the economy, but there are almost certainly better ways to do so.
The problem with the libertarian perspective is that it irrationally assumes the best of people when there is no incentive for them to do so. If a billionnaire can afford to fund all the services he requires that someone on the poverty line would depend on government for, why should the billionnaire give his money away? If you want a society you have an obligation to provide for one, if you believe it is unfair that someone with broader shoulders should carry more weight, then perhaps you should consider how fair it is that he has broader shoulders and others do not.
That's not the issue. The issue is that the 2nd 100k is worth less in terms of happiness than the first.
Various studies have shown that after around 80,000 peoples happiness is proportional to the amount of money they earn, and after that it levels out.
Thus if one didn't really care too much about that 2nd 100k, making it merely 50k might just be enough for the person to throw up their hands and say "its not worth it, I'll spend the weekends at home instead of at work".
> The problem with the libertarian perspective is that it irrationally assumes the best of people when there is no incentive for them to do so.
I assume no such thing about people regardless of whether they are rich or poor.
I think crux of our disagreement is about the involvement of government in peoples lives. I heard a quote recently, "The more the government tries to do the less well it does everything", I might have mangled that slightly.
Your supposition is that we need the government to force us to be nice and act in a way that is beneficial to society, if so isn't that a losing proposition from the outset?. Who is the moral arbiter here?, I would really like to minimize the amount of situations where government passes judgement on its citizens.
What I am really against is mob rule, the state is a necessary evil, a large state is a larger evil.
I am convinced that while the last century's politics was dominated by left versus right, this century will be dominated by authoritarian versus libertarian. The world isn't black and white, in certain situations we can't avoid making those kind of judgements but where we can avoid it we should.
The involvement of government in particular does not concern me.
My concern is the involvement of any powerful group.
If all you seek is a reduction of the state, you leave a void waiting to be filled by corporatocracy.
The argument of left vs. right, authoritarian vs. libertarianism is a red herring, what really matters is the distribution of power. Given that money is approximately power and that the government is more accountable to me than an individual, I have no qualms about the higher tax rate.
I think one of the major themes of politics to come will be the separation of business and state (much like how America pioneered the separation of church and state).
This will require a shift in society though, most voters see it as the governments job to manage the economy and help it grow. But corporate welfare is as damaging to business as social welfare is to individuals.
This is unfortunately a very gray area, at what point do tax breaks stop "encouraging" business versus at what point do businesses become dependent on them?. The inequality is what bothers me most, small businesses paying a higher percentage of tax than big businesses, the percentage should be the same.
I don't believe we can get there by regulation alone, citizens have to care as well, although I do concede that regulation may be necessary to a certain extent.
It is not 'progressive' as in 'progressive politics' or 'economic progress' or any other left or right politics.
Saying something is a 'pregressive tax' isn't a value judgement , it is just a description of the curve of the tax rate, i.e. the opposite of a regressive tax. As for 'discouraging people from trying to earn more money', that is a debate about rates but remember marginal tax rates never allow a situation where making a higher salary would leave you with less net income.
"He did the bookkeeping himself and prepared his own tax returns. With its numbers, accuracy, and the measuring of results, the recordkeeping aspect of the job pleased him."
[...]
"Warren was still handling all the money and doing all the clerical work himself: filing the tax returns,..."
[...]
"'Bill started trying to convince me to get a computer. I said, I don’t know what it’s going to do for me. I don’t care how my stock portfolio is doing every five minutes. And I can do my income taxes in my head.'"
Seems like indeed he is doing them himself (his personal tax bill; to do it for Berkshire, they surely have hired help)
However, that's not the point. He's not saying "I want to personally pay more tax", he's saying "Why are people like me not being required to pay the same percentage tax as middle-income earners"?
http://en.wikipedia.org/wiki/Income_tax_in_the_United_States...
Buffet's talking about setting the rules of the game, not about optimizing within the rules that have been set.
At $100k I can't buy a nice house with 1 year's income, but at $10M I clearly can.
What was the point of your response, anyway? Please elaborate.
1) The payroll tax is capped, so a guy making exactly the income it is capped at, and a guy making 100x that, pay exactly the same payroll tax. No accountant required and it is an enormous difference. For Warren, that is millions of dollars right there.
2) Money made from investments is taxed at a lower rate than salary, EVEN IF INVESTING IS YOUR JOB. I personally believe that money you have paid taxes on before should never have capital gains taxes on it - basically you are getting taxed twice. If I choose to take my money and invest it and then buy a car later I pay more tax than a guy who just takes his money and buys a car. So i'm not fan of capital gains taxes. But a guy who gets paid by investing and has no other income should be paying income taxes, not capital gains taxes. How you distinguish the two is definitely hard, but smarter people than me can figure out a way to make that happen.
At worst, though, it's a shell game that distracts from what's really going on in the tax code. In everything I've seen, taxes occur on transactions, not on stored wealth. So it's pretty easy to point at any income and outflow and argue that the money itself is being taxed twice. One could argue that the sales tax is a double tax - I'm paying income tax when I earn my paycheck, and then sales tax on the same paycheck when I spend it on groceries.
Anyway - in your example, the non-investor pays taxes on, let's say, $50k of income, then buys a car with it. The investor pays taxes on, let's say, $40k of income, invests it shrewdly, then takes the final $50k out of the investment and buys a car. The non-investor pays income tax on his $50k; the investor pays income tax on $40k, then capital gains on the $10k he made on the market.
The government could have easily taxed the investor on the entire amount withdrawn. That would obviously be pretty dumb, though.
But lets not forget, he has to act in the interests of shareholders, not just himself, in his business interests.
Huh? By this logic, taxes are "meaningless" unless everyone pays taxes. However, many poor and lower-income people do not pay income taxes. Does that render the income tax "meaningless"?
Also, the claim that it's "like the neighborhood park... [e]veryone wants one, but no one wants to pay for it" is absurd. We see many examples of charitable contributions made by the rich and the middle class which are used to purchase public goods such as museums, nature preserves and the like.
When push comes to shove, what Buffet really wants -- and what you are advocating when you say that no matter how much money he donates, it "will not be enough to solve our budget issues" -- is an increase in the size of government fueled by higher taxes, rather than a diminution of its scope by reducing the funds made available to it.
A bigger government benefits crony capitalists like Buffet, because they have sufficient power and influence to ensure that the goodies that can be redistributed by the Leviathan are steered their way. I wish Buffet would be honest enough to say that, rather than bloviating about how terrible it is that he doesn't pay enough taxes when he is unwilling to take the obvious direct action necessary to rectify that unfortunate situation.
And many middle-income people. ~45% of US households pay no federal income tax.
> Also, the claim that it's "like the neighborhood park... [e]veryone
> wants one, but no one wants to pay for it" is absurd. We see many
> examples of charitable contributions made by the rich and the middle
> class which are used to purchase public goods such as museums, nature
> preserves and the like.
> When push comes to shove, what Buffet really wants -- and what you are
> advocating when you say that no matter how much money he donates, it
> "will not be enough to solve our budget issues" -- is an increase in the
> size of government fueled by higher taxes, rather than a diminution of
> its scope by reducing the funds made available to it.
And why present this as a "lower taxes vs. smaller government" issue? That seems incredibly disingenuous. What is truly being advocated by many is a combination of both. What's the best way to solve a debt issue? Increase income while also decreasing spending. Why cripple the process by ignoring half the solution?
> A bigger government benefits crony capitalists like Buffet, because they
> have sufficient power and influence to ensure that the goodies that can
> be redistributed by the Leviathan are steered their way. I wish Buffet
> would be honest enough to say that, rather than bloviating about how
> terrible it is that he doesn't pay enough taxes when he is unwilling to
> take the obvious direct action necessary to rectify that unfortunate
> situation.
That said, do we need to look at past examples of when aggressive government spending has helped individuals or small companies? Once again, this doesn't need to be a black and white world – as the spender of last resort, the government can provide liquidity and resources to individuals, small companies, and large companies when no one else is willing to take the risk. Yes, some people may profit immensely as a result. Does that mean those programs were wrong? And a bigger government doesn't have to only benefit "crony capitalists"...
I don't understand why a holistic view is so rarely considered in these discussions. Rather than making this an "right vs. wrong", "rich vs. poor", "liberal vs. conservative", "communist vs. capitalist" argument, let's make it a discussion to find the best solution to our problems. Only then will we actually solve the problems our country faces.
The rich already pay the most tax. Why should they pay more?
Are you saying the top 1% should pay what I paid in taxes last year? I paid around $100k. I'm not sure why someone making millions to billions a year should only pay $100k. If you assert I should pay the same as high-income individuals, should someone making far less than I am also pay $100k?
To flip it around, if you assert someone making less than me should not pay the same dollar amount as me, then why should someone making many orders of magnitude more than me pay the same dollar amount?
Now then, if I assume you're asserting the mega-rich should pay the same percentage as me, then we both agree that Buffett should pay more. My tax rate was 23% while Buffett's was only 17%.
How ever you slice it, someone's going to have to pay more than someone else. Either the poor need to pay less since they can't afford the flat dollar rate that's established, or the rich need to pay more because the flat percentage rate means they owe more.
Thus, I don't understand your question – it seems logical that, given any taxation system, the rich should pay more. Am I missing something?
This messes up how people see taxes and how the burden is distributed. And make people say things like Warren Buffent pays less taxes than I do.
You don't buy soldiers, schools, police officers and roads with percentage of incomes. You buy them with dollars, which is why I argue that we should measure the paid tax in dollars and realize that the rich already pay the largest share of it.
Since they don't actually use more government services (they properly use less, but that is another matter) I can't see the problem with reducing the amount paid by the highest income earners.
Taxation is Mutual Coercion, Mutually Agreed On.
The phrase was used by Dr. Garrett Hardin in his 1968 essay on global overpopulation, "The Tragedy of the Commons".
Oh, and the example Hardin explicitly cited as an example of mutual coercion? Taxes:
"Who enjoys taxes? We all grumble about them. But we accept compulsory taxes because we recognize that voluntary taxes would favor the conscienceless. We institute and (grumblingly) support taxes and other coercive devices to escape the horror of the commons."
http://www.garretthardinsociety.org/articles/art_tragedy_of_...
The "just pay voluntary taxes" has been very, very dead for well over 40 years.
Either that or by bribing the wealthy with low taxes they might only ship out half the jobs overseas instead of all of them.
It's just dumbfounding. Election after election, over and over.
-Ulysses S. Grant
People fighting or voting against their own self interest has gone on for a long time, sadly.
This also explains why people try to vote away unions and benefits for teachers/schools, the very foundation of society, while they are okay with CEOs having multi-million annual stock bonuses while getting paid $1 to dodge taxes.
Plus the vast majority wouldn't vote for teacher pay cuts. There are a few exceptions, but look at the trends for education spending. America spends more per capita on education than most developed countries.
"I am not poor, I am just pre-wealthy".
The biggest scam is that the wealthy have managed to convince even the poorest that they are just a "little hard work" away from being a successful owner of family business or the next Donald Trump. It is the American Dream.
So ... they should vote accordingly and just get their future selves those nice tax cuts for when they become wealthy.
There is also the good'ol "trickle down" trick. Vote for us and we'll trickle it down, we promise...
http://en.wikipedia.org/wiki/Huey_Long
Unfortunately he was assassinated in 1935 :-(
I also don't think that people are trying to vote away unions and benefits for teachers/schools, but unions/benefits for crappy teachers/schools. It's incredibly difficult for schools to get rid of bad teachers, and a decent number of people come into contact with it. This doesn't do anything for the other side of the equation — getting less bad teachers, but again, I don't think spite is the reason people vote against teachers unions.
I don't think the poor who consistently vote Republican really care about the economics of social services. That's too removed and abstract a concept for them (ironic, given that it affects them directly). Instead, they're voting emotionally: on social values, and on the politics of identity and nationalism. These abstract concepts are very "real" to a lot of Americans, because they're the things people cling to and hold fast when everything else is taken from them.
Bear in mind that a lot of these people have seen social values work for them amidst their own circumstances. Those among them who work their asses off, keep out of trouble, go to church, stay clean, and don't overspend will do markedly better than their peers who slack off, abuse government assistance, and engage in reckless behavior. Meanwhile, a preponderance of military personnel are drawn from the families of the working poor -- so these folks eat, breathe, and sleep patriotism. They love America, even if the version of "America" they love is largely a myth.
Republicans have become masters of speaking the language of identity politics and values. They understand what tune these guys want to dance to, and they play it flawlessly. Meanwhile, Democrats are tonedeaf. Nevermind that Democrats may actually have the interests of the little guy in mind; they don't speak the little guy's language. And that makes all the difference.
Case in point: the Democrats consistently talk about "the middle class," and sometimes "the working class" or "the poor." Meanwhile, Republicans always talk about "Americans." They rarely even speak of classes or social divides. It's a brilliant rhetorical gesture, because it recognizes that the working classes don't enjoy hearing about how shitty their lives are. They don't like the labels. If you ask them, many of them won't even agree that they're "working class" or "poor." They're in denial, and it's a defiant denial. They're too proud to face reality, and when Dems constantly throw the reality of their misery in their faces, they get angry and resentful.
Just because I want Warren Buffet to be able to keep most of what he produces doesn't mean I believe I will be in his shoes one day, it just means that I don't trust people who are trying to take more of his money in order to improve my life. Warren may trust those people, but his life really doesn't need much improvement now, does it?
Citation needed. Please explain how the living standard in the US can have improved if real wages have fallen. Oh wait, the answer is an incredible increase in consumer debt. That seems to be working out.
Keep calm and carry on.
If by "real wages", you mean "wages adjusted for chained CPI" (this is what most people mean), the answer is because the basket of goods used to compute CPI has become larger.
I.e., consider the following scenario. In year 0, there is one good - food. A basket of food costs $100. In year 1, medicine is invented, and the cost of food goes up to $101. Inflation is 1%.
The basket of goods is modified to reflect the invention of medicine, and is now comprised of 50% food, 50% medicine. In year 2, the cost of medicine increases 10%, and food decreases by 2%. Chained CPI now reports an inflation rate of 3.45%. Is life worse in year 2 than in year 0? (This is a combined 2-year inflation rate of 4.5%.)
Of course not. In year 2, you are paying $99 for a basket of food. In year 0, you are paying $100 for food and Medicine doesn't exist.
I have yet to see anyone construct an inflation measurement based on a fixed basket of goods (which is held constant over the years) that shows real wages have gone down.
I cannot believe the ignorance of Ycombinator at times.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...
Keep calm. Carry on.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...
http://en.wikipedia.org/wiki/Comparison_between_U.S._states_...
In regards to GDP by PPP:
"Comparisons of national wealth are also frequently made on the basis of nominal GDP, which does not reflect differences in the cost of living in different countries (See List of countries by GDP (nominal) per capita). Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income."
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...
But in all of Stupidtown, PPP is the village idiot. First, which basket of goods do you choose? Whatever you select will favor some cultures over others. Second, what about the quality of goods? Butter might be cost the same in terms of hours worked, but for that same amount, the Swiss get pure, mountain-made butter, whereas in LA they get corn-oil margarine. Then there's the flattened world. It used to be that you would earn more in Switzerland, but a couch, for example, would cost more. But now, both go to IKEA and the costs are nearly identical. A tablet computer? Flat-screen TV? Car? Those things essentially cost the same everywhere. When the Swiss go on vacation, their better income means they get a lot more and they go to much nicer places. Then there's taxes. The Swiss pay about the same percentage as in LA, but for that they get amazing things: free university, guaranteed health care, etc.
Finally, there's the wet-finger test. If the weather models show that it should be sunny and you step outside and it's wet, please consider that despite what you read: it's raining. I'm American but I've lived in Switzerland, and I must humbly admit that there's nowhere in America that comes close to being as wealthy as Switzerland.
Visit Baton Rouge and then visit Zurich. You will laugh your ass off at the notion that LA is 10% off of Switzerland's wealth. You will then laugh at economists themselves as the poorest of weather scientists who simply don't know how to walk outside.
I'm a big fan of the American Housing Survey (from the Census Bureau): http://www.census.gov/hhes/www/housing/ahs/nationaldata.html
Data from 1970 - 2009, detailing living conditions for Americans as a whole. In recent years, many data tables have a column for Americans below the poverty line. Compare the data for living standards for the poor in 2009 to the overall population in 1973. By any reasonable measure of "living standards" I've been able to come up with, the data shows the poor in 2009 are doing well in comparison to the overall population in 1973.
This was also primarily caused by a housing bubble. A bubble that was created in part because of government intervention causing increased demand for houses (mortgage interest deduction, low interest rates).
Warrent Buffet is perhaps giving away a lot of what he maybe would have given in taxes but plenty of billionaires or super rich just spend it on their spoiled sons and daughters, some who end up in rehab, spent a tremendous amount of resources to create a parallel society where meritocracy applies only to some people and/or just waste it in obscene luxuries such as a 10k bottle of champaign, etc and to boot it all, at the end of the day, they are rich only because they are in many ways not paying the working people the proper wages so that they can pay themselves obscene amounts. I mean, how much more smart are the bank CEOs who got us in this mess to start with to justify a salary 100 times more than others working there.
But even on a practical rather that political level, for most of these supper rich, the difference between 1 million or 2 million does not mater but in some silly psychological keeping up with the jones nonsense and for many even the keeping up with the jones does not apply because they are the jones. But for a lot of "working poor" lowering the taxes from 25% to 17% makes a real difference, a difference of a kind which may mean that their children will properly be looked after and have all the support to say study and do well in school.
Finally, you say you want Warrent Buffet to keep the money and you don't want people to take it away from him. Well, I don't want people to take my money away through taxes either. No one does. Its not about want, or even opinion, its about fairness. Some of the deficit was built up because the rich pay so little and to ask the non rich to bear all the burden is a double wammy. No wonder you have 250k people protesting in Israel and kids burning chain stores in London.
2) you can't just take property from people based on a such wildly misused and subjective term as "fairness". Running a government is necessary for society to function. Everybody benefits, especially free-riders, crony corporations, politicians, and bureaucrats. The rich have the resources to fund a big chunk of the government, and they get a lot out of it too, sometimes to our detriment.
3) what does our deficit have to do with protest and riots in other countries?
Refresh for me again under what leadership all those started?
But I thought we were talking about economics.
But certainly people interested in a small, limited government aren't going to vote for redistributive policies.
The democratic party and American leftists no longer understand non-college working people and, for the most part, no longer reach out to them. Working people think that the left today advocates either for weirdos or for the completely screwed up, and wants everybody to pay for its programs to help said weirdos and fuckups. There is some valid reason for this impression, with the Great Society programs and affirmative action in the sixties and seventies being partly funded by taxes on the middle classes, along with fiascos like school bussing and over-compensated hiring practices screwing over people who didn't feel like they deserved it. (And poor management of government agencies making them ineffective at cost effective delivery of services.)
However, working people don't see themselves as fuckups (because they're not), and they don't have a lot of patience with weirdos. So they aren't going to feel comfortable with the gay marriage/ social worker part of the left (the old union guys were socially very conservative for the most part).
Also, most of the left today seems to me to be made up of people who really have no connection to actual poor working class people, so there is automatically a divide that is mobilized by the Karl Roves of the world.
Furthermore, if you have ever been lower middle class or "working poor", you learn early that very traditional personal character values can make the difference between you and your family living in a truly shitty situation or rising out of the muck around you to actually have a decent marriage/ nice friends/ safe home. So when college educated lefties come around and tell them to have pity on fuckups and weirdos because its society's fault, or that personal character and traditional values don't matter, any working class person is likely to tell them to go to hell.
So today's Republicans mobilize personal character rhetoric, traditionalism rhetoric, and the cultural non-understanding between leftist leadership and working people, and -- voila, working people voting against their own interests.
Until the left figures out the working classes again -- which means taking the time to show up in the middle of the country, go to church, eat ribs, etc, etc -- Capital will continue to screw everyone. So quit whining about how stupid working class people are -- nobody represents their interests today, neither left nor right, but at least the Republicans pretend.
All the stuff you said is media nonsense and frankly suggesting that the republicans in any way represent the working poor is, well, nonsense. What you seem to be wanting is some sort of friend who can tell you that gays or gay marriage is bad, church is good, though I bet you or the working poor never go, and that character matters, but that this friend of yours takes a lot of your money you desperately need in order to take less from filthy rich people that actually do not need it at all does not seem to matter to you at all or indeed this characteristic of this friend of yours does not seem to bother you at all.
Ohh well, each to their own.
Here's the thing: they did. They just don't know it. The rural populace gobble all sorts of government programs, from farm subsidies to electric power generation. Most of the solid Republican states receive more federal spending than they pay.
And the GOP knows it, so it keeps Farm Subsidies off the table while it takes pot-shots at NPR.
There are plenty of disconnects between them and the white middle-class wing of the party as well, especially around issues like gay marriage and separation of church/state, which tend to be seen as "rich white liberal" issues. But I think it's a bit more complicated than simple conservatism, and it's often more than balanced by significant left-leaning sentiment on economic issues. There is, for example, huge support for social safety nets, welfare systems, socialized healthcare, etc., among the non-white working class. If you put single-payer healthcare to a referendum in black working-class neighborhoods in Atlanta or Brooklyn, it'd pass by lopsided majorities. So I think the left wing of the Democratic party is fairly well in tune with that portion of their concerns, but most of the party is arguably out of touch by not being left enough on economics, promoting more of a middle-class, centrist liberalism that's roughly ok with the economic status quo and not very interested in major social-justice initiatives.
There's also no real cultural understanding between the GOP and this segment of the working class: a good showing for a Republican is 10% of the black vote, almost all of it coming from the wealthier portion (i.e., they only connect on class issues). But I agree that the Democratic connection is not great, either, especially if you take the national party; they're often seen as economic-centrist social liberals, less bad than the GOP but not really willing to fight for the working class on economics (or at least not succeeding at doing so).
There is a Progressive Caucus in Congress but they just don't have the numbers to pass anything, especially with a refusal for any sort of compromise from the Right. And there are simply too many Blue Dogs that will tow the line in the middle.
If someone were a "liberal", it would be best to get progressive candidates in Congress, not just any Democrats.
Now that I think of it, it also matches my experiences living in lower income neighbourhoods.
I'm not sure if this was always the case though. In the 60s and 70s it seemed that the weirdos and labor guys were able to work together because they had the same goals. And we have seen this recently with the labor protests in Wisconsin: they were started by university TA's but picked up by sanitation workers, cops, firefighters and the like.
I don't think it's fair for the working class folks to just write off everyone else just because they're "weirdos." Social issues can be just as important economic ones. Plus I think it's extremely shortsighted that someone will not be able to work with me on shared goals just because I don't go to church or eat ribs. I know these are just examples you brought up, but it's dangerous for people to never reach beyond "one of us."
The mistake of the Democratic Party was to abandon the unions and to embrace corporations as a source of funding. This continues to this day as Obama never supported the Wisconsin workers.
I actually think the "core" of the democratic part / left is the marginalized on one hand, and those that minister to them on the other. The white working class aren't really marginalized like they were in the depression and earlier, so don't fit in anymore -- but the super poor are marginalized, so they fit. Non-whites are interesting -- 40 years ago, blacks and latinos were marginalized as weirdos, except they were poor too (double whammy -- like being gay AND broke all the time). Now that we are actually becoming a less racist and homophobic society (slowly and imperfectly, but definitely) these folks lose their marginalization and drift away from the core since social conservativism and personal character ideologies become more appropriate, unless they go to college and become social workers and join the ministering class rather than the ministered-to class. The Republicans see this with latinos and keep trying to bring them in; they haven't succeeded yet, but they will, just like they did with Italians and Catholics.
The other, maybe dominant group now, in the democratic party are those folks who would have been "Rockefeller Republicans" back before Reagan and Goldwater redefined the party. My family is in this camp, and so are, I think, all the smart capitalists who run/ own businesses that require lots of infrastructure and educated employees -- the Hewletts and the Packards, Bill Gates, Hollywood, Google, the rest of the educated "blue" USA. These guys rightly understand that simplistic market bullshit and simplistic christian bullshit are not appropriate to a complex industrial economy. Remember, Carnegie ordered the slaughter of unionizing steelworkers, but he also understood his world was completely fucked without universities and libraries to make his engineers and managers. He could have been a Clinton democrat today.
A couple of replies to people:
Yeah, Eric Hoffer is great -- I only read the true believer, but it made a huge impression on me; I am sure I repeat him without knowing it.
To the guy who asks why the Joe Sixpack world doesn't evolve its own leaders (forgive me if I paraphrase too brutally): because they lack the training or they wouldn't be joe sixpacks in the first place... It is mostly the managerial class (myself) or the owning class (my friends at prep-school) who have the know-how to organize people into social systems like political parties, churches, businesses, and the like. The working class have great hand-eye coordination, but pretty crappy social and language skills (sorry for the gross generalization, but I think you understand what I am trying to say); those that do have these skills tend to drift upward into the managerial class. When there is no room for these smart organizers to promote, they get involved in union politics or communist cells (or avoid the question altogether by getting involved in the arts/ drugs/ weird religious things / whatever.)
So here is my parting thought: There is a vacuum organizing the working class today, and if someone put their finger on the cultural stuff like the Republicans do, but also fought for working people's actual interests, it could be a WILD ride. Just saying.
I do think however that maybe I'll be able to retire some day before I die. But the likelihood of this is very much affected by LTCG rate, wouldn't you agree?
Now how is it even fair that long term capital gains taxes even exist? I make some money, I pay taxes on it. I buy whatever instrument I hope will be the best at preserving the value of it (since I know if I just stuff the money under the mattress, I won't be able to buy much with it in say 40 years). After 40 years, the nominal price of the thing I bought will have gone up, chiefly due to inflation. When I sell it, I pay taxes again. How is it not double taxation?
Am I the only one that feels some populist rage welling up when he hears how much money is wasted on campaigning for office and influencing people in office? Aren't there more worthy uses of wealth and scarce resources?
And it just pains me that so many people think that they "have to play the game" to get things done by politicians. Non-profit organizations that use large percentages of their spend on "wining and dining" elected or appointed officials to try to make things beneficial things happen. Ugh.
This already happens in judge elections in many states. Certain "business-friendly" candidates are showered in campaign money, with the expectations that when certain cases are appealed those judges will end up making "the right choice".
I've had this idea for a while already. Indeed, it would be interesting to set up a free market system for the governments. US seems to be an ideal place for this sort of experiment given the ease of movement. Competition between states could be quite healthy.
If lobbyist money can affect government policy - and it can - then it is always a worthwhile investment for those who have money to invest.
Basically, decentralizing government is, surprisingly enough, not a magic bullet.
And with campaign contributions? Come on. For the federal elections of 2008, we used $5.3 Billion dollars. What did we get for it? The exact same number of elected officials we would have if we spent $0.
What value was created? Better representatives? Quality entertainment?
What else could that money have been used for? As I said earlier: Ugh.
One relatively easy change that would almost completely remove the quid pro quo bribery effect of campaign contributions is to anonymize contributions so that candidates never know who their contributions are coming from. That way there would be no payback possible, and influence peddling through campaign contributions would become a thing of the past.
Candidates expresses their opinion on X; those with a vested interest in X pour tons of money into his campaign so that the candidate that they agree with is selected. And since that candidate already shares the position with them, when he needs backing from industry that's who he'll meet with.
Anonymizing campaign contributions wouldn't have an effect on political speech and it wouldn't have an effect on who you gave money to. (You'd still be free to say who you contributed to. You'd also be free to lie about who you donated to.) It would only change the way the money was handled, with the ultimate effect of removing the quid pro quo from donations.
It's not bribery to try and support someone whose views you agree with, or to have experts available to answer questions on complicated issues. Remember, campaign contributions don't give them a house, or boats, or planes, etc.
And by corporation I don't just mean GE etc, I'm thinking of any group of people who have a shared ideology and are working to influence policy.
So yes, I agree with you that this kind of corruption is a big problem. But how much money goes around in that circuit is not what concerns me, personally.
http://www.ritholtz.com/blog/2011/07/warren-buffett-i-could-...
Also, he's against having a debt ceiling. "All it does is slow down a process and divert people’s energy, causes people to posture. It doesn’t really make any sense,"
http://www.politico.com/news/stories/0711/59335.html#ixzz1V4...
"I keep waiting for one wealthy, well-known figure to stand up and say publicly that he or she is willing to pay more in taxes as part of the shared sacrifice necessary to gain control of the country’s deficit."
http://www.nytimes.com/2011/08/09/opinion/nocera-while-the-m...
By their very nature taxes are not voluntary, they're taken by force of law. Don't pay them then go to jail.
This is a stupid (but very easy) argument to make, one (of the richest)rich person says he'd be happy to pay more tax, therefor all rich people should pay more.
If he really wants to make a difference he'd be way better off spending his money on charirty, then it's not going to be entirely eaten up paying for beurocracy. THe government is not efficient AT ANYTHING.
When you pay taxes you're funding all that crap you don't agree with. Wars, funding for lobbies, paying politicians fat saleries, all those police raids on pot smokers etc. Why the hell would you want to give more to that?
Maybe true, maybe not, but totally irrelevant. Taxes solve the free rider problem. Individual charity can't.
The US's tax burden is already the lowest of the OECD countries bar Chile and Mexico. It's 30% lower than Great Britain, and half that of Denmark. And what that hides is we spend an extraordinarily large portion of that on "defense", so in terms of money spent on citizens, we're necessarily lower.
But if that's still too much governmental interference, then tax haters are able to select from a wide variety of third-world countries. I might suggest Somalia, where effective tax burden is zero. There being no effective government at all, of course.
Where I get nervous is all the Democrats who seem to think that there is no difference between $250k and $1M/year and up. I get kind of ill seeing obscenely wealthy Democrats in Congress, almost all making MUCH more $250k, trying to lump my household in with the rich. I'm willing to pay more, but not if these wealthy Democrats won't create a distinction between $250k/year, $1M/year, and $10+M/year.
Second, assuming earned income (which is fair even for $250k earners), a median income household will be in either a 15% or 25% tax bracket (depending on if married). A $250k household will be in a 33% tax bracket.
Now, if your $50k household is in a 25% tax bracket, they're paying $12.5k so leaving a net income of $37.5k. Your $250k household at 33% are paying $83k, net income $167k, 4.4 times the net income of the $50k household. So what was your point exactly?
What many don't get is that the bottom of the top 1% includes doctors, attorneys, and entrepreneurs.
(Don't have anything to back this up, just the impression I get from reading bits and pieces on the issue)
http://www.fms.treas.gov/faq/moretopics_gifts.html
One has to ask, if any super rich person really considered the U.S. Government a worthwhile investment, why are they donating to various charities instead of to the Treasury?
Who pays what in taxes is really a diversion.
The "who" is actually pretty important.
Tax the working man more, and you'll discourage working. Tax the rich, and he might move to another country.
There are many ways to raise money for the state, and none is really "fair". There will always somebody who'll be screwed in some way.
Most major donors contribute to things they can put their name on like buildings (see Stanford campus). It's difficult for even most charities to cover operating costs (i.e. labor) with only donations. Most have to apply for grants or do lots of funny numbers to keep their administration costs (i.e. labor) low.
as greenspun says: "The federal government funds roads and airports that we all enjoy using. The feds pay for health care for the poor and the old. Our tax dollars pay for intrepid military personnel who go out and kill angry foreigners (in most cases) before they can arrive on U.S. soil and kill Americans here at home. For a non-profit organization of its size, the federal government is surprisingly efficient. Most federal employees work in big box-like office buildings, not in $300 million monuments to an architect's ego. George W. Bush gets paid only $400,000 per year, less than half of what a lot of university presidents earn."[1]
I personally have a somewhat less charitable view of effects of military action, at least the military action during my lifetime, but I do think that most of the personnel involved do believe that they are doing the right thing, and those other things, roads and healthcare and stuff; those are pretty great to have.
Now, I'm too lazy to dig up non-greenspun references, but it seems that many non-profits serve up rather nice salaries, for rather inefficient work[2]
[1]http://web.archive.org/web/20090217002255/http://philip.gree...
[2]http://blogs.law.harvard.edu/philg/2010/07/27/where-your-cha...
The American Red Cross, a large, established, and reputable charity, has about 9% general and administrative costs: http://en.wikipedia.org/wiki/American_Red_Cross
Medicare, a large, inefficient government fiasco (note: irony) has 3% overhead: http://healthcarereform.procon.org/view.resource.php?resourc...
Many charities do far worse than the ARC.
If tax rates are going to be paid and progressive (they actually aren't), then they'll have to be coercive. I think what Mr. Buffet is arguing here is that the rich need to be coerced into paying more in taxes than they currently do. I'm inclined to agree with him, even if I have to hold my nose as I do.
What he's saying by advocating tax raises is "I will pay more if I know that everyone else will also pay more." He's not interested in paying $XM to reduce the debt by $XM, but he would happily pay a personal cost of $XM if it meant reducing the debt by $XB.
(This is called "collective action," and it's also Groupon's business model.)
No he isn't. He's saying precisely the opposite:
"I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax...But for those making more than $1 million...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...I would suggest an additional increase in rate."
More is a relative term, for instance he's not being taxed out of a holiday, eating out one or two times a month, having enough food to support his family, etc.
The utility on that 7million is much lower for him than say 20k a year would be for someone making less than 100,000 a year.And no I am not talking utility, but cold hard cash numbers.
You rent, electricity, food and clothing doesn't go up because you double your income (unless you move, but then you presumably get better housing too). Why should your tax?
As a business owner, I am perfectly happy to pay more as my income goes up, because my business depends on a well-run society in a million ways.
For the anecdotal insight on this: paying about 20k a year in federal taxes with my current annual salary is nothing compared to the impact of the 5k or so a year in taxes I paid when I was a poor waiter/college student in terms of its impact on my budget. At this point I could easily pay out an extra 10 or 20k with out severely impacting my quality of life or rate of savings; corollary, a few extra thousand back when I wasn't making all that much money would have been the difference between sleeping on an air mattress versus a real bed, or having enough good (as in nutritionally worth while) food to eat.
So yes, your tax should go up with it as well.
I really like open debate and discussion, but why do we go through this charade of nitpicking? It's clear that my post supports progressive taxation, so why get all crapped up about some non-existent ambiguity around the word more. If you're opposed to progressive taxation, and you think that warren buffet pays so much "more" in the absolute under a regressive or flat tax that it's fair to tax him at a lower rate than your average middle class worker, by all means, express your opinion. I certainly wouldn't downmod someone for disagreeing with me, and I think that probably goes for most of the people on hacker news.
That's the real rub about this deficit/debt limit drama: it wouldn't be so bad if the government spent in areas to increase future GDP. However, the government is basically an old-age insurance program with a large army. I don't see these expenditures contributing greatly to future GDP.
If believe A should B I am A Therefore I believe I should B.
A = rich people B = pay more taxes
That, combined with a few other similar changes (mortgage interest deduction, maybe funding ssi and medicaid separately from old age and medicare) and huge cuts in defense (due to ending 1-4 of the wars), seems like it would be fairly effective.
What I'd like to see is a flat income tax for ordinary and dividend/capital gains at 25-35% for all income, huge cuts in spending, combined with a single refundable tax credit set at ~subsistence income, universally applied. However, that's a much bigger change and pretty unlikely to happen.
I've always heard that this kind of policy would add little to revenue, because there is simply far more tax money available by taxing earned income.
Also, isn't getting more money better than not getting more money? (NOTE: We certainly need to slow our spending, as well, but I fail to see how an increase in revenue is a bad thing.)
As to the additional revenues Buffett wants from the 236,883 richest households, if we assume the average of those households had taxable income of $5 million and if we raise their rates by 10% we get $118 billion.
from the article: >In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
Buffett doesn't differentiate the Walton kids who inherited billions and assuredly live off capital gains their entire lives from the entrepreneur who makes $10M that ONE year of his life that he sells his company.
Buffett claims that the tax rate in fact was of no consequence to his behavior. Well, I guess if you're in the business of speculation, that's true... you must invest/speculate because that IS your job.
But the same is not true for entrepreneurs who build stuff. What's the entrepreneur's incentive to build his company and to wait to reap his gain if his gain is taxed like ordinary income? Why not just pull income out of his company instead of reinvesting it? On the margin (that's the key), this tax policy will affect entrepreneurs decisions.
I've read Snowball, Buffett's biography, and it's pretty clear Warren has never built a company that serves customers. He's always been a speculator.
Bottom line, Buffett's proposal would have punishing consequences on entrepreneurs who earn big windfalls a handful of few times in their lives. That absolutely WILL have consequences on entrepreneurs decisions and risk/reward tradeoff.
Unless a policy to tax the super rich is proposed that doesn't somehow have that pernicious side effect of treating entrepreneurs' gains as earned income who see precious few windfall gains in their lives, I'd never support it.
There's a reason why society created lower tax rates for capital gains. Perhaps we should go back and study them.
First, we're talking about the difference between ~20% and ~30%, so for your case, the business owner will only walk away with 7 million dollars to retire on. Is this entrepreneur undergoing undue hardship?
What's barely any income for someone who builds a $10M company? 60k? 50k? It's certainly not $10,890 (the federal poverty level). Even if we're talking about a business owner who takes no income, it's because they're living off of the money they've already earned, not because they're taking welfare checks while running their business.
I would alo like to remind you that your typical employee, who's paying the higher tax rate, will be laid off in years of recession, may have to take a lower salary because of outsourcing, etc. I'm not going to classify one hardship versus the other, but I do want to point out that the business owner usually has a higher mean salary, even if the variance is larger.
You ask what the entrepreneur's incentive is if his gains are taxed like ordinary income? That's simple: money, and lots of it. Business ownership is a risk, and it comes with a reward.
Do you really think that a higher tax rate will stop an entrepreneur from creating a company? I dare you to head down to Startup Camp, and ask anyone there if they are planning to start a company because they expect to receive a lower tax rate. I can save you some time: they won't. There's a passion and a drive that accompanies entrepreneurs, and they will start companies because that's what they want to do, what they need to do.
If entrepreneurs choose to take a higher salary during the course of the business, that's fine, it's just tax planning. Anyone with sizable income does it.
You say there is a reason why society created a lower tax rate for capital gains, and that's true, but the economic situations of those times were different than now. I would suggest to you there was also a reason why there were bloody revolutions against the aristocratic class.
The rules of our society must continually adapt to the situation at hand. We are currently in the middle of the two extremes mentioned above, I just hope we realize it and don't get too far to one side or the other.
No, but more likely to sell early, give up more easily when the going gets tough, not invest as much in growth (and pocket the profits)... Yes. This is all about decisions "on the margin." It's truly a canard to suggest, as you do, that incentives don't matter.
"there was also a reason why there were bloody revolutions against the aristocratic class"
Please. Would you rather make $70k/yr today or $70k in 1900. Let's not pretend the pie is smaller today for those in middle or even bottom.
Simply put, I don't trust the government with that money.
I would pay higher taxes to keep it that way.
The sad reality is that the government is going to have to raise revenue somehow, and if that's the case, I'd prefer to raise it on those with a lot of passive income, who are less likely to move their assets out of the country. How you achieve that objective is beyond me.
The only logical conclusion there would be moving out to a different country that offers equal or better living standards because the longer you stay, the more money you give to that government you do not trust.
The owners of corporations are the people being taxed by corporate income taxes, since without these taxes, that money would be theirs to spend as they wish, either by investing in their business or taking it out by paying dividends.
Well, no.
Without a corporate income tax owners can withdraw the incomes minus dividend taxes. With corporate income tax they can withdraw income minus corporate income tax minus dividend taxes. How can you say they're not the ones paying the tax when the money could go directly in their pockets if not for the tax?
To say that corporate money belongs to the shareholdes is to trivialize a very intricate balance of powers.
Corporate income tax is a tax on corporate income. You can't call it shareholder tax any more than you can call it employee tax (or employment reduction incentive, if you will), or manager bonus tax, or capital re-investment tax. It's all of the above, and then some. It's not just one of the above.
Entertaining the discussion on the merits of taxation, I've found John Rawls' Justice as Fairness to be especially enlightening. (http://en.wikipedia.org/wiki/Justice_as_Fairness) Essentially, a just society is one in which decisions are made to benefit the worst-off in society. Given a majority of the factors that contribute to individual success are outside our control (what family you were born into, what neighborhood you lived in, what school you went to, etc), a just society would in turn be one which compensates for such naturally-occurring inequalities. He provides a well-thought out argument for how progressive taxation is a necessary (but certainly not sufficient) lever to do so.
Now in practice, it is true that our government has been terribly inefficient in managing tax revenue and creating public goods. But that shouldn't discount the role government can play. Realizing the potential reach and role of government, the goal shouldn't be to neuter it, but to make it more efficient.
On Buffet's central points, I find them hard to argue with. 1) Lower taxes on the rich in the last 10 years have been neither necessary nor sufficient for economic growth or job creation, especially in light of the 20 years before that. 2) The front-end drivers for entrepreneurs, VCs, and angels have more to do with product creation, addressing a market need, and simply playing the game. Money is of course a big part in too, but tax cuts only play a back-end behavioral incentive- they affect the NPV of behavior that was already in play. 3) Just because the actual tax revenue on the rich may not put a huge dent on the deficit (as some comments seem to imply), the point is that the billions in tax revenue it would raise could still stave of cuts to programs that the poor and middle class depend on.
(And larger food for thought on the role of tax cuts, and how they've contributed to the deficit http://www.theatlantic.com/politics/archive/2011/05/the-char...)
You have to tax the money that doesn't move. The millions of unneeded unspent $ that the rich are sitting on, with a wealth tax. You may not even make the poor richer, but you will make the rich poorer. Good.
"Unneeded, unspent money" is none of your business. It's not your money.
Want money? Work for it. Save it. Earn it.
You've focused on one half of the equation to come up with obvious but irrelevant conclusions.
For instance, how does inheritance fit into your model?
From the article, there are about 200,000 people with income of $1M+. Let's make it $5M per person. That's 1 trillion USD combined income.
The rest of the taxpayers seem to be about 200,000,000 with an average income of about $25,000. Combined income = 5 trillion.
So, if they reduce the tax of the bottom group with 2%, as Mr. Buffet suggests, the tax of the upper bracket has to be hiked with 10% just to compensate. And if we add another 10%, just for the fun of it, that's 100 billion taken from the rich but it's still a measly part of the budget (around 3 trillion) not to mention the debt (15 trillion). And don't forget that people with 1M+ income have a vast number of legal and semi-legal tricks at their disposal to reduce their tax rate. The moment you increase the tax too much, you start seeing money flowing to offshore locations.
So, while "tax the rich more" and "let them share the burden" are great feel-good slogans, I don't think they offer any practical solution for the huge USA deficits.
It says average income for top 0.1% is $3M and those 200,000 are exactly the top 0.1%. I'm not sure where the huge discrepancy comes from, when it comes to the total personal income stats you posted and I hope someone can clear this up.
Buffet, and people like him (Gates, Jobs, Welch, etc...), while great businesspeople are used to being able to say something and everyone jumps. In business, everyone is working together to make the company more money. With some exceptions, you can create an incentive structure that rewards that.
Government, in the US at least, is very different. Buffet would be dealing with people, congress, who will certainly not jump when he says something. In fact they'll often make themselves completely unavailable. He'll be in a situation where people will actually do things that harm the country if they could remove Buffet from office (to get someone from their party in office). In government, you don't negotiate in good faith.
And Buffet wouldn't be able to fire anyone in congress. I suspect one of the first things Buffet would say after working with congress is, "I'd fire half of these bozos if they worked for me!" Unfortunately, these are the people who will decide what legislation lands on his desk.
I feel like gang leaders are the people who best understand what it would be like to be President.
We already lean quite heavily on the top 1% - the top 1% actually pays more in taxes than the bottom 90%.
http://www.taxfoundation.org/news/show/22652.html
A graph of the data in that article:
In terms of taxation of the top 10%, the US is the most progressive country in the OECD.
http://www.taxfoundation.org/blog/show/27134.html
Maybe the tax code needs tweaking at the level of the top 400, but it's very progressive up to the level of the top 1%.
If you read the whole piece, that's exactly what he says.
Do you actually know anybody at the bottom? I would be fascinated to hear what you'd suggest someone cut when they're earning ~10-15k/year.
For those likewise unfamiliar, I recommend sci-fi author John Scalzi's "Being Poor": http://whatever.scalzi.com/2005/09/03/being-poor/
Both the article and the comments are worth reading.
yummyfajitas lives in Pune, India. Read through his comment history for comparisons of the rich in India to the poor in the US; it's eye-opening.
Also, I utterly refuse to accept third-world conditions as a baseline for "poor enough". You might as well use the 15th century for all the relevance it has.
Regarding wrong, The bottom 0.2% don't even have housing, which is going to make a game console hard to use. The I was talking just this morning with somebody doing financial literacy programs, and they decided against doing a web or smartphone tool because most of the people they are trying to reach don't have regular web access. And that's in the San Francisco Bay area, where tech adoption is very high.
It's irrelevant because having a few hundred dollars worth of consumer electronics says nothing about whether they have important basics like physical safety, a sound education, decent medical care, regular dental care, reliable transportation, clean water, and healthy food. All of which are necessary for people to reach their full economic potential. That shit costs a lot more than a game console.
My family immigrated from a third world country and the adult members earn ~$20K salaries. The children have a free and subsidized $10K+ education, is safe (yes, the ghetto isn't on high alert for drive by shootings 24/7), have access to clean water (yes, we use the same water that you use), healthy food which can be purchased at Walmart for a price much less than prices you can pay for food at a fast food restaurant. (Yes, we all don't eat at fast foods).
We also have access to the free emergency room when needed, and dental services for my family goes for about $35 per visit (it's subsidized in a lot of cases actually). The poor in America do not live like the poor in third world countries. Quit insinuating that and stop assuming how poor Americans in 2011 live. We're not as poor as you make us out to be.
http://www.census.gov/compendia/statab/cats/income_expenditu...
The use of subsidized education and dental services helps to prove my point, which is that the poor in America don't have much to give up, and need the assistance (government and otherwise) that they're getting.
Also, emergency room access does not equal medical care. It does mean emergency care, but it does not mean preventative or chronic care. For example, it means you won't have a doctor helping you avoid diabetes and you won't get your diabetes treated. However, they will amputate your gangrenous toes once the disease develops that far.
I'm really glad that your family has done well. Every family should do at least that well. Many don't.
It's much, much cheaper to buy rice, beans, corn, potatoes, and pasta and supplement with cheap proteins (eggs, chicken) and cheap fresh fruits and veggies (melons, bananas, apples, cabbage, carrots; see the list starting on page 34 of http://www.ers.usda.gov/Publications/EIB71/EIB71.pdf ) Page 36 of the same report shows how an adult on a 2000 calorie diet can meet their recommended fruit and veggie intake for about $2 per day, with a pretty good variety (including some expensive options like strawberries.) This is more or less how I eat, and I'm just above the poverty line.
Similarly, the people aren't starving, but that doesn't not mean that they aren't poor - if "electronic gadgets and absence of famine" is all you need to define as "not poor", I disagree with you.
Of course, I didn't need that to know where he went wrong: I know actual poor people in the US. Maybe you should go meet some.
Maybe you shouldn't generalize about poor people.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=2363 http://en.wikipedia.org/wiki/Poverty_in_the_United_States
The poverty line for one person is $10.9k. For a family of four, $22.4k. That covers circa 15% of the population. For comparison, the median income is $44k, so if you're making $30-40k per year (assuming two salaries) then that's not far from the average American household.
Or are you merely dismissing them as "handwaving" because they don't fit your preconceived notions?
I don't agree or disagree with your statistics. They're irrelevant, because Scalzi is describing things he has seen, and that match things I have seen. In the lives of actual poor people. In the US.
Please quit it with the BS. You're not poor. You're not around poor people. Stop describing how poor people live.
I am definitely not poor now. But we were poor when I was a kid, and only made it through via the help of family and government programs. I am still in regular contact with people who are not as lucky as I was. So enough with your baseless assertions, ok?
However, to answer your question, yes. I know poor people. I've lived most of my adult life in poor neighborhoods. My experiences tend to agree with what the official statistics say - most poor people eat enough or perhaps too much (virtually none are underfed), don't work much and do not live in overcrowded homes.
These are the specific points on which I disagreed with Scalzi. I cited statistics which back up my position.
You are also dodging a question, so I'll ask it again: which set of statistics do you disagree with? The BLS, the Census or the USDA?
"We already lean quite heavily on the top 1% - the top 1% actually pays more in taxes than the bottom 90%."
The chart of course only shows federal income tax.
What about federal payroll? What about excise taxes? And at the state and local levels, what about sales taxes?
Here's a much better link:
http://www.wweek.com/portland/article-17350-9_things_the_ric...
From this article you'll note:
This year the first $9,350 of income is exempt from taxes for singles and $18,700 for married couples, just slightly more than in 2008. That means millions of the poor do not make enough to owe income taxes.
But they still pay plenty of other taxes, including federal payroll taxes. Between gas taxes, sales taxes, utility taxes and other taxes, no one lives tax-free in America.
When it comes to state and local taxes, the poor bear a heavier burden than the rich in every state except Vermont, the Institute on Taxation and Economic Policy calculated from official data. In Alabama, for example, the burden on the poor is more than twice that of the top 1 percent. The one-fifth of Alabama families making less than $13,000 pay almost 11 percent of their income in state and local taxes, compared with less than 4 percent for those who make $229,000 or more.
and
It’s true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.
Social Security, Medicare and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That’s because, once you reach $106,800 of income, you pay no more for Social Security, though the much smaller Medicare tax applies to all wages. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800.
Don't let some fool you into believing that the poor don't pay their share of taxes. They do.
I gave the best data I have access to.
With regard to state taxes, this report gives a pretty thorough analysis for all 50 states: http://www.itepnet.org/state_reports/whopays.php
It's pretty evident from the data in this report that state taxes are very regressive in most states, mostly due to sales taxes.
I agree that payroll taxes are regressive past $106k, but it's hardly clear that this changes the picture significantly. I.e., the 12.4% a poor person pays in payroll taxes need not outweigh the 0% they pay in income taxes.
First, it omits estate (inheritance) taxes.
Second, the use of the federal itemized deduction offset is very misleading, given that the deduction's purpose is to avoid double taxation in the first place, and that the money states get from the federal government comes almost exclusively from progressive sources.
Third, the intersection of the previous two. Most of the difference between brackets regardless of states is accounted for by the wealthy paying very little sales tax. They pay very little sales tax because they consume very little of their income. What they don't consume ends up being taxed in the estate tax mentioned earlier or given to charity neither of which are included in this report but both of which pay for similar things to state taxes (helping the poor, schools, libraries, parks, etc)
http://www.cbo.gov/doc.cfm?index=3213&type=0&sequenc...
These federal income taxes aren't lies.
Now suppose you had a million dollars (and just a million, ignoring these billionaires for the moment). That mean you could risk, without really blinking an eye, $900,000 on any investment; even if you lost every penny, you'd still be left with enough to live "well" and feel pretty "rich". At no point would you fear missing your next meal or losing the roof over your head, and you probably wouldn't care if you had a job. Of course, the odds of losing all $900,000 are slim; you'd probably see some payoff, and never really approach that unfortunate low.
Rich people will always have opportunities to make money that the poor will never have. Even if you tax a millionaire or billionaire at a very high rate, they'll have enough money left over to take many risks and very likely end up richer anyway. At the very least, they won't miss the money that went to taxes.
Now suppose you only make $15,000/year. Not only would it take years to reach the above "rich" $100,000 level, but you'd be insane to risk much of that low income on any investment: failure means you come out with zero and miss your next meal and lose your house. If they're lucky, these people may have a handful of investment opportunities and ways to become richer; if they screw up, most of those opportunities go away forever. Taxes at the bottom won't fix anything at all.
So, after all the toys, investments and securing your offsprings, you are still left with a HUGE amount of money and assets which you will likely never make any use of anyway.
I know this goes against our ideals and system of capitalism but: if such a limit exists why not cut billionaires off above it and give the exceeding money directly to the government or charity?
Yes, there are a lot of people spending mega-bucks on what I consider frivolities -- utter waste.
But, there are others starting space programs. I don't want to lose the latter.
Now, suppose we wanted to cap individuals at say $2B. How would this actually work? That's not cash that's lying around. Almost all of Buffett's wealth is in equity of Berkshire Hathaway. He can't sell that without also losing ownership of BRK. Is BRK worth as much without Buffett and/or the people he's explicitly groomed?
Billionaires are billionaires not because of their income, but because of the assets that they control.
It’s true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008. But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.
Social Security, Medicare and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That’s because, once you reach $106,800 of income, you pay no more for Social Security, though the much smaller Medicare tax applies to all wages. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800.
Unnecessarily inflammatory remark.
I want to know how many dollars they should pay in taxes. So, we've said social security and medicare is $2,066. How much should a family of 4 making $27,000 be taxed?
A portfolio company makes $1 in income. Without any taxes, Warren could put $1 in his pocket if he wished. Instead the portfolio company (Wells Fargo) pays 33% taxes, then the holding company (Berkshire) pays 29% taxes, then Warren pays 15% dividend taxes. In the end it's 59%, all of which is really truly a tax on Warren once the smoke and mirrors go away. (- 1 (* 1 0.67 0.71 0.85)) => 0.595655
So right now 7 out of 12 months of his income is taken by the federal government, and he thinks they should take more! Maybe 9 out of 12 months, where ideally (in his mind) the state government would then come in and take the rest.
I've learned something from Mr. Buffet.
And which entrepreneurs would be stupid enough to work 14 hours a day and hire workers, knowing that the government will tax them 90%? They would all flee the country.
We have too much debt, period. From military, medicare, and social security spending. Problem is, if we reduce any one of these, either our soldiers returns home broke and angry, or the seniors die of starvation/disease. (35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone. Median retirement savings of households over the age of 65 is less than $45,000).
Tough choice. But it looks like the current politicians aren't going to make a decision, but let Bernanke print dollars until hyperinflation arrives.
http://english.alarabiya.net/articles/2011/03/10/140943.html
Btw, the Bush tax cuts — costing $1.8 trillion from 2002 to 2009 — are a big reason we got into this deep hole.
Buffet: I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.
US debt to bondholders is around $14.5 trillion.
The US also promised Medicare and Social Security payments to retirees that are underfunded by $59 trillion:
http://www.usatoday.com/news/washington/2007-05-28-federal-b...
The numbers will vary here according to longevity and interest rates, but the bill is huge, and it will have to be paid with tax money.
By this logic, we should undo the large increases in government spending since 2000 as well. Works for me.
Can we have our Goldman bailout money back now?
Yours,
The U.S. Taxpayers
To be honest I am not following your points at all well.
For such a high amount of tax, I enjoy a very high standard of living. A four year software engineering degree cost me about $18k due to our sane education system, and I've never had to worry about whether I can afford decent healthcare or factored health insurance into career decisions.
Our high tax rate is offset by lower costs for universal services, and people generally have more freedom with their life decisions. As such, a substantially lower tax rate or major cut in social services would be disgusting on moral grounds to me, and I feel that your government is screwing its citizens by doing just that.
While it's now mighty generous of Buffett to invite the government to increase his taxes, he could spare us another (http://www.cnbc.com/id/40229527/Warren_Buffett_s_Letter_to_U...) nauseating and embarrassing New York Times op-ed and instead put his money where his mouth is. As another poster has noted, the Treasury will gladly cash Buffett's check (http://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm).
A narrative convenient for powerful banks that was created by powerful banks and allied politicians. People have suffered and continue to suffer because of the crimes these institutions have committed. Propping up their corpses only helps the criminals who created the situation. Clearing out bad businesses so that new ones can take their place is a central pillar of capitalism. If you really believe a bunch of billionaires who claim the world's going to end if they lose their billions, well, you're gullible at best. Far from forestalling suffering, the continued operation of these entities and their influence on legislation perpetuates it. Their collapse is the best thing we could hope for, even if it causes short term turbulence.
By the way, the argument that nothing needed to be done is opposed to practically every economics departments' opinion in the country. Maybe you know more about economics than we all guessed, but I think it's time you show a PhD instead of arm-chairing here.
The amount of money the US has pumped into its corrupt financial system is enough to put its entire population on welfare for years. A sane approach would have been to let the banks fail, let the markets tank, and ease the transition as needed with bottom-up debt relief and aid.
The banks should have been allowed to fail. The only reason capitalism works is by providing a huge incentive to do things right. Bailouts like these will convince companies they can get away with the same thing in the future.
The point was that you didn't have a domino effect that took down the whole world economy (no industry that is bigger than a corner store can function without a banking system). Throwing out the baby with the bathwater just so you can punish some people is counterproductive.
Buffett didn't sit idly by while his holdings were threatened. He lobbied for, and supported, bailouts.
Not content with bailouts of companies he owned large stakes in, he made sweetheart deals to invest in Goldman Sachs and GE knowing what was going to happen. Have you ever explored those?
If his GS and GE investments aren't convincing enough, here are a few choice examples of the Oracle of Omaha's hypocrisy:
1. While he promotes higher tax rates for high-earning individuals, he lobbied against a tax that would have sought to recoup TARP losses from bailed-out banks (see http://abcnews.go.com/Business/buffett-bank-tax-higher-rich-...).
2. Buffett once famously warned that derivatives were deadly, but when it came time to put his money where his mouth was, he lobbied against proposed derivatives regulations that would have cost Berkshire billions (see http://www.independent.co.uk/news/business/news/buffett-lobb...).
3. In 2010, Buffett once defended the ratings agencies (see http://www.wnyc.org/articles/wnyc-news/2010/jun/03/buffett-d...), but apparently he's only willing to defend them so long as they agree with him (see http://www.foxbusiness.com/markets/2011/08/05/buffett-to-fbn...).
Bottom line: whatever one may have once thought about Warren Buffett, his actions over the past several years make it clear he is no investor, he is a corporatist. And quite a successful one at that.
Oh, and Warren Buffett plans on donating the vast majority of his wealth away upon his death, so I usually give him the benefit of the doubt and believe that his suggestions are intended to improve the economy as a whole rather than build up wealth. What's it matter to him if he makes or loses another billion when he's giving it away in the end? Nah, I think he's a good guy.
I sincerely believe that he was in favor of the bailouts because he thought that it was the least bad option at the time. Without more liquidity in the system, things could have turned out much worse than they did.
Sweetheart deals in GS and GE? Buffett had lots of cash and they needed it, so he made deals that were very profitable to BErkshire and they took it because they didn't have a choice. I'm sure he expected the government to step in because it was obvious to him that they didn't have a choice, but I don't think he had inside information.
Buffett has explained his derivative investments in recent annual letters, and his explanation made perfect sense. I'm sure you can find it, it was probably in the 2009 one ±1 year.
Both Buffett and Munger have been very critical of rating agencies and accountants, but I'm sure they've also defended both against criticism that they think is unfair. It's not because you're wrong that you're wrong in all ways, always in bad faith, and about everything.
The ones that Buffet has invested in are way more straightforward, don't pose any systemic risk, and have very different collateral requirements than the toxic stuff.
Yet he is the only one who amongst the super rich in America who is talking about raising taxes. He is doing this specifically because of the positive impact it would have on finances for the country, despite the fact that this would have a disproportionate/fair share effect on his tax payments.
Citation needed.
There would still be demand that needed supplying, no? Some non-criminal companies would have happily stepped up to fill that void.
If that had seized, it would have been far worse than the bailouts.
Unfortunately, there should have been at least civil penalties (and probably criminal pentalies) associated with building and hiding enough toxic assets to tank the banking system. The real travesty was not the bailout, it was that there were no negative consequences (relatively speaking) to the people who caused it (which is a tough question to answer, but not enough effort was made, IMO).
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#P...
Just in the interest of precision: it's actually our national debt which is approximately 14.6 trillion. Our deficit this year will be closer to 1.5T.
http://www.cbo.gov/doc.cfm?index=12039
Not that they aren't both mind-boggling numbers
By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.
Adding in this year's deficit, it comes out to $13.5 trillion.
http://www.rawstory.com/rs/2011/07/21/audit-fed-gave-16-tril...
Look, consider this analogous situation. You're having trouble meeting your short term debts but had a solid line of income so you come to me and say, "I need $10 for lunch today but I can pay you from my paycheck at the of the day." I know you have a job and confirm your paycheck so I say, "OK. I'll lend you the money." So Monday comes and goes and you pay me back. Now, times are tough so you have to do this for a full 2 weeks before you can get back on your feet. During this time I lent you $10 on Monday, got payed back on Monday, $10 on Tuesday, etc. At the end of the two weeks would it be accurate to say I lent out $100? No, because I only really lent out $10 at a time. In fact, I really just lent out the same $10 ten times.
This is exactly the same situation. The $16 trillion is in total amount of money lent but it doesn't actually reflect any amount of money lent at any given time.
I will no longer argue this with you as it is clear you are not interested in logic. I am not interested in clouding a debate with emotion so I'm done.
Personally though, he already gave away most of his wealth to philanthropy via Gates Foundation.
If you really want to see something get passed, you're better off putting the cutoffs at $5mil and $25mil(maybe even slightly higher). The $1mil cutoff sounds nice in a soundbite and it polls well, but it's not hard to find sympathetic faces(small businesses and large family farms) who would get caught up in that. His cutoffs would end up hurting the the "upper middle class" and the "lower rich" more than the "super rich".
And if you want "shared sacrifice", you should be talking about a consumption tax.
What this country needs most is a firm federal spending cap at 20% of GDP. There would be less opposition to raising taxes and balancing the budget if the measuring stick for spending wasn't tax revenues but the GDP.
Consumption tax would likely put an undue burden on the poor because where as the rich invest and save a large portion of their income the poor spend close to 100% of what they make on things like food and housing.
I understand perfectly... go ahead, put the cutoff at 1Mil and you're going to lose politically.
"Consumption tax would likely put an undue burden on the poor"
I don't care... I'm mocking the idea of "shared sacrifice"... the poor pay almost no taxes.
I'm mocking the idea of "shared sacrifice"... the poor pay little taxes, if they're not giving anything up then they're not sacrificing anything.
Seriously folks, it's a red herring, an issue created to make sure that one party has something to fight the other party over. If you want to sack the rich, have at it. Just don't pretend that by taking that position you are doing anything at all for the national treasury. Or poor folks, for that matter.
In the larger picture, many technologists view the state as something of the past. Tens of thousands of people make their money simply because computers are hooked to each other over wires. It has very little to do with national budgets or policy (yes, you can throw out a bunch of silly nonsense about national broadband policies and such, but let's get real: this economic activity takes place in all sorts of various scenarios.)
So if you are the type to sit around pining away your day, thinking about all those super-rich folks and how good they have it, I'm sure this will be a fun article for you. If, however, you are concerned with public policy -- and the fact that in the US, at least, the majority of people do not even pay an income tax, yet vote on the rates for the rich minorities (gee, wonder how that will turn out?) then this is all so much posturing.
I don't feel a need to slam Buffett. He's a patriotic citizen who means well. Smarter guy than me in a lot of areas. I'm just not sure that this article has anywhere near enough merit to have 500+ points on HN. It offers no solutions, only rehashed populist tripe. If you want to set the income tax at 95% of all money made over a million bucks? Have at it. It's not important.
1 - http://www.moneycontrol.com/news/business/interesting-number...
Money, especially money of this scale, works for people. It will find the best spot to stay untouched and continue to work. You don't pay an accounting firm and tax lawyers in the six or seven figures for nothing. In fact, many argue that the way you get rich is to be a better steward of money than the other guy. If you took 100 people, gave them each a million bucks, in a year only one of them would probably have kept it and increased it. Odds are that was the guy who was already rich to start with -- who already had good habits and wise spending strategies.
I mean honestly, there's a wee bit of irrationality in Buffett's position. You don't get wealthy by putting your money in places where it disappears, so why would somebody who was super frugal and managed to plan where each and every penny went leave his money in a spot were it would decrease drastically if he didn't have to? Buffett's going to haggle and fight tooth and nail over some small sub-percentage points on a huge acquisition and then not manage his own money so that it works optimally? Huh?
But you asked for something solid, so here's the result of some random Googling. Note that it's a little unfair for this author to use the current year's deficit in this calculation, but then again with growth rates where they are it's only a decade or so until such spending will be commonplace even in a frugal environment.
There are about 400 billionaires with a total net worth of around $1.3 Trillion.
Seriously, this entire discussion all boils down to how honest you can be about how the system is broken, not which party is to blame, how much the rich should pay, whether or not we need more or less government, or any of that. All of that nonsense is just bullshit to keep you coming out to vote.
I'd also point you to a graph of total debt as a percentage of GDP. http://www.usgovernmentspending.com/federal_debt_chart.html Even if you argue that the last year or two is somehow "special" (A common theme when its your guys spending the money) It's plainly clear that the trajectory leads to default in a very short amount of time.
I wouldn't agree with that. I would say that the problem is fighting two un-funded wars coupled with a decrease in revenues caused by the Bush Tax Cuts. Long term we have issues with popular entitlements such as SS and Medicare. But our immediate problems are generally due to the drop in revenues from the Bush era and an massive increase in military spending.
Though, that's actually wrong, too. 98% of small business tax filers earn less than US$250,000 a year, yet account for 64% of the job creation (or "net new jobs") in the last 15 years and employ over half of the working US population [1].
I'm sorry, but the rich are not bothering with a <$250k a year business if they're already rich, unless they're serial entrepreneur, hyper-multitaskers juggling multitudes of them at once. And, aside from Elon Musk, how many do you know that are willing to do that?
This whole mess is the placation of the rich because they'll "move" if we don't give them everything. The question is, what country would they move to? I mean, I'm sure Singapore is nice and all; but it's hot as hell there, and don't they have Universal Healthcare with government-mandated price controls, which is supposedly every rich man's nightmare according to Fox News?
Russia is nice, too, I suppose. If and only if you're former politburo or an officer, or just a jackbooted mafioso thug (or willing to take any or all of those on without Uncle Sam backing you up).
Hong Kong is part of a communist country that only recently has conveniently added capitalism to their repertoire. If that doesn't work out for them, how soon would they "nationalize" all of that island and it's hard-won successes contained therein?
Of course, others have noted Somalia, Mexico, and various developing countries. Take your pick.
"If you want to set the income tax at 95% of all money made over a million bucks? Have at it. It's not important."
If it's not important, why all the falsities about "taking everything from the rich" and stopping all defense spending and it not mattering? It would matter a shitload, no offense. DoD + discretionary spending (which the military swallows almost all of) is almost 40% of the entire budget.
What's left is Medicare and SS, which in 2000 was well-funded and flush with +2 Trillion in the kitty. The tax breaks of 2001 and 2003 and the wars of roughly the same time erased nearly all that and left IOUs. Now, you're blaming those programs for our downfall.
So, yeah, you're right, it's not about taxes, it's about those "poor people" who "do not even pay an income tax".
Personally I would adjust Social Security to the expected life time (and re-adjust it every year); get out of Iraq, Afghanistan and Libya; half the army (you got nukes, you don't need that big an Army to defend yourself) and stop the war on drugs.