September 21, 2011
"They take it out of the ground in South Africa, ship it to the Federal Reserve, where they put it back in the ground. If you were watching from Mars, you might think it’s a little peculiar."

Warren Buffet on gold, demonstrating yet again why so many people trust him to manage their investments. Despite the fact that gold is just a metal originally valued because it’s pretty and easy to work without significant heating, it’s now somehow become this really important store of value when investors are worried. I feel like it’s some kind of psychological thing; people like to have stuff when the market crashes instead of just certificates, even if that stuff is basically useless. (You can’t eat gold, nor can you sell it to be made into much other than jewelry - and in many places where gold jewelry is common, it’s being used as a store of value rather than ornamentation anyway.)

How desperate are investors to buy gold? Right now, they are buying up so much that vaults are literally running out of room. Newly mined gold and liquidated gold jewelry is increasingly ending up in these big vaults in Fort Knox, London, Perth, Singapore and elsewhere, all stored in the names of investors who think they’re buying up an asset that will somehow keep them rich through a big financial crash.

Not only is a really bizarre-seeming cultural institution, but it’s also a suboptimal strategy in the event of a crash (since governments and other big investors would have to draw down their reserves, which means falling gold prices). On the social side of things, it’s a serious problem because it means that instead of the wealthy investing in new businesses (which hire new staff and offer desirable new goods and services) they’re investing in shiny rocks which they then lock up in vaults forever. Putting money in gold is probably the most effective way to choke off any broader social impact of your investment.

(via jakke)

(via jakke)

September 19, 2011
The Millionaire's Tax: Three Observations

The expected proposal by the President to tax annual income above a million dollars may be too cute by half. It clearly looks like a “populist” initiative and clever political maneuver. By setting the threshold at $1,000,000 it boxes out almost all the Republican allusions to small business entrepreneurs and hits a number associated with wealth in popular culture (“So You Want To Be A Millionaire”, etc).

But, it looks so much like an “in your face” political challenge to his opponents, that may have evaporated all that talk about “constructive compromise” that popped up after the disgraceful debt ceiling debate. Markets sold off after the debt debate on fears that if a real national crisis were to erupt, both parties would continue to posture in partisan acrimony as the situation worsened. We’ll see if the new tax proposal re-ignites those fears.

Secondly, the tax proposal is being dubbed the Buffett tax since Mr. Buffett has long proclaimed that it is unfair and embarrassing that he pays taxes at a lower rate than his secretary. That could be instantly remedied by Mr. Buffett (or one of his accountants) by listing his income as ordinary income on his 1040A. Then he would be taxed at a rate equal to, or, more likely, higher than his hard working assistant.

Third, the proposal flies in the face of the lessons of history. According to the Tax Foundation, after the 1929 crash, Congress proceeded to raise the top marginal tax rate from 25% to 63% by the end of Hoover’s term (hat tip to the sharpeyed Mike Higley’s “By the Numbers”). As you may recall, hiking those rates may have made folks feel that rates were more equitable but it sure didn’t help the economy. Just a few thoughts.

It is perhaps no surprise that I disagree with the commentator, but I’d like to focus on the following paragraph for great justice:

Secondly, the tax proposal is being dubbed the Buffett tax since Mr. Buffett has long proclaimed that it is unfair and embarrassing that he pays taxes at a lower rate than his secretary. That could be instantly remedied by Mr. Buffett (or one of his accountants) by listing his income as ordinary income on his 1040A. Then he would be taxed at a rate equal to, or, more likely, higher than his hard working assistant.

Emphasis added.  I find this criticism of Buffet’s position to be extremely annoying because it’s intellectually dishonest to the point of being glib (no offense to Logicallypositve, for whom I would give my first born son and the right of Prima Nocta/Droit du Seigneur in event of marriage).  

Commentators who criticize Buffet on this ground are completely missing the point (knowingly, I suspect) of why Buffet criticizes America’s tax system.  He’s not arguing that it’s *personally* unfair for him to pay lower rates while his secretary pays more.  He’s arguing that it’s unfair that people who are rich enough, as a class of taxpayers, to make their money largely through the vehicle of Capital Gains have the option of paying a substantially lower rate than people who make their money largely through labor hour wages.  The system, as it is set up, rewards wealth over work.  If Buffet changed his personal filing methods, it wouldn’t make the system any more fair because 99% of taxpayers in his income bracket would still opt to pay a lower rate than their secretaries.  That defeats the purpose of why he criticizes the tax code.

If the tax code was amended so that people in Buffet’s tax bracket had to list their Capital Gains as ordinary income on their 1040A, Buffet would almost certainly support that reform.  He would also support a reform that, say, taxed all Net Capital Gains above a reasonable threshold as ordinary income.  But again, he’s not just talking about himself.  He’s using himself as an example of a larger class of taxpayers, not simply making a personal observation about his tax situation.

(via yung-lysenko-deactivated2014040)

August 15, 2011
Stop Coddling The Super-Rich

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, 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.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. 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.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. 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. This cut helps the poor and the middle class, who need every break they can get.

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

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

August 12, 2011
"In other news, a cackling Warren Buffet burns his entire fortune in front of the Nation."

"In other news, a cackling Warren Buffet burns his entire fortune in front of the Nation."

Liked posts on Tumblr: More liked posts »