<p>
</p>
<p>Buffet has pledged to give 99% of his wealth to charity during his lifetime or at his death. I guess the 1% will still be subject to inheritance tax.</p>
<p>No… 99 percent can also be taxed…if the rules change…</p>
<p>All the cited article proves is that if you pick your definitions correctly you can prove anything you want. For an apples-to apples comparison, consider the following:
The top 1% of American taxpayers pay income tax pay at an average (mean) rate of 21% of their income. The 90th to 95th percentile - that’s roughly $50K to $75K - pay an average (mean) federal income tax of 12.5% That’s straight from the IRS spreadsheets, which you can download and check at [SOI</a> Tax Stats - Individual Statistical Tables by Tax Rate and Income Percentile](<a href=“http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html]SOI”>http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html) - charts 7 and 8</p>
<p>So where does the Tax Policy Institute get its very different numbers of 29% and 15%? Well they add Social security tax, which is fair, except that it should cut the other way. Most taxpayers in the $50K to $75K get most of their income from wages. So FICA taxes, whether you calculate them at 7.5% or 15%, should add a significant amount to the income tax. But TPI only lists the “federal tax” for this group at 15%, just 2 1/2% above their income tax. I don’t see how they got there.</p>
<p>For rich folks, FICA is a small proportion of their income. This biggest part of FICA is capped at $106K. Even with a two-salary household, that isn’t going to boost the overall tax percentage on a million dollar income household more than a point or two. So how does the TPI get the “federal” tax on rich folks from 21% to 29%? As previous posters pointed out, they allocate corporate income tax to the shareholders. And since rich people own almost all the corporate stock, they get allocated credit for those payments.</p>
<p>But wait: why don’t tenants get credit for the income tax paid by their landlords? Why don’t the poor schlubs who have their money in savings accounts get credit for the income tax paid by the bank? I mean, the Supreme Court has explained to us that corporations are “people.” So just because you’ve invested in another “person” you get credit for the tax they pay? I don’t get it. </p>
<p>Interestingly (I would assume, for many of the CC parent cohort) the people who probably legitimately pay the highest income-and-FICA tax combination of all are the 95th to 99th percentile taxpayers - people who earn between $75K and $400K per year. The mean income tax for that group is 17.2% - just a shade behind the rich folks - and I suspect that, at least in the lower reaches of that cohort - the great majority of that income is subject to FICA, pushing us into the lead, although the differences between all income groups is really, very minor due to the income-regressive impact of taxes other than income tax.</p>
<p>Hurray for us! We’re number one!</p>
<p>Buffet’s math was straightforward, and correct. This “spin” - which, predictably, has been posted all over the internet by the usual echos - is basically an exercise in twisting facts to push a point which is fundamentally false.</p>
<p>Social Security is the only program I pay taxes into that will soon send me a nice check for the rest of my life and to my wife if she outlives me. With any luck I will collect as much or more than I paid into it. Can’t say the same for most other taxes I paid.</p>
<p>"Singapore and Hong Kong (along with many other countries) have no capital gains taxes. How are their economies doing? Singapore’s unemployment rate is 2%. Hong Kong’s is 3%. "</p>
<p>This is classic statistical noise, it is claiming causal link between two statistics, and that is they have low unemployment, must be because they have no capital gains…and that is bogus, because there are countries with no capital gains who are in deep trouble. Hong Kong and Singapore’s economies are different then ours. We could cut the capital gains tax rate to 0 in this country, and I am pretty sure all it would do is make speculative trading and the like even more prevalent, more funny money, and few jobs would be created (the capital gains tax rate cut to 15% is basically not credited with creating many jobs, during the period in question the net on jobs was a major loss of them)</p>
<p>The problem with that in part is just what does a cut in capital gains taxes (or eliminating) them do? The theory is, like tax cuts in general, is it will stimulate capital formation that will go into creating new businesses (through an IPO), it will allow companies to expand and so forth. The problem with this is that in terms of business, very little operating capital for the most part comes from where capital gains comes in, few companies to finance expansion and such issue new stock to pay for capital improvements,they use other means these days. Put it this way, most of the stock you see being traded has been there a long,long time, and IPO traffic while it does raise capital, is not likely to increase the amount of spending on capital companies would do to expand. </p>
<p>The real problem with capital gains is that a lot of investment these days is speculative, rather then being about raising money to help a company expand, etc, it is speculating on where for example stocks are going…and it also tends to encourage behavior not necessarily good:</p>
<p>-The lowered capital gains rate that happened during the Bush administration often seems to have gone, rather then to capital formation, into risky, high yield investments . Leaving out hedge fund managers a second, those who invest in hedge funds and the like, that are heavily leveraged in speculation in things like derivatives, can hold onto their investments for a year and get the lower rate, when what they invested in has very little to do with capital formation (and before calling this liberal tripe, anti business, do some net searches…this has been coming out of conservative circles who were some of the biggest supporters of capital gains tax cuts…and worried about it going into speculation).</p>
<p>-Corporate compensation these days, especially for the ones running the show, tends to be in stock grants and options. The problem with these grants is that with a 15% lowered capital gains rate, a CEO can get most of their compensation in stock (or options), and see a lowered tax rate only a year later on gains. What this does is give executives incentive to pump up the stock price within that year and then be able to pull out at a lower tax rate; if taxed at ordinary income rates, they might be forced to think of the tax consequences and spread it out more long term and not have incentive to ‘pump it up’ (that among other things, encourages the opposite, laying off employees, etc, to 'pump up the price).</p>
<p>-The other problem is that it doesn’t even stimulate demand (the other side of the equation). That extra 20% not paid in taxes would in theory help pump up the economy, stimulate demand. The problem is that most such income goes to a very small group of people in terms of numbers, and therefore won’t stimulate demand either. Despite the fictions I have heard, very few people in this country get significant income from stocks and such subject to capital gains, they hold too little, even if you consider individual stock holding combined with pension accounts and mutual funds, it basically doesn’t do all that much among the people who in fact stimulate demand (known as the multiplier effect; put a dollar in the hands of the, top 1%, stimulates maybe buck fifty in economic activity; give it to middle class people, 5-6 dollars). . When you give a pop to a small group like that in numbers, even though it is a lot of money, it doesn’t do much)</p>
<p>-Then, of course, we have the example of hedge fund managers whose income from running the funds, thanks to some sort of weird government ruling, is taxes at the capital gains tax rate…and no one has been able to explain to me how that benefits anyone but hedge fund managers paying a lower tax rate then many other people do who make a lot, lot less…</p>
<p>There are real issues with our tax code, we hear about how the US has the highest nominal corporate tax rates, Fox News yells that from the rooftops and the tea party type bleat it like the sheep in “Animal Farm”, but that also leaves out is that the real rates are a lot less, and also leaves out that other countries nominal rates are lower, but they also don’t have the deductions either…and when you compare real rates of taxes, US corporate tax rates are pretty low… I would argue that it would be better to get rid of the byzantine tax code companies use and abuse, and make the rate lower but with no deductions…</p>
<p>The real issue with tax cuts has always been that they often do it broad based without thinking of what they are trying to do. If you want a tax cut to stimulate capital formation, or stimulate demand, then put it where it will do the most good. If someone buys IBM stock and keeps it a year, they aren’t stimulating capital formation since that stock is old and dusty, but if someone IPO’s a promising company, that is capital formation and should be rewarded. Hedge fund managers paying 15% doesn’t stimulate capital formation one whit, and it doesn’t stimulate demand either, better giving a tax cut to the middle class to stimulate demand then the top 1%, who simply don’t consume enough to stimulate much of anything. Giving tax breaks to corporations who are sitting on tons of cash and record profits isn’t going to stimulate job creation; and most of all, broad based tax cuts, especially the way they have been done for 30 years, when you look at what they stimulated didn’t stimulate long term capital formation and also ended up causing the budget deficits we see…</p>
<p>Tax cuts are a tool, and can be effective, but the problem with our tax code and policy is that it often works against the very thing it claims to be doing, among other things it has caused a concentration of income and wealth in a very small sector of the population, and that is not healthy. The top 1% of households now have somewhere between 80 and 90% of all wealth, and more then 24% of all income (that includes wages and investments), and that income figure is the most troubling, compare that to the 9% that used to be at the top and that is a lot of money concentrated in too few hands.</p>
<br>
<br>
<p>Who said anything about statistics. I made no causal claim; your
strawman did.</p>
<br>
<br>
<p>Singapore has claimed to learn the best practices from other countries.</p>
<p>Singapore has no natural resources and has to compete with China. They
government regularly runs a surplus and returns money to its citizens
when stimulus is needed. They have eclectic systems - the government
has control over various things and they leave other things to the
marketplace. The idea is to do what works. So they have things like
no homelessness, 2% unemployment and 3% of GDP for healthcare.</p>
<p>And no capital gains taxes.</p>
<br>
<br>
<p>In Singapore, you can open up a hawker stall and you can potentially
do better than the kids getting college educations. Their environment
seems to make setting up businesses pretty easy.</p>
<p>BC- how does Singapore’s health care system compare to the US system? Does it compare favorably in terms of results?</p>
<p>soccorguy- as a tax administrator I have no problem with anyone not paying the taxes we say they owe until such time as they have fully litigated the amount. If Berkshire feels the IRS is incorrect in what they have assessed there is zero problem not paying the liability. There is a system in place and citizens and companies are within their right to utilize that system. If they ultimately are proven wrong they face additional interest charges.</p>
<p>Singapore has a universal healthcare system where government ensures affordability, largely through compulsory savings and price controls, while the private sector provides most care. Overall spending on healthcare amounts to only 3% of annual GDP. Of that, 66% comes from private sources.[2] Singapore currently has the lowest infant mortality rate in the world (equaled only by Iceland) and among the highest life expectancies from birth, according to the World Health Organization.[3] Singapore has “one of the most successful healthcare systems in the world, in terms of both efficiency in financing and the results achieved in community health outcomes,” according to an analysis by global consulting firm Watson Wyatt.[4] Singapore’s system uses a combination of compulsory savings from payroll deductions (funded by both employers and workers) a nationalized catastrophic health insurance plan, and government subsidies, as well as “actively regulating the supply and prices of healthcare services in the country” to keep costs in check; the specific features have been described as potentially a “very difficult system to replicate in many other countries.” Many Singaporeans also have supplemental private health insurance (often provided by employers) for services not covered by the government’s programs.[4]</p>
<p>Wikipedia article on Healthcare in Singapore.</p>
<p>We’ve used the healthcare system in Singapore and I was shocked at how inexpensive it was (this was back in the 1990s). They have a degree of micromanagement of services that US companies probably wouldn’t care for. Their healthcare system was very good when it was private and very good under a universal system so it appears that their underlying model (before changing the payment system) was already very good. It appears to me that they had a very strong cost-focus in place and I think that makes the payment system a much smaller issue.</p>
<p>The government also promotes healthy eating and exercise and takes steps to provide exercise and nutrition programs for overweight students (I don’t believe that they are optional). They do this for adults via the media. We used to do this too but I think that a lot of the public health ads went away in the 1990s. I used to remember seeing them all the time in the 70s and 80s.</p>
<p>There are a lot of studies out there on Singapore’s healthcare system given pretty good outcomes at very low cost.</p>
<br>
<br>
<p>As a practical matter, I’d rather just pay it and then dispute it. Or sometimes just pay it as there can be some non-trivial amounts of time in disputing something. Then again I’ve never had one of these huge-surprise type things.</p>
<p>BTW, BRK/A dropped to $100,000 / share today. It was lower intraday. Perhaps Mr. Buffett should spend a little more time managing his company - that’s what I would want if I were a shareholder. I haven’t been a shareholder for several years when he ratcheted up his political profile. That sort of thing is often bad for business.</p>