Buffett's Doublespeak On Taxes

[Conan71]

I still haven't heard a cogent argument as to why capital gains income should be taxed at a lower rate than wage income.

The preference toward this seems to be the philosophy that investors and business owners will continue to plough excess un-taxed profits into new investments, capital expansion projects, or personal consumption- all activities which will stimulate the economy.  Granted, if it's simply day-trading and flipping stocks and having no hands-on investment in a company or companies that really isn't what the cap gains rate is trying to encourage.

At least that's my over-simplified understanding of it.

[heironymouspasparagus]

B-H also has a responsibility to properly calculate and pay the taxes that they owe in a timely manner.  They apparently took some questionable short-cuts.  In the case of the $1 billion plus owed in back taxes, B-H apparently did not use the tax code as required.

B-H doesn't pay a dividend, so I suspect in terms of real value, that B-H shareholders wouldn't have noticed $1 billion in cumulative taxes over a  period from 2002 to 2009 reflected in the value of their shares, so that really weakens the argument about any significant detriment to the value shareholder's expect.  That's roughly $142mm per year for a company with total revenues at or above $100 billion and net earnings averaging around $10 billion over the last 5-6 years.

You do understand that essentially this is money which was properly owed to the government but was not paid in a timely manner by B-H, right?  Do you also realize the millions taxpayers are spending on the enforcement actions to make sure this money was properly accounted for and does get paid?  

Perhaps.  Perhaps they were paying what they thought at the time was the correct number, then situations arose that required an amended return.  It most likely is one of those hindsight situations.  Notice, they are not whining about it like Newt or Santorum might have.  They are just gonna man up and do what is required.

Have you managed to avoid filing an amended return your entire life?  That's good, if so.  I have had items a couple of times that indicated amendment - one to my detriment, two to my benefit.  Darn right I'm gonna change it if necessary.

[Conan71]

Unfortunately, Congressional Republicans have decided that loophole closing is a tax increase. Yes, Reagan's tax cuts would be a tax increase in the eyes of this crop of nutters.

Aaaah yes, the cult of Norquist.  They felt that ending corn subsidies was a tax increase on farmers.  I think that was the issue, wasn't it?

[heironymouspasparagus]

The preference toward this seems to be the philosophy that investors and business owners will continue to plough excess un-taxed profits into new investments, capital expansion projects, or personal consumption- all activities which will stimulate the economy.  Granted, if it's simply day-trading and flipping stocks and having no hands-on investment in a company or companies that really isn't what the cap gains rate is trying to encourage.

At least that's my over-simplified understanding of it.

And still they continue the deception after 30+ years of proof that such is NOT the case.

[AquaMan]

I agree Conan.

Nathan- They do that because their constituents (pacs, corporations, and themselves) insist on those loopholes on both sides of the aisle or they don't get elected and they don't get wealthy.

PAC's!! And That starts with P and that rhymes with T and that stands for TROUBLE!

LOOPHOLES!! That starts with L and that rhymes with Hell and that stands for TAX RELIEF!

[Gaspar]

This is getting fun now.  The argument is not wether we are being "double and triple taxed" because everyone who pays taxes knows that there are several instances where that happens.  The argument is wether stating that as a shareholder you are only liable to the 15% tax on investment income.  The answer to that question is no, no matter how you attempt to cut it.

Mr. Buffet pays far more than 15% in taxes.  Because he owns several financial vehicles and all of those vehicles are taxed, his total tax liability is built upon the various taxes levied on those businesses plus any additional secondary or tertiary taxation. 

Owning a company or part of a company is like owning a living thing, and if there is one thing our government is good at, it's taxing living things.  If you buy a moose and keep it for 5 years to sell and make a profit, your expenses include the costs of keeping that moose alive.  This includes food, shelter, and yearly moose taxes.  You are as liable for moose taxes as you are for anything else necessary to keep your moose.

If you sell that moose for a big profit, you pay taxes on your gains, but those are not the only taxes you paid on your moose!  You had to pay yearly moose taxes as a part of owning your moose.  So when you look back at your investment to see how profitable you were, and how you might be able to improve on your investment strategy, you look at:

1. Initial purchase price of your moose.
2. Cost for shelter and medical care for your moose.
3. Moose chow.
4. Taxes on your moose.
5. Profit on the sale of your moose.
6. Tax obligation on the profit from the sale of your moose.

You cannot ignore #4 and say it does not exist, or roll it up somewhere else in the cost.  #5 is profoundly affected by whatever #4 is, so when you figure your total real tax liability per-moose, it is a function of 4 and 6!

If this doesn't work, I fear sock-puppets will be necessary!

[Conan71]

This is getting fun now.  The argument is not wether we are being "double and triple taxed" because everyone who pays taxes knows that there are several instances where that happens.  The argument is wether stating that as a shareholder you are only liable to the 15% tax on investment income.  The answer to that question is no, no matter how you attempt to cut it.

Mr. Buffet pays far more than 15% in taxes.  Because he owns several financial vehicles and all of those vehicles are taxed, his total tax liability is built upon the various taxes levied on those businesses plus any additional secondary or tertiary taxation. 

Owning a company or part of a company is like owning a living thing, and if there is one thing our government is good at, it's taxing living things.  If you buy a moose and keep it for 5 years to sell and make a profit, your expenses include the costs of keeping that moose alive.  This includes food, shelter, and yearly moose taxes.  You are as liable for moose taxes as you are for anything else necessary to keep your moose.

If you sell that moose for a big profit, you pay taxes on your gains, but those are not the only taxes you paid on your moose!  You had to pay yearly moose taxes as a part of owning your moose.  So when you look back at your investment to see how profitable you were, and how you might be able to improve on your investment strategy, you look at:

1. Initial purchase price of your moose.
2. Cost for shelter and medical care for your moose.
3. Moose chow.
4. Taxes on your moose.
5. Profit on the sale of your moose.
6. Tax obligation on the profit from the sale of your moose.

You cannot ignore #4 and say it does not exist, or roll it up somewhere else in the cost.  #5 is profoundly affected by whatever #4 is, so when you figure your total real tax liability per-moose, it is a function of 4 and 6!

If this doesn't work, I fear sock-puppets will be necessary!

Or you can try these, works for me sometimes when I'm trying to explain enthalpy and entropy to a non-engineer customer

[Gaspar]

[nathanm]

Here's how I know Gaspar's argument is just pissing in the wind: corporate tax receipts are trending downward relative to GDP, yet total receipts are not. If there was double taxation happening, it would be reasonable to expect that total receipts would have at least some correlation with the corporate tax receipts. That they are not tells me quite clearly that there is not much effective double taxation going on, regardless of what theory predicts.

Personally, I'd rather lay all the taxes on the corporate entities, relieving us real people of the paperwork burden. It's all the same, anyway.

How very non-progressive of me.

[heironymouspasparagus]

This is getting fun now.  The argument is not wether we are being "double and triple taxed" because everyone who pays taxes knows that there are several instances where that happens.  The argument is wether stating that as a shareholder you are only liable to the 15% tax on investment income.  The answer to that question is no, no matter how you attempt to cut it.

If you sell that moose for a big profit, you pay taxes on your gains, but those are not the only taxes you paid on your moose!  You had to pay yearly moose taxes as a part of owning your moose.  So when you look back at your investment to see how profitable you were, and how you might be able to improve on your investment strategy, you look at:

1. Initial purchase price of your moose.
2. Cost for shelter and medical care for your moose.
3. Moose chow.
4. Taxes on your moose.
5. Profit on the sale of your moose.
6. Tax obligation on the profit from the sale of your moose.

You cannot ignore #4 and say it does not exist, or roll it up somewhere else in the cost.  #5 is profoundly affected by whatever #4 is, so when you figure your total real tax liability per-moose, it is a function of 4 and 6!

Moose is a lot like a cow.  Or a hog or chicken or duck.  As far as the tax dudes are concerned.  I have kept quite a few of each over the years and never had an intermediate tax on any of them - step 4.  Car might be better example - tags, etc.  Or maybe inventory at the end of fiscal year.  A moose is more like a piece of capital equipment, maybe like a lathe or stamping machine - and as such, you get to miss the sales tax when you buy it, cause it is for use in production (manufacturing exemption) - making more meese!

And if you grass fed that moose, you would have better moose meat and no Purina Moose Chow bill!!

[Gaspar]

I admire you Nate.  Thinking like a liberal requires mental acrobatics and a level of complexity that never fails to amaze me.  I become exhausted just thinking about how hard it must be to keep everything straight.

Yet I am somehow glad that I never have the need to aspire to that level of complexity.  For me, accounting is a game of simple numbers that requires logic without the injection of fuzzy variables or theory.

I am confident that if we continue this line of discussion we will ultimately arrive at a debate to define actual terminology, like the definition of "is" or "tax" or the derivative of the actual language we use every day, and that would bore the crap out of me.

So, I will just stop here, and you and the liberal ilk can ridicule me for offering simple explanations to situations again.

I suppose this is how we arrive at a 6,000 page progressive tax code. 

[Gaspar]

Moose is a lot like a cow.  Or a hog or chicken or duck.  As far as the tax dudes are concerned.  I have kept quite a few of each over the years and never had an intermediate tax on any of them - step 4.  Car might be better example - tags, etc.  Or maybe inventory at the end of fiscal year.  A moose is more like a piece of capital equipment, maybe like a lathe or stamping machine - and as such, you get to miss the sales tax when you buy it, cause it is for use in production (manufacturing exemption) - making more meese!

And if you grass fed that moose, you would have better moose meat and no Purina Moose Chow bill!!

Probably right, but moose was the first thing that popped into my head.  Glad we don't have pet taxes in this country. . .yet!

[nathanm]

Yet I am somehow glad that I never have the need to aspire to that level of complexity.  For me, accounting is a game of simple numbers that requires logic without the injection of fuzzy variables or theory.

My explanation is very simple. Your thesis cannot possibly be correct because the data are not consistent with premise, much less your explanation.

[Conan71]

Here's how I know Gaspar's argument is just pissing in the wind: corporate tax receipts are trending downward relative to GDP, yet total receipts are not. If there was double taxation happening, it would be reasonable to expect that total receipts would have at least some correlation with the corporate tax receipts. That they are not tells me quite clearly that there is not much effective double taxation going on, regardless of what theory predicts.

Personally, I'd rather lay all the taxes on the corporate entities, relieving us real people of the paperwork burden. It's all the same, anyway.

How very non-progressive of me.

It really means nothing as you don't have a full set of data to reach such a conclusion.  It could well be that corporate profits are down ergo corporate tax receipts would be in a decline.  There's a pretty good causation.

There's simply no getting around the fact that the government is taxing a profit twice.  Once when it's at the corporate level and again when that profit is passed to a share-holder, either as a dividend or in the additional value that profit created in the person's shares if they sold them and realized a personal profit.  

If a company turns a profit of $1 million and the government assesses and collects a tax of $350,000 at the corporate level, then taxes the owner's distribution of the remaining $650,000 at 15%, that's an additional $97,500.  That's a total of $447,500 or 44.75% that's taxed on that profit.  That profit is taxed twice, once at the corporate level and once at the distribution level.  

Someone explain how the government did not tax 44.75% of that profit.

[Red Arrow]

Probably right, but moose was the first thing that popped into my head.  Glad we don't have pet taxes in this country. . .yet!

A lot of places require dog owners to get a "license" for their dogs.  I think cats so far escape the license treatment.