Stop Coddling the Super-Rich

Stop Coddling the Super-Rich
By WARREN E. BUFFETT
Published: August 14, 2011

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...

http://www.nytimes.com/2011/08/15/opini ... h.html?hpw

It wouldn't be worth noticing, given it's the Times, except the author is kind of an eye-opener.

Coddling the super rich makes economic sense. They can depart for another tax zone at the drop of a hat, never to return. The left makes the mistake of thinking that if only the super-rich were taxed more everyone else would have to pay less all the time. But in fact if Britain were to tax Abramovich or Rausing or Mittal or Branson or Sugar more onerously they would leave these shores and the actual tax take would go *down* along with the jobs that those people generate by living and spending here. I expect that the situation wrt US mega wealthy is similar.

Since the super-rich do not consume more social services than the others who are not super-rich, their personal taxes in nominal terms should be the same as those of these others [poll taxation, X dollars or pounds per nose]. Their property tax would be different, though, in proportion to the value of property receiving such services as protection of the law.

So "coddling" = "not stealing from". What a world, what a world.

Mr. Buffett is free to make donations to the U.S. Treasury. Why doesn't he cut, say, a $5 billion check to start?

You cannot make the federal budget work on the backs of the top 0.1% or whatever measure Buffett is saying. Eating the rich simply won't work.

http://www.youtube.com/watch?v=661pi6K-8WQ

if Britain were to tax Abramovich or Rausing or Mittal or Branson or Sugar more onerously they would leave these shores

Yeah, Sweden has been very good at creating tax refugees. At one point our beloved Astrid Lindgren (Pippi Longstocking, etc) was hit with a 102% marginal tax rate, but she didn't care much about traveling so she stayed.

It wouldn't be worth noticing, given it's the Times, except the author is kind of an eye-opener.

Not so surprising:

OBAMA-WARREN-BUFFETT.jpg

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Since the super-rich do not consume more social services than the others who are not super-rich, their personal taxes in nominal terms should be the same as those of these others [poll taxation, X dollars or pounds per nose]. Their property tax would be different, though, in proportion to the value of property receiving such services as protection of the law.

To be genuinely FAIR, a person should pay taxes based on their consumption of government services. Someone on the dole could not, of course, pay enough taxes to cover their consumption, so such payments would have to be in the form of a loan that they would be required to pay back. Many people would die owing taxes, which the productive would have to cover.

The bureaucrats would hate it. The disincentive to take government services would be so great that there would be fewer bureaucrats required to manage them.

On the up side, someone genuinely down on their luck would be provided for. It just might take them awhile to get out of hock.

Coddling the super rich makes economic sense. They can depart for another tax zone at the drop of a hat, never to return. The left makes the mistake of thinking that if only the super-rich were taxed more everyone else would have to pay less all the time. But in fact if Britain were to tax Abramovich or Rausing or Mittal or Branson or Sugar more onerously they would leave these shores and the actual tax take would go *down* along with the jobs that those people generate by living and spending here. I expect that the situation wrt US mega wealthy is similar.

I believe that situation is playing out in Maryland and starting to play out in New York. Raising taxes on millionaires only to find that there's less millionaires around from the year before. The left always makes the mistake of thinking an increase in taxes equals an increase in revenue, and always miss the obvious: no one willingly pays taxes if they can avoid it. Warren Buffet being a case in point.

I have to wonder if Warren Buffett has already positioned himself to cash in on whatever consequences there will be once government cracks down on all the other "super rich" people...

Mr. Buffett is free to make donations to the U.S. Treasury. Why doesn't he cut, say, a $5 billion check to start?

In fact, Buffett does make large donations, to the Gates Foundation. It is quite clear, therefore, that he believes the Gates Foundation will make better use of his money than the US Govt. He however wants to deprive others of making the the kind of choice he has made.

Let's make all obligation-free payments to the U.S. Treasury tax deductible and see if Warren "Eat Shit" Buffett puts his money where his mouth is.

When the Feds raised taxes on luxury yachts, the superrich made do and didn't buy a new yacht. Who suffered? Not the superrich. But the people who sell luxury yachts and the people who build them lost their jobs.

If you screw with the rich, you screw with everyone.

Mr. Buffett is free to make donations to the U.S. Treasury. Why doesn't he cut, say, a $5 billion check to start?

In fact, Buffett does make large donations, to the Gates Foundation. It is quite clear, therefore, that he believes the Gates Foundation will make better use of his money than the US Govt. He however wants to deprive others of making the the kind of choice he has made.

As if the others might even want to make a similar choice to donate at all. I am nowhere near his league, rather close to a square root of Buffett, but my choice is The Mantra^tm. I will make a much better use of my money than anyone else, be it a foundation or a government. And fuck them baboons.

When the Feds raised taxes on luxury yachts, the superrich made do and didn't buy a new yacht. Who suffered? Not the superrich. But the people who sell luxury yachts and the people who build them lost their jobs.

If you screw with the rich, you screw with everyone.

Romney tried to make a similar point about squeezing corporations, he said "corporations are people, my friend", and then WENT ON to explain what he meant -- corporations are comprised of people, employees, and indirectly customers, all of whom suffer if the corporation is raided by taxation.

Maureen Dowd, however, left off the explanation (or was too stupid to seek it out), and wrote a whole column ridiculing Romney for allegedly saying something as stupid as, "corporations should be considered human beings in their own right". 99% of the "user comments" where her column was posted did the same "wow, how stupid is he" dance.

When the Feds raised taxes on luxury yachts, the superrich made do and didn't buy a new yacht. Who suffered? Not the superrich. But the people who sell luxury yachts and the people who build them lost their jobs.

If you screw with the rich, you screw with everyone.

Romney tried to make a similar point about squeezing corporations, he said "corporations are people, my friend", and then WENT ON to explain what he meant -- corporations are comprised of people, employees, and indirectly customers, all of whom suffer if the corporation is raided by taxation.

Maureen Dowd, however, left off the explanation (or was too stupid to seek it out), and wrote a whole column ridiculing Romney for allegedly saying something as stupid as, "corporations should be considered human beings in their own right". 99% of the "user comments" where her column was posted did the same "wow, how stupid is he" dance.

Justice Oliver Wendell Holmes famously said that "three generations of imbeciles are enough". Daring to tread in the footsteps of the much better man, I would submit that for the voters' roll even the first generation imbecile is more than enough and ought to be purged outtathere. All these maureen dowds and their abettors, fautors and accomplices.

Mr. Buffett is free to make donations to the U.S. Treasury. Why doesn't he cut, say, a $5 billion check to start?

You cannot make the federal budget work on the backs of the top 0.1% or whatever measure Buffett is saying. Eating the rich simply won't work.

http://www.youtube.com/watch?v=661pi6K-8WQ

He does acknowledge that you can't balance the budget on the backs of the super-rich, but it takes him until the third paragraph from the end to get to it.

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.

Hasn't Buffet always felt guilty about the money he's made? The guy is a brilliant investor, maybe the most brilliant ever, but an economist he ain't.

Warren has been complaining about his seventeen percent tax rate. There is no seventeen percent tax rate, so that must mean he's taking deductions. If he really feels taxes should be higher, he should lead by example and not take deductions.

As was noted upthread, he could also cut a large check to the Treasury.

It's legal, Warren.

Hasn't Buffet always felt guilty about the money he's made? The guy is a brilliant investor, maybe the most brilliant ever, but an economist he ain't.

He's had nothing to feel guilty about the last few years. Berkshire has been hemorrhaging money.

The right of a person to the product of his own labor is the foundation of economic liberty, declares Dr. F. A. Harper, in his scholarly essay, Liberty: A Path to Its Recovery. He points out that “the question at issue is how to distinguish between what is mine and what is thine.”

There are three ways to handle this problem:

1. Each person may have whatever he can grab.
2. Some person other than he who produces the goods and services decides who shall have the right of possession or use.
3. Each person may be allowed to keep whatever he produces.

These three methods cover all the possibilities; there are no others.

When the economic situation is reduced to these three clear-cut alternatives, the problem of achieving justice does not seem too difficult.

The first method of operation, under which each person can have whatever he can grab, is obviously unjust and impossible. It would return us to the jungle law that “might makes right.” Moreover, it would soon reduce individual economic effort to the absolute minimum required for existence. Certainly there is no reason in trying to produce wealth beyond immediate needs if one could expect to be deprived of it at any moment.

So the first method can be rejected outright.

The second method of handling economic production would provide that someone other than the person who produces goods and services shall decide who shall have their possession or use. This method of determining the rights of possession is practiced in every authoritarian society. It allows those who hold the coercive power of government to confiscate the fruits of any producer’s labor.

To accept this theory, you must hold two strange concepts: (1) that a nonproducer is better qualified to judge the correct use of what you have produced than you are; (2) that a nonproducer has a right to seize the fruits of your labor.

The late Justice Oliver Wendell Holmes once declared that someone must exercise command of the disposition of goods and services that have been produced, and that he knew of no better way of finding the fit man than the competition of the market place.

So it would seem that the second alternative, that someone other than the producer shall decide who shall enjoy the fruits of the producer’s labor, is similar to the first method. One is a private seizure outside any law; the second is a public and legalized seizure, but without justice.

- Howard Buffet, 1956. The apple has fallen too far away from the tree.

Two points:

First, Warren Buffet's point about carried interest is arguably correct. Basically, it is a bonus to money managers that is tied to the long-term capital gains of the investors whose money they are managing. Just because it comes out of the long-term capital gains of investors does not imply that it is a long-term capital gain for money manager. The argument is that this 20% cut of the capital gains is not inflation protected over the several years it takes to earn it, so the lower tax rate is proper. Capital gains tax rates are often a catchall for intrinsically long-term investments that are not inflation protected even if they do not involve the investment of capital per se.


Second, venture capital -- what fuels our technology sector -- is extraordinarily sensitive to the supply of liquid capital rich people have on hand. Rich people are the Limited Partners (LPs) behind venture capital firms. Note that this is required by government regulation, if you are not wealthy it is illegal for you to invest in tech startups. The supply of venture capital is very volatile, varying by an order of magnitude on a year-to-year basis. In lean years many tech startups go bust because the LPs do not have enough liquidity to fund the venture capital firms. Why the volatility? It is because the pool of venture capital is extremely sensitive to the free cash of rich people. When you abscond with the money of the wealthy, it creates a magnified reduction in the supply of capital available for venture capital.

People argue that it is only 10% here or 10% there but it does not show up that way at all in the venture capital pool, it is massively magnified. Venture capital supply follows the expected real return in the market very closely and accounts for things like inflation and tax losses; a 10% increase in taxes can put venture capital out of the money in many cases. And since rich people are the only people allowed to invest for the most part, they are not a fungible part of the ecosystem. With apologies, a poor person never funded my company. Anyone that claims to support both technology ventures and increasing the tax rates on those that fund them is a damned liar. If they had their way, Google, Facebook, Twitter, and myriad other companies that were built with the free cash flow of rich people would not exist. There is no two ways about it; venture capital has a very strict expected rate of return calculus that is grounded in the kind of mathematics that one finds in reality.

[V]enture capital has a very strict expected rate of return calculus that is grounded in the kind of mathematics that one finds in reality.

Well, there's the problem. Who in this administration has ever heard of reality?

Two points:

First, Warren Buffet's point about carried interest is arguably correct. Basically, it is a bonus to money managers that is tied to the long-term capital gains of the investors whose money they are managing. Just because it comes out of the long-term capital gains of investors does not imply that it is a long-term capital gain for money manager. The argument is that this 20% cut of the capital gains is not inflation protected over the several years it takes to earn it, so the lower tax rate is proper. Capital gains tax rates are often a catchall for intrinsically long-term investments that are not inflation protected even if they do not involve the investment of capital per se.


Second, venture capital -- what fuels our technology sector -- is extraordinarily sensitive to the supply of liquid capital rich people have on hand. Rich people are the Limited Partners (LPs) behind venture capital firms. Note that this is required by government regulation, if you are not wealthy it is illegal for you to invest in tech startups. The supply of venture capital is very volatile, varying by an order of magnitude on a year-to-year basis. In lean years many tech startups go bust because the LPs do not have enough liquidity to fund the venture capital firms. Why the volatility? It is because the pool of venture capital is extremely sensitive to the free cash of rich people. When you abscond with the money of the wealthy, it creates a magnified reduction in the supply of capital available for venture capital.

People argue that it is only 10% here or 10% there but it does not show up that way at all in the venture capital pool, it is massively magnified. Venture capital supply follows the expected real return in the market very closely and accounts for things like inflation and tax losses; a 10% increase in taxes can put venture capital out of the money in many cases. And since rich people are the only people allowed to invest for the most part, they are not a fungible part of the ecosystem. With apologies, a poor person never funded my company. Anyone that claims to support both technology ventures and increasing the tax rates on those that fund them is a damned liar. If they had their way, Google, Facebook, Twitter, and myriad other companies that were built with the free cash flow of rich people would not exist. There is no two ways about it; venture capital has a very strict expected rate of return calculus that is grounded in the kind of mathematics that one finds in reality.

I love it when you talk dirty.....

As a follow-on, since many of you may not be familiar with how venture capital funds work, I will sketch it out so that it is easier to understand why looting rich people seriously fucks entrepreneurs with a lot of intelligence and determination but no money.

Venture capital does not come from Obama's Stash^tm or the government. Most private venture capital funds don't actually have the money nominally in their fund sitting in a bank account. If they raise a $100M fund, that means they have commitments to contribute capital at a future date by rich people with cash. There are a number of circumstances and conditions under which this commitment is severable. The venture capitalists obtain this capital in modest chunks at a time from the rich people which is used to actually to fund investments in small companies.

The majority of venture startups require multiple funding rounds to become viable, usually with venture capital from the earlier rounds participating in later rounds. If you are an entrepreneur following the standard path with a venture and a capital call comes up short because the rich people are unable to meet their commitments, it is the entrepreneur and everyone that works for that company that gets screwed. They could even be a viable venture, it doesn't matter. Rich people's money is the lifeblood of the business. When you take their money, you take money from the people attempting to contribute real fundamental growth to the economy.

Some people think the government should be funding technology ventures instead of rich people because of fairness, social justice, or to fund "what rich people won't fund". Such individuals will have to acknowledge (or not) that even though every branch of the government has dabbled in venture capital at some point, all of them have produced horrifically poor results by any metric you care to use. A private venture capitalist would have lost his job if he performed that poorly.

The bitter taste in the mouth of these people is the one exception in all of government that has a track record for investing in viable technology companies is the US intelligence agencies. Unlike most of the clowns in government, they understand state-of-the-art technology and how it fits into the bigger picture. They may not have an express profit motive but they ride so close to the bleeding edge that they can often see the implications of technology long before the private sector does which gives them an advantage. In some ways they live in the future and they invest in the companies that will build it. They have a role that they fill in their niche.


In short, the tech sector money cycle is entrepreneurs begging venture capitalists begging rich people for cash that the rich people hope the government and economy will let them keep this year.