Buffett proposes his own “Buffett Rule” … we like our’s better.

Warren Buffet was back at it yesterday, venting his conscience by repping in an NYT op-ed for higher taxes on wealthy folks.

As part of his treatise, he argues that investors aren’t swayed by after-tax returns … pre-tax is what moves them.

Say, what?

Keep reading for his other thoughts and Ken’s proposed Buffett Rule …

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Buffett’s recommendation

I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers.

However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes.

I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that.

We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again.

I’m ok with the step-up: starting the “millionaires & billionaires” category at $500,000.

I’m also ok with the minimum rates above $1 million since that doesn’t impact me

  • Note: Like the 56% of Americans who favor raising taxes on the Top 1%, I’m warming to the notion of raising other people’s taxes … just so mine don’t get jacked up.

i’m certaily ok with carried interest losing its capital gains tax rate.

But, I’m less sanguine with spending wildly and programming in a permanent deficit.

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Ken’s “Buffett Rule”

I’ve said it before, and I’ll say every time this hypocrite opens his mouth on the subject.

Buffett’s main tax loophole is ducking estate taxes by bequeathing his fortune to his buddy Gates’ foundation.

Since it’s a charitable deduction from the value of Buffett’s estate, it’s not subject to Federal estate taxes.

Given Buffett’s obsession with “paying his fair share”, I propose a tax change that will totally frees Sir Warren of guilt.

Simply stated:

Ken’s “Buffet Rule”

For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.

In other words, practically all of his estate would get whacked by the estate tax.

Now, that would hit the guilt-ridden old geezer in the pocketbook.

For details, see our prior post  The “Buffett Rule” that I want to see …

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Follow on Twitter @KenHoma

2 Responses to “Buffett proposes his own “Buffett Rule” … we like our’s better.”

  1. Steve Says:

    I have no objection to personal income rates rising moderately on high earners (including capital gains and dividend distributions) with two caveats:

    1. “Personal income” should be just that, the take-home pay and revenue received by the individual worker and should exclude income listed on the K-1 in the personal tax return (S-corp, LP, etc. income, which the corporate income tax is paid by the equity-holders and partners as personal income). A company exec that earns $300K and owns 5% of an S-Corp that earns $5MM is automatically thrust over the magic $500K that Buffett describes, putting his tax level at a minimum of 30%, even though his own personal take-home pay is only $300K. The argument will be that the company will simply have to distribute more money to cover the taxes, but ultimately that kills the competitiveness of the company and leads to higher unemployment as the company sheds jobs to improve the residual cash flow.

    2. We need to broaden the base at the bottom as well. When nearly 50% of the population doesn’t pay federal income taxes, the Congress and the President aren’t accountable for their actions. When people have their personal income going into the coffers of the government, they have a vested interest in making sure that the money is spent wisely. We don’t have to start with a 15% bracket to make this happen: tax all income over $1000 at 5% (or even 1%) and graduate the rate up from there. As Americans, we should all contribute to the general welfare of the country.

    Bonus: If we really want to keep Congress and the President accountable, and make sure that our government intelligently spends our money, do away with the employer withholding scheme for paying federal taxes and make all employees pay quarterly taxes. While it would be a nightmare for employers, the money could be held by the employer until such time as it needs to be paid, and then the employee would write a check on the account to the government, thereby knowing how much of their money is actually being sent to Washington, DC. Who really looks at their paystub to know how much of their money is going for taxes? I’ll bet not many, but this mechanism would keep people actively involved in the government’s revenue generation, and keep a more watchful eye on how their money is being spent.

  2. Chris Says:

    I don’t have a problem with programming in a deficit since the real metric is the size of debt relative to GDP. As long as debt grows slower than GDP, a country is unlikely to have issues with credit or interest rates. But the 18% and 21.5% targets for taxes and spending don’t reflect reality on the coming entitlement obligations to Baby Boomers. Buffet’s targets will lead to failure.

    Three drivers make the 21.5% target for Federal spending unrealistic.

    First, spending the past four years has been ~24-25% of GDP – so any deal with a 21.5% would mean cutting current federal spending by almost a seventh of current levels. Unless you get agreement to use the 2007 budget as a baseline (i.e. spending before TARP and the stimulus bill) or freeze all spending for several years, you’re unlikely to get agreement on spending cuts large enough reach Buffett’s stated goal since every billion dollar program will require a battle.

    Second, future entitlement obligations will require significantly more money than a 21.5% of GDP target will allow. Social Security and Medicare are require more money than their respective taxes raise, meaning general revenue is required to make up the difference. That means the Federal government has to spend more and either issue more debt or cut other spending to pay for senior citizens’ entitlements. This is the key issue in the Federal government’s financing and it’s not even in the discussion in DC… or Omaha.

    Third, Obamacare will drive another $1-2 trillion in Federal spending over the next decade – and that’s with the benefit a great deal of favorable accounting assumptions. The cost in the second decade of the program is likely much higher as the program grows. This will create yet another layer of entitlement spending that drives the need for a greater share of GDP flowing through Federal coffers.

    Setting a spending target of 21.5% of GDP requires drastically cutting entitlement benefits… mainly to the retiring members (i.e. older people) of the middle class. The other alternative is to set a tax revenue target well above 18% of GDP… and that will require more taxes… not on ly from the top 2% but from the working members (i.e. younger people) of the middle class.

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