A Minimum Tax for the Wealthy

http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html?smid=fb-share&_r=0

by swohns • 14 years ago

79 145 14 years ago

mtgx• 14 years ago

> 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

Makes sense, but only after you've paid off all or the vast majority of your debt, which means for a decade or two you'll need to have the income be significantly higher than spending, and pay off the debt with the difference.

r00fus3• 14 years ago

Yeah, back before Bush's looting of the US treasury for his rich pals, we had budget surpluses. In fact, it might have been possible that we would now have paid off the debt if Bush never took office.

nugget3• 14 years ago

Government is the least efficient allocator of resources. For every dollar put to use, many more dollars are wasted due to incompetence or fraud. California's Proposition 30 was a wake-up call for me; despite all the political advertisements to the contrary, the many billions raised for "education" went entirely to shore up the teacher's bloated pensions and benefits fund.

Entrepreneurs are some of the most efficient allocators, because they are decision makers with a vested interest in the outcome. This concept is so rare as to practically not exist in the public sector.

I'm not opposed to higher taxes. I am opposed to throwing money, mine or anyone else's, into a black hole. Convince me that the extra tax dollars will be spent wisely and that society will see a net positive return at some point in the future, and you have my support.

ballstothewalls• 14 years ago

Government is the least efficient allocator of resources? Says who? How many wealthy individuals are sitting on piles of money right now because they are unsure of the economic climate and therefore are not going to invest? Who better than the government to take it away from them and then invest it into public infrastructure and consequently stimulate the economy?

nhangen3• 14 years ago

What gives the government the right to 'take it away from them?'

skibob1027• 14 years ago

Wealthy people don't "sit on piles of money". That money is either held in a bank or invested. If it's in a bank, it is able to be loaned out to others looking for access to capital now. If its invested, it's being used as capital in a business (assuming it's and equity investment).

tsotha9• 14 years ago

>How many wealthy individuals are sitting on piles of money right now because they are unsure of the economic climate and therefore are not going to invest?

So what? It's their money.

rpm43216• 14 years ago

Why do you think they are sitting on these piles of money rather than investing it? It's because of the incessant sabre-rattling from the left over the past six years about raising taxes and ramping up even more regulation. It has a chilling effect.

nugget3• 14 years ago

It's very difficult to be "sitting on piles of money" in the way you imply unless you've literally perched yourself atop a chair constructed from stacks of US dollar bills.

When a millionaire earns an extra million dollars, he or she puts it somewhere - into stocks, or bonds, or other investments, and sometimes, rarely, keeps it in a bank account for years on end where it sits and earns no interest. With the exception of the bank account, all of these are capital re-investments that stimulate the economy in some way.

prostoalex7• 14 years ago

Oh right, investing in infrastructure == stimulus for the economy.

http://www.slate.com/articles/business/project_syndicate/201...

silvestrov• 14 years ago

That has nothing to do with the article. No matter how inefficient the government is, they still need money. And the article is about who pays how big part of that money.

Retric• 14 years ago

'Entrepreneurs' are terrible at allocating capital. Just compare the ROI from venture capital funds vs the S&P 500 over the last 20 years to get some idea. And no the vast majority of CEO's of a fortune 500 company are not Entrepreneurs for any reasonable definition of the term.

PS: It's important to include failures and opportunity costs when you talk about Entrepreneurs or your basically saying lottery winners are great at allocating capital.

nhangen3• 14 years ago

I'm with you. Until the federal gov can prove it is willing to even attempt a balanced budget, is willing to stop giving handouts (to both the wealthy and the lazy), and proves it will actually invest in something other than bad cars and banks, then there's no reason they should get anything more than they already do.

If you keep feeding a monster, all you get is a bigger monster.

ghouse2• 14 years ago

Your argument assumes that people making spending decisions care about the debt. 30 years of government run by both sides of the aisle demonstrate that revenue and expenditures are entirely decoupled.

Whether you feed or don't feed the monster doesn't impact the monster's size. If you stop funding government, all you get is a larger debt.

brianchu• 14 years ago

Where did you get the idea that "the many billions raised for 'education' went entirely to shore up the teacher's bloated pensions and benefits fund?" (emphasis added)

As far as I'm aware, the majority of the money went to prevent spending cuts in education budgets, and the rest went into the general budget (http://voterguide.sos.ca.gov/propositions/30/analysis.htm).

Hyperbole is not necessary to make your point.

gwright10• 14 years ago

It is a mistake to try to analyze spending in this way.

Dollars are fungible. Dollars directed to one particular budget item (education budgets in your example) simply frees up other dollars to be used elsewhere (pensions and benefits in the parent comment).

tsotha9• 14 years ago

>For every dollar put to use, many more dollars are wasted due to incompetence or fraud. California's Proposition 30 was a wake-up call for me...

You needed a wake-up call after the shenanigans we've seen in Sacramento over the last decade? They won't even spend the extra money. They'll use it as leverage to issue bonds. Tax increases in California have become mere guarantees taxes will be raised yet further at some future date.

alwaysdoit• 14 years ago

>Government is the least efficient allocator of resources.

This is baseless dogma. Government may not always be the most efficient allocator, but it's not always the least efficient either. In cases of positive and negative externalities, the market does not allocate ideally.

We need to move past this dogma of "All government is bad government" so that we can separate the good from the bad. Good rules are helpful. Bad rules are harmful. When we have low expectations of our government, we will unsurprisingly have low outcomes.

ruby_on_rails2• 14 years ago

I think what nugget is getting at, is there are many government programs that are mismanaged (welfare, social security, education to some extent, and others). Who legitimately feels good that they pay taxes only to see other Americans living off of Welfare, generations unemployed, living off of welfare (which btw, I consider to be fraud). People that live on welfare (no, not people who use the program as it was intended, as temporary help), don't pay taxes and the benefit from those of us that do pay taxes.

When confronted with situations like the one described above, any rational person would wonder why we want higher taxes, when we should really be focusing on reforming our broken social programs. Only then, when we take legitimate steps to reform our broken social programs, should we be considering higher taxes.

forensic13• 14 years ago

Entrepreneurs only work for human beings with money. Who works for those without?

It doesn't matter how inefficient government is. Government is the only entity that works for the disadvantaged.

Government is also the only entity capable of addressing collective problems.

prostoalex7• 14 years ago

> Government is the only entity that works for the interest of the disadvantaged.

oh rly? http://www.nps.gov/partnerships/fundraising_individuals_stat...

gyardley2• 14 years ago

You can't possibly actually believe this.

When I'm doing volunteer work, I'm working for the interest of the disadvantaged. My synagogue collectively works for the interest of the disadvantaged through their social action programs. My town's interfaith food bank is run very well and addresses a collective problem without taking a dime of government support.

Government plays a role in helping the disadvantaged but it doesn't play the only role, it's not necessarily the most effective role, and since it involves taking money from people involuntarily, we should make damn sure the help's truly necessary and there's not a better, voluntary way to do it first.

brg3• 14 years ago

Government is the only entity that works for the disadvantaged.

The Red Cross, the Salvation Army, the Catholic school and hospital network (CRS), Doctors without Borders, Lutheran World Federation, the ACLU, etc etc etc.

ianb5• 14 years ago

This response has become the standard (non sequitur) response to proposals for progressive taxation, but it doesn't engage at all with the argument being made.

The degree to which taxes are progressive doesn't determine the total tax collected, or the amount the government expends, it determines how that burden is applied to people. What we should really be comparing is: does an individual allocate their first $100,000 of income with any different efficiency than their second, third, or fifteenth $100k of income? If you give $1000 to a person who makes $50,000 a year, and $1000 to someone who makes $1,000,000 a year, who will allocate that money better? I think most of us would feel intuitively that the person making $50,000 would use it "better", but there's fair arguments to the contrary as well (including figuring out what "better" means). But only when you ask that question are you asking about progressive taxation, not just tax burden as a whole.

gwright10• 14 years ago

Why are you framing the argument as if incomes are something that are owned by the government instead of the person who earned the money?

The notion that taxation should be predicated on whether the government or the person can 'better use' the person's money is damn scary.

mcantelon• 14 years ago

>Entrepreneurs are some of the most efficient allocators, because they are decision makers with a vested interest in the outcome.

Not if they're burning through someone else's money. Then it's as big a shitshow as government.

chasing2• 14 years ago

"Entrepreneurs are some of the most efficient allocators, because they are decision makers with a vested interest in the outcome. This concept is so rare as to practically not exist in the public sector."

What a shitty, smug attitude to have towards the many very bright and motivated people who work in the public sector. They're not all perfect, but neither are all entrepreneurs. Not by a long shot.

nugget3• 14 years ago

I didn't say that folks in the public sector are lazy or stupid, I said that there is rarely a direct connection between their performance on the job and their financial upside. Public sector workers are much more concerned about downside protection (i.e. avoid controversial decisions, cover your ass). In many cases, and I've seen this first hand, inaction is safer than action, whereas the opposite is usually true in business and especially in startups.

tsotha9• 14 years ago

Hey Warren, instead of an income tax, don't you think a wealth tax would be better?

Oh, I thought not.

ianterrell• 14 years ago

At taxable income nearing $40 MM in recent years, I'd say he's a decent candidate for speaking on income tax.

http://www.huffingtonpost.com/2011/10/12/warren-buffetts-inc...

tsotha9• 14 years ago

Yes, well, with 1000x that in assets I'd say he's an even better candidate for a wealth tax.

damian2000• 14 years ago

It would be against the US constitution anyway. http://en.wikipedia.org/wiki/Wealth_tax

tsotha9• 14 years ago

Did you read that link? It would only be unconstitutional at the federal level, and even a federal wealth tax would be constitutional if the revenue were "apportioned among the states".

jaggederest2• 14 years ago

Hmm, if only such a thing already existed...

http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

Although when anyone in my lowly tax bracket has to worry about it, it's pretty sad.

jcampbell1• 14 years ago

AMT + Deduction Cap would be the same thing effectively, assuming the deduction cap applied to everything. Right now the reason people make millions and pay no taxes is because they give generously to charities, and their investments are tax-free muni bonds. AMT still allows too many deductions to force all the top earners into paying taxes.

rdl6• 14 years ago

The big deal is that AMT doesn't apply to capital gains (at least not directly; it can cause you to blow the exemption cap though)

jaggederest2• 14 years ago

I suppose my point is that we have a feature in the tax code which is ostensibly designed to achieve his very goals, but it's become useless over time because a) it's not indexed to inflation, and b) it allows some deductions and generally adds complexity, rather than being a true flat minimum.

nhebb2• 14 years ago

> 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.

Personally, I don't care if the wealthy pay higher taxes. In the recent election, 8/10 of the wealthiest counties in the US voted for President Obama, and his stance on tax rates was clear. If those voters are willing to pay higher taxes, I'm fine with that.

But what I really hate is the class warfare and populist messages driving fiscal policy. With the threshold at $250k, the tax hikes would still only bring in enough added revenue to cover 8 days of federal spending. And "fair share"? The top 5% pay 40% of the federal income taxes collected. In order to generate the kind of revenues that would make a significant impact on the deficit, taxes would have to go up across the board, which in turn would lead to an economic slow down.

sami362• 14 years ago

Or you could pursue a balanced approach. Raise taxes on the wealthy, a little bit & cut intelligently across all programs. The defense budget is bloated, SS could be means tested, Medicare must be both means-tested & some of the benefits curtailed.

r00fus3• 14 years ago

> With the threshold at $250k, the tax hikes would still only bring in enough added revenue to cover 8 days of federal spending.

Does that include the restoration of pre-Bush capital gains tax? Because I'm sure that would add up to a lot. In fact, I think that's the biggest thing that the ultra-rich have become addicted to in the past decade.

cynicalkane2• 14 years ago

Talk about the "ultra-rich" becoming "addicted" to money is loaded nonsense, but never mind.

The idea of taxing investment income leads to a lot of terrible, perverse outcomes. It steers wealth towards being locked up in big companies and funds, since this is how you compound investment fashion without that money being repeatedly taxed. It also makes sure the incentive to invest on one's own accord belongs primarily to capitalists, since the tax naturally compounds when you buy and sell on your own account. Non-capitalists must allocate their money in one of a handful of government-approved fashions, or be eaten by repeated capital gains taxes for things as simple as rebalancing.

Capital gains taxes seem motivated by a broad desire to soak the rich, but you will find very few economists on the left (or the right) supporting this idea over alternatives like a progressive consumption tax. Capital gains taxes are one more example of a clueless "progressive" idea leading to outcomes that are poor to both progressive and non-progressive perspectives.

a5seo3• 14 years ago

not precisely what you asked, but a useful approximation:

"If the IRS grabbed 100 percent of income over $1 million, the take would be just $616 billion. That’s only a third of this year’s deficit." [2012] -- http://www.forbes.com/sites/danbigman/2012/04/03/john-stosse...

prostoalex7• 14 years ago

wealth == accumulated assets, but wealth != income

High-income people are frequently wealthy (outside of incomes derived through lottery winnings), but the two are not equal in their political views - those sitting on their wealth will be in favor of income taxes (since they barely have any), those who work for income will lean in favor of asset and consumption taxation (property, estate and sales taxes).

notJim2• 14 years ago

This seems like a riskily reductionist point, as we know that people aren't always single-issue voters focused on achieving their financial best interests.

notJim2• 14 years ago

This seems like a willfully ignorant reading of the op-ed. There is context here which any reasonably well-informed person should be aware of, which is that the gains made by top earners far outstrip the gains made by middle and lower income people. As a result, those people are worse off than they were in the past (their income has failed to increase relative to cost of living increases in recent decades.) So the reason people focus on the wealthy is that middle and lower income people are already at their breaking point.

Also, it isn't clear to me if you're referring to the "Buffet Rule", or to a scheme like the one proposed by Buffet here. In any case, he admits that even if we did the first part of what he is proposing (the minimum tax for the wealthy), there would still be work to be done.

a5seo3• 14 years ago

For more context:

"You hear a lot, in books, in the blogosphere, among pundits that the middle class is being hollowed out, the incomes for all but the top 1% or maybe the top 20% are stagnating; that the gap between rich and poor has grown inexorably; that the American dream is dead"

"[these claims] are basically wrong. And that's what 10 years of research by myself and James Sullivan at Notre Dame has shown. If you measure incomes better, accounting properly for inflation, median incomes have gone up by about 50% since 1980. And if you look at consumption, it's gone up by a similar amount over that whole period--though exactly when it went up is slightly different from the income pattern."

http://www.econtalk.org/archives/2011/10/bruce_meyer_on.html

nhebb2• 14 years ago

It wasn't a willful misreading. I was addressing the part that I quoted - because it's likely to be a debate point in the fiscal cliff negotiations.

tsotha9• 14 years ago

>Personally, I don't care if the wealthy pay higher taxes. In the recent election, 8/10 of the wealthiest counties in the US voted for President Obama, and his stance on tax rates was clear. If those voters are willing to pay higher taxes, I'm fine with that.

That's because they don't expect to pay higher taxes. When you have enough money you can route your income through offshore shell corporations and paper banks in the Mediterranean. Taxes are for the little people.

sunsu• 14 years ago

“Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

The problem is not that the wealthy won't invest if they are taxed at higher rates. Its that they will have LESS to reinvest with after gains are taxed. Its strictly a matter of who you believe distributes resources more efficiently: the government or the people.

hackinthebochs7• 14 years ago

Of course "efficiently" depends completely on what property you're trying to optimize for. Individuals work for themselves, government (theoretically) works for the people. It is not a given that "the people" will be more efficient for all such properties.

w3pm3• 14 years ago

You misunderstand the context of efficiency. We're talking about efficiently allocating limited capital resources. This is done by 'prices.' The government by definition cannot efficiently allocate capital because there exists no market signal from capital consumers as to how the scarce resources should be best utilized. The government can only guess and spend.

ghouse2• 14 years ago

If small government advocates really wanted a broad base of support, they'd insist that tax rates always cover government expenditures. Then people would be upset about big government.

However, the current attack against raising taxes (from their current historically low rates) only raises the debt and weakens our fiscal foundation.

anigbrowl• 14 years ago

This thread is a sad example of why articles on politics are discouraged on HN. None of the comments engage substantively with the article and most consist of unsupported assertions, as well as failing at staatistics.

tinco• 14 years ago

Haha is this comment meant to be self referential?

bravura• 14 years ago

Is it possible for non-investors (i.e. small business owners) to avoid taxes using strategies like a "Cayman Islands mail drop"?

If so, I propose this HACK to solve the tax issue:

Create a site that disseminates information on how small businesses can avoid (not evade) taxes using these approaches that are typically only known to advanced acolytes. Evolve processes that significantly reduces the cost for avoiding taxes effectively. (I imagine that that these complicated loopholes aren't actually that complicated, just that the knowledge is rarified.)

If many people, including a large portion of the upper-middle class, reduced their tax liability, this would significantly increase the amount of attention paid to this issue.

prostoalex7• 14 years ago

Small business owners are least affected by capital gains increase, since the capital gains tax event is triggered only during sale. The proposed terms of sale (taxation included) don't make sense for you as the business owner? Then either ask for a higher price or don't sell.

neilkelty3• 14 years ago

If Mr. Buffet is so concerned about the amount of taxes paid by the wealthy he should use this simple form (https://www.pay.gov/paygov/forms/formInstance.html?agencyFor...) to set an example.

arn3• 14 years ago

This is an absurd (yet common) response.

And if you are for a war, why don't you buy a gun and go fight?

neilkelty3• 14 years ago

Not quite sure why it's an absurd response?

mhartl• 14 years ago

A more apt analogy would be, if you're for a war, why don't you enlist? But lots of people in favor of wars do just that. What Buffett is saying is essentially, "Let's institute a draft." Lots of wars have had that, too, of course—which is not necessarily a good thing.

001sky• 14 years ago

A major problem is income != wealth.

-- And it took a constitutional amendment to tax income.

AnthonyMouse2• 14 years ago

>But what I really hate is the class warfare and populist messages driving fiscal policy.

This.

The thing that really gets me are the people who should know better, like Warren Buffet. You read the article and he's making straw man arguments about billionaires stuffing their cash in mattresses because their taxes are too high -- nobody is arguing that. The real problem is that taxation is economically distortionary and the higher you raise the rates, the greater the distortion. Because taxes are only due when assets are sold (and in the meantime the owner is collecting asset appreciation on the portion of the value that would have been due in taxes), capital gains tax encourages investors to hold their existing assets rather than seeking out more economically efficient ones. It encourages them to invest in more stable assets that can be held for a long period of time to defer taxes, rather than taking a risk on a startup that could cause tax to be due sooner when there is an IPO etc.

Or the tired numbers about how the rich are a lot richer now than they used to be and their taxes are lower, without providing evidence of causation rather than correlation. I mean sure, the richest might have 4.5X as much as they did twenty years ago instead of 5X, but is that really the big problem? Or is the real problem the regulatory capture and Wall St. shenanigans that allow the rich to double their money every five or ten years while Main St. loses their retirement fund to the same stock market?

At the same time, everybody just assumes that if you want to collect more tax money from the rich, raising the capital gains tax is the way to do it. Or the same with corporations and corporate income tax. But both of them are way, way too easy to avoid and for the same reason -- they depend on measuring profit, and it's gotten to be trivial to make an entity look unprofitable on paper. Raising the rates won't help that, it'll just push more people into tax shelters.

If you want to tax the rich and corporate entities then you have to tax the stuff they don't have a choice about doing. Sales tax, but the tax is paid by the seller not the customer. Income tax, but the tax is paid by the employer, not the employee. If you want to do business you need employees and customers, so they can't avoid paying taxes with shelters and loopholes. That's how you tax the rich. Capital gains tax is just a shell game that encourages accounting tricks and offshore banking.

ianb5• 14 years ago

I'd kind of dismissed the idea of a consumption/sales tax as terribly regressive, but it doesn't have to be, and lately I've been wondering what the distribution might look like. To make a sales tax more progressive, you might in effect say that the first $20,000 you spend is tax-free. If you have a 10% tax, then you just give every individual $2,000 cash (and ignore that some people spend less than $20,000 – that's the sort of loophole that can never grow very large).

Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back? Could we replicate something similar to the progressivity we have now?

But there's still distortions. Consider high Shipping & Handling fees – these are often done because S&H is considered a service, and so sales tax is not levied on that portion of the cost. But a $0.01 book with $7 S&H is clearly bullshit. But who is there to call the seller on that bullshit? Why are goods taxed but not services? I've never been clear on that.

rdl6• 14 years ago

One interesting form of taxation might be to tax purely status purchases. e.g. in countries like Singapore, where you don't really need a car, they tax cars heavily -- yet rich people still go out of their way to get super expensive cars to show off. Progressive real estate taxes, luxury taxes on vehicles, expensive types of clothing or jewelry, etc. wouldn't deter purchases much, but would raise money.

The most awesome tax I have ever seen is auctioning short license plates (done in the middle east and Hong Kong) -- pure profit for the state, and artificial scarcity created by the state. In fact, it's "better" for me to own the "1" license plate if everyone knows I spent $10mm on it than if they thought I got it by being lucky.

(In general, I'd like to see more VAT + poll + etc. taxes vs. income or investment taxes. And taxes on things we want to discourage, like pollution.)

AnthonyMouse2• 14 years ago

>Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back?

It seems like the math is fairly straightforward, but dependent on how much money you need to raise. The big question is to what extent you would want something like that to displace other taxes. If you wanted to displace all other federal, state and local taxes then a sensible rate would likely have to be in the nature of 20-30% (depending on the size of the exemption and how much money the government is to spend).

>Could we replicate something similar to the progressivity we have now?

It seems to me you could achieve an arbitrarily large degree of progressivity by playing with the size of the exemption. In the extreme case you pay everyone something like $50,000/year and then have an extraordinarily high tax rate, but then you get a different kind of distortion where people quit their jobs because they can live off the tax rebate.

On the other hand, having a substantial unconditional rebate (not that large, but say $5000-$10,000/year) would eliminate the call for many need-based programs, because those in need would then have that money with which to buy food and shared accommodations, etc. That would significantly reduce government expenditures for those programs and allow such a large rebate to be had without the need for a prohibitively high tax rate. (It would also eliminate several redundant government bureaucracies dedicated to administering now-redundant need-based programs.)

> Why are goods taxed but not services? I've never been clear on that.

I think it's jurisdiction dependent. But as to why, it's almost certainly only because that's what has been successfully lobbied for by someone. There isn't any sound economic rationale unless you want to encourage the purchase of services over goods for some reason, at the cost of exactly the sort of distortions you're talking about.

tsotha9• 14 years ago

>I'd kind of dismissed the idea of a consumption/sales tax as terribly regressive, but it doesn't have to be, and lately I've been wondering what the distribution might look like.

In California the sales tax doesn't apply to clothing under a certain price or food staples. Since poor people spend a high percentage of their money on these things it's not a big burden for them.

If they want to buy booze or a big screen TV they can pay sales tax like the rest of us.

A Minimum Tax for the Wealthy

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