Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktForm the WSJ this morning, A Short History of the Income Tax:
Unfortunately the corporate income tax, originally intended as only a stopgap measure, was left in place unchanged. As a result, for the last 98 years we have had two completely separate and uncoordinated income taxes. It’s a bit as if corporations were owned by Martians, otherwise untaxed, instead of by their very earthly—and taxed—stockholders.
This has had two deeply pernicious effects. One, it allowed the very rich to avoid taxes by playing the two systems against each other. When the top personal income tax rate soared to 75% in World War I, for instance, thousands of the rich simply incorporated their holdings in order to pay the much lower corporate tax rate.
There has since been a sort of evolutionary arms race, as tax lawyers and accountants came up with ever new ways to game the system, and Congress endlessly added to the tax code to forbid or regulate the new strategies. The income tax act of 1913 had been 14 pages long. The Revenue Act of 1942 was 208 pages long, 78% of them devoted to closing or defining loopholes. It has only gotten worse.
The other pernicious consequence of the separate corporate and personal income taxes has been a field day for demagogues and the misguided to claim that the rich are not paying their “fair share.” Warren Buffett recently claimed that he had paid only $6.9 million in taxes last year. But Berkshire Hathaway, of which Mr. Buffett owns 30%, paid $5.6 billion in corporate income taxes. Were Berkshire Hathaway a Subchapter S corporation and exempt from corporate income taxes, Mr. Buffett’s personal tax bill would have been 231 times higher, at $1.6 billion.
So which is Buffet…misguided or a demagogue?
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All Things in Moderation 
He's a demagogue in the sense that he knows the flaws in his argument, but he's making a populist argument for something I think he believes in–that there is a great deal of wealth concentrated at the top, and the government should take more of it to do Big Things and help The Little People.
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Kevin:If he really thinks the government is capable of doing Big Things for Little People, he should pledge his estate to the US treasury rather than to private philanthropic organizations.
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There is no logical defense of Buffett's argument under which he is not a hypocrite and demogogue. Misguided, too, imo. If he really felt strongly about it, he could even pay himself out a larger salary rather than taking his money out in capital gains and dividends. Then maybe he could be happy with his earnings being taxed twice at 35%.
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Is there anyone that can make Buffett's argument without being a demagogue, hypocrite or engaging in class warfare? It just seems like an easy way to dismiss his claims. It would be a little like me saying all Pro-Life advocates who haven't adopted a baby are hypocrites. I'd prefer to focus on the part of the article discussing how with every loophole we close, a clever lawyer, accountant or CEO discovers a new one. It seems foolish to continue to chase the false hope of somehow capturing the potential tax revenues through additional taxes or changing existing tax schemes. It seems pretty clear to me that simplification with very, very few deductions is the way to go.
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If you haven't read this one, Showdown at Gucci Gulch is a pretty good look at the 1986 tax reform efforts. Kind of an inside baseball look at the reform effort that as intended to get at what Ash is talking about — simplification. and OT to ash — I like Jack Daniels. but i'm willing to try other things too.
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ashot:Is there anyone that can make Buffett's argument without being a demagogue, hypocrite or engaging in class warfare?Sure…Buffet can. All he has to do is stop taking the steps he takes to limit his tax liability, and actually pay what he claims is his "fair share". He is making a moral argument…it isn't "right" that he pays X% while his secretary pays Y%. Well, it is already in his power to rectify that alleged injustice, if he truly wanted to rectify it. He chooses not to, which makes him a hypocrite. And the reason he chooses not to is because he knows his argument isn't true. Which makes him a demagogue.It would be a little like me saying all Pro-Life advocates who haven't adopted a baby are hypocrites.No, it isn't like that at all. Pro-life people do not argue that other people should adopt babies. They argue that other people should give their babies up for adoption rather then get an abortion. What would be hypocritical would be if they argued as they do, but went out and got an abortion anyway. Which is precisely analagous to what Buffet does when he argues for higher taxes but then does what he can to limit his own tax liability.It seems pretty clear to me that simplification with very, very few deductions is the way to go. I wholeheartedly agree. In fact, I want simplification to the point that there is a single percentage number that everyone pays. Doesn't get much simpler than that.
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Ashot,Someone could make an argument for higher taxes that wasn't hypocrtical and everything else Buffett's argument is, but the problem for him is that he is making this a moral issue, one of justice, and he compounds the problem by personalizing it — using his own taxes versus his mythical secretary's — to make the point.His recent editorial isn't the first time he's said these things. He has said them for a long time. I first started pointing out the hypocrisy inherent in it when it was brought up at PL a long time ago as well, and the initial defense was always that you aren't allowed to "give" money to the government. One of the old posters there, Tena, who claimed to be a lawyer, gave this scoffing answer, so I posted a link to a Treasury page that explains how to give money to the government. That pretty much ended that argument.I don't think your analogy works. There is no hypocrisy involved in opposing abortion without adopting children, because the only standard of conduct entailed in the moral proposition that abortion is wrong is not to participate in abortion. If I said abortion is immoral and should be illegal, but ran an abortion clinic, giving as a defense that it is legal for me to do so, even though I advocate making it illegal, I would be a hypocrite. This is much more like Warren's claim, which is, "I do not pay my fair share, because the law does not require it," and more broadly "Rich people like me do not pay our fair share." His is a position that says, I am not doing what justice requires, because the law currently does not require it, even though I advocate that the law be changed.
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qb:I wish I had said that. 😉
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Scott,Funny, I thought you said it better. (Wouldn't cao be disgusted by this mutual admiration society?)This is one of the little things I find interesting about blogging and commenting — seeing how different people express the same ideas differently. Another aspect of my inner geek.
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Is it possible for us to say that while his comment may be hypocritical, in that he takes advantage of the tax situation himself, that there is still a larger point, that the advantage he and other investors like him have should be changed through the tax code?I think most of us would agree that the tax code needs to be revised but I doubt we'd agree on the final changes. Isn't one of the issues before the "Super Congress" to simplify it?
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Everybody is saying, "Okay, Buffet, then donate to the Treasury, take a higher salary, pay more."What about the others in his class?He isn't making the point that it is all about him; he is making the point about his class, and that the current tax code is unfair.Because he could donate, because he could pay himself a higher salary, does all that make the current tax code somehow fair?So what if he is hypocritical, or a demagogue because he doesn't do the above things; his point is valid, and we need(ed) someone at his level to say so.And since when was Treasury supposed to be a charity case to donate to, anyway? Is that what our gov't is supposed to be, CHARITY? We are supposed to depend on the charity of the rich in order for our gov't to run? REALLY?The tax code must be reformed. I like the idea of few or even no deductions. I would dearly like to see all income treated as income, not as a division between income and capital gains.I don't remember who said it yesterday, but someone talked about being wealthy as opposed to being rich. It was a good post, and I would far rather be wealthy than rich.
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lms:there is still a larger point, that the advantage he and other investors like him have should be changed through the tax code?That's the thing…they don't have an advantage, or at least not the one being claimed. The money that Buffet earns gets taxed twice, first as corporate tax and then as dividend/capital gains. He's right that he doesn't pay the same rate as his secretary…he actually pays way more.
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lms,Yes, I think it is possible to say, Warren might be right even if his own actions are inconsistent with his words, and I suppose his supporters could even argue that this hypocrisy point is evasive.But as with many hypocrisy arguments that are well grounded, I think it is difficult to defend his own belief in what he says, which I would surmise is why he never answers this question.His claims about the tax system nevertheless provide an occasion to examine the issues, although nothing he says is in any way new or original. I find his failure to address issues like the relationships between savings, corporate taxes, cap gains and ordinary income to be disingenuous and thus, as Scott's post suggests, seemingly demogogical.
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Taroya:Because he could donate, because he could pay himself a higher salary, does all that make the current tax code somehow fair?No, it makes him a hypocrite. And I think the tax code is definitely unfair, just not in the way you probably do.So what if he is hypocritical, or a demagogue because he doesn't do the above things; his point is validNo, it's not. Contrary to what he says, he actually pays a higher percentage of his income in taxes than his secretary does.
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Taroya,No one is saying make taxes voluntary (I don't think). we are, rather, questioning the sincerity and strength of Buffett's argument for raising taxes based on the inconsistency between his words and deeds.Imo, the fact that he has not paid his "fair share" likely reflects some recognition of the problems with his tax argument, and it certainly casts doubt on the sincerity of his claims. Why should we listen to someone who doesn't walk the walk he talks?
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Why should we listen to someone who doesn't walk the walk he talks?This could be said of most politicians as well.I have to go but thanks for the responses above. I hope we get an improvement on the tax system we have although I don't agree on a flat tax. I still think there's room for a progressive income tax without all the loopholes. I don't know about eliminating the corporate tax though. There are advantages to incorporating that the average citizen doesn't receive regarding liability and what not, and also corporations are people and a separate entity from their owners, so I'm not sure the corporate tax should just be eliminated. There are a lot of great ideas out there for maintaining an appropriate revenue stream fairly, I just don't trust our current crop of Congressional persons to come up with it.
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"If he really thinks the government is capable of doing Big Things for Little People, he should pledge his estate to the US treasury rather than to private philanthropic organizations."I haven't read all the responses, but I believe his belief in that regards is it is a better overall policy that everybody at a certain level be contributing more than they do, not just him.Arguably, someone who wants to pay less in taxes and thinks the government could get by with less has the option of making less money, and therefore paying less taxes, but the argument isn't usually about them personally wanting to pay less taxes–they think it's a good idea that we all pay less taxes, or that the job creators all pay less taxes. He's not advocating his fellow rich people donate their personal fortunes, he's arguing that it's better revenue policy that everyone over a certain level pays more. Whether that's true . . . that's another story.
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However, I should say, I don't think "unfair' is a relevant term. Either tax policy is as productive as it's likely to be in a large country, best designed to represent the interests of as many people as possible, or it's not. It is not in the interest of everybody for the government to be completely unable to function, I don't think, and it's not in the best interest of the country to chase all the wealthy folks out with confiscatory taxes. Whether it's unfair that rich people pay a higher percentage, or if it's unfair that I pay less as a percentage, but have nothing left over after basic expenses are met, seems irrelevant. What's the best arrangement for the government to best represent the interests of the people? As much as such a Herculean task can be managed in the real world.
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I guess my abortion comparision has more to do with the fact that you guys are attacking Buffet's argument by pointing out he isn't doing everything he could do to end the problem. Similarly Pro-Life advocates who are ostensibly protecting the sanctity of life are falling far short of doing everything to do so. It certainly isn't a perfect comparison, but hopefully I cleared it up a little bit.I also don't like making taxes a moral issue and I generally loathe using personal anecdotes that are the exception rather than the rule as a means to advocate for a particular position. That isn't to say that Buffet is the only billionaire paying less in taxes percentage wise than their secretary. But I generally think that is not the norm.
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Kevin:he's arguing that it's better revenue policy that everyone over a certain level pays more.No, he's not making a revenue argument (although I have heard him make that argument as well). He is making a moral argument….it isn't "right" that I pay X% while my secretary pays Y%.However, I should say, I don't think "unfair' is a relevant term. Either tax policy is as productive as it's likely to be in a large country, best designed to represent the interests of as many people as possible, or it's not.I don't think I could disagree with this any more than I do. One of the founding principles of our government is to protect the rights of citizens. Rights are first and foremost questions of morality. And one of the primary duties of government, and indeed the very reason behind the inclusion of the Bill of Rights in the constitution, was to protect minority groups from the interests of the majority. In other words, it is not the government's duty to simply maximize the interests of as many people as possible. In fact it is the government's duty to protect individuals precisely when the the perceived interests of a voting majority would impose unjust impositions on a minority group. An income tax is no more immune to challenges on grounds of fairness, justice, or rights, than, say, a law which would place special burdens on Muslims designed to maximize the interests of the non-Muslim majority of people.
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ashot:I guess my abortion comparision has more to do with the fact that you guys are attacking Buffet's argument by pointing out he isn't doing everything he could do to end the problem.My problem with Buffet is not that he isn't doing everything he could do to end a problem. It that he is falsely portraying his own situation in order to claim that a problem exists which he knows does not exist. That isn't to say that Buffet is the only billionaire paying less in taxes percentage wise than their secretary.Far from being the only one, he isn't one at all. The claim he makes is hugely deceptive, and he knows it, which is why I find it (and him) so detestable.
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"In fact it is the government's duty to protect individuals precisely when the the perceived interests of a voting majority would impose unjust impositions on a minority group."Mobocracy would explicitly, in my opinion, not be in the general interest of the greatest amount of people. I see your argument, that the moral argument is critical (I don't disagree, per se, but I think pragmatism is an approach in regards to achieving a moral outcome), but a government protecting individuals and minority groups is clearly (to me) in the best interest of the society as a whole. "An income tax is no more immune to challenges on grounds of fairness, justice, or rights, than, say, a law which would place special burdens on Muslims designed to maximize the interests of the non-Muslim majority of people."Absolutely. I'm just saying, in my personal opinion, it's the pragmatic argument that influences me more than the moral. I think it's hard to arrive at the moral choice without a consideration of pragmatic outcomes. Which really begs more discussion that we have time for, but . . . I still wanted to try and clarify a little bit. Yes, Buffet is making a populist argument. I don't think he's serious about the fairness argument. But, maybe he is. In which case, I disagree with how he's making his case. It's not unfair that he pays less as a percentage than his secretary (and if he's paying his secretary a decent wage, she shouldn't care, either). But can the government do general good with more revenue, and is a good source of that revenue a minor increase in taxes on certain superwealthy people, and can these increases happen without distorting markets? That question makes sense, to me.
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Sure, I'll change the subject.What we have is a larger population, which calls for a greater expenditure, which requires more revenue. For the gov't, that would be taxes.Why do our taxes not cover what we need right now? Well, first, yes, we are over-extended. We were fine without two wars and medicare part D, and had a tax cut. We may have been able to sustain that tax cut for while, too, if it hadn't been for blah blah blah.But only for a while. As the population increases, it doesn't mean that revenue increases. How much is a minimum wage twenty-year old going to pay in income tax, and how much stuff are they going to buy with their rather meager paycheck? Taxes had to go up. Or rather, they have to go up. The rich may be first, but they won't be last.We simply cannot sustain a population like we have without more revenue, and you can't wring blood out of a stone.
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"We simply cannot sustain a population like we have without more revenue"Slash defense spending, you might. Roll back Medicare Part D. It doesn't have to be all tax hikes and, in the current climate, it just isn't going to be. But it's unlikely to be defense spending cuts, as there are too many fingers in that particular pie.
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