6 ms·

It gets boring to repeat this comment so often, but: Buffett's income is mostly in the form of capital gains and dividends. These are paid out of the taxable in

ewjordan 17y ago
It gets boring to repeat this comment so often, but: Buffett's income is mostly in the form of capital gains and dividends. These are paid out of the taxable income of corporations. So he pays a direct 15% tax on something that's previously been taxed at 35%--a low rate, if you ignore the 35% part. And the local 7-11's income is paid out of the taxable income of its customers, who have previously been taxed at their normal income tax rates. And those customers income is coming from an employer that takes its income from customers that have already been taxed at normal income tax rates. There's nothing nefarious going on here, income tax has always been collected at every hop. The exception is that businesses can deduct expenses against earnings, so some B2B transactions are "immune" from income taxation. Sure, I'd be all for a system that taxed held wealth each year instead of income, I think it would be a hell of a lot more fair (both the pain you feel by paying taxes and the benefits you receive from living in this country scale with wealth a lot more closely than income), but that's another matter. As things stand, every dollar that anyone sees has already been taxed many times before, and it will be taxed again every time it's used. I see no reason things should be any different because money is coming in from an investment as opposed to work.
- deleted 17y ago
  [deleted]
- byrneseyeview 17y ago
  The difference here is that it's the same kind of income. If Warren Buffett personally owned a soft-drink company earning $1 billion each year, he'd pay ~40% of that in income taxes. If Coca-Cola earns $1 billion, it pays 35%, and then he pays 15% to see any of it. It's essentially a tax on liquidity. Another way to look at that is that it's a big subsidy for people with enough concentrated wealth to take something private.
  - bwh2 17y ago
    I just wanted to point out that neither dividends nor share price require taxable income. Corporations with zero taxable income can both pay dividends and have share price go up. In that case, the investor is only paying 15%, not 35% x 15%.
    - byrneseyeview 17y ago
      They can only pay dividends out of money they've raised or money they've earned. If it's the former case, they're just shuffling money from all investors to equity investors, and giving the government a 15% cut (so investors lose). In the latter case, the general taxable-income argument applies.
      - bwh2 17y ago
        Actually, the general taxable income argument may still not apply depending on how previous loses are carried forward. Which really ties into another point I was going to make that companies are quite adept at minimizing tax exposure. The GAO reports the average corporation pays an effective tax rate of 25.2%. http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta... But obviously, mileage may vary: http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQVsZS2_18 http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQ...
- kevinpet 17y ago
  I believe the point was that Buffet was comparing two things as if they were equivalent, while in fact one has an additional level of taxation between when it provided value to a consumer and when it got into the hands of the person providing the value. A corporation's income does not include money paid out in salaries (as it obviously shouldn't).
codexon 17y ago
15% of 35% is still lower than 35% of 35%. Why do you think so many CEOs like Steve Jobs have a $1 salary? Do you really think it is because they want to pay more taxes?
- byrneseyeview 17y ago
  Dividends are paid out of taxable earnings; salaries are paid out of pretax earnings
  - codexon 17y ago
    Why talk about dividends? As you should know, Warren Buffet isn't a fan of dividends, and brk pays no dividends. There are quite a few tax benefits by using stock options which I cannot be bothered to list them all. The most important benefit is that the company can use the money saved to invest right now instead of paying it upfront in taxes. The employee also saves by being able to decide which tax bracket he falls in and when to liquidate and incur taxes (likely when a Republican is in office). http://hbswk.hbs.edu/archive/2233.html http://hbswk.hbs.edu/archive/2233.html http://www.nytimes.com/2007/06/07/business/07tax.html http://www.nytimes.com/2007/06/07/business/07tax.html
    - byrneseyeview 17y ago
      Those are good theoretical arguments, but Buffett's income is much more likely to be in the form of dividends and taxable gains than stock options. He does own non-Berkshire stock (or at least did fairly recently; there are SEC filings indicating that he had a substantial personal stake in USG in 2006.)
      - codexon 17y ago
        They are not theoretical. It's amusing how you think you are smarter than these billion dollar corporations in saving money. Your conjectures on the other hand, are theoretical. If you actually knew what you were talking about, you would know that USG hasn't paid dividends since Feb 21, 2001. And interestingly this happened shortly after the first SEC filings that showed Buffet bought USG.

ewjordan 17y ago

It gets boring to repeat this comment so often, but: Buffett's income is mostly in the form of capital gains and dividends. These are paid out of the taxable income of corporations. So he pays a direct 15% tax on something that's previously been taxed at 35%--a low rate, if you ignore the 35% part. And the local 7-11's income is paid out of the taxable income of its customers, who have previously been taxed at their normal income tax rates. And those customers income is coming from an employer that takes its income from customers that have already been taxed at normal income tax rates. There's nothing nefarious going on here, income tax has always been collected at every hop. The exception is that businesses can deduct expenses against earnings, so some B2B transactions are "immune" from income taxation. Sure, I'd be all for a system that taxed held wealth each year instead of income, I think it would be a hell of a lot more fair (both the pain you feel by paying taxes and the benefits you receive from living in this country scale with wealth a lot more closely than income), but that's another matter. As things stand, every dollar that anyone sees has already been taxed many times before, and it will be taxed again every time it's used. I see no reason things should be any different because money is coming in from an investment as opposed to work.

deleted 17y ago
[deleted]
byrneseyeview 17y ago
The difference here is that it's the same kind of income. If Warren Buffett personally owned a soft-drink company earning $1 billion each year, he'd pay ~40% of that in income taxes. If Coca-Cola earns $1 billion, it pays 35%, and then he pays 15% to see any of it. It's essentially a tax on liquidity. Another way to look at that is that it's a big subsidy for people with enough concentrated wealth to take something private.
- bwh2 17y ago
  I just wanted to point out that neither dividends nor share price require taxable income. Corporations with zero taxable income can both pay dividends and have share price go up. In that case, the investor is only paying 15%, not 35% x 15%.
  - byrneseyeview 17y ago
    They can only pay dividends out of money they've raised or money they've earned. If it's the former case, they're just shuffling money from all investors to equity investors, and giving the government a 15% cut (so investors lose). In the latter case, the general taxable-income argument applies.
    - bwh2 17y ago
      Actually, the general taxable income argument may still not apply depending on how previous loses are carried forward. Which really ties into another point I was going to make that companies are quite adept at minimizing tax exposure. The GAO reports the average corporation pays an effective tax rate of 25.2%. http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_Sta... But obviously, mileage may vary: http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQVsZS2_18 http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQ...
kevinpet 17y ago
I believe the point was that Buffet was comparing two things as if they were equivalent, while in fact one has an additional level of taxation between when it provided value to a consumer and when it got into the hands of the person providing the value. A corporation's income does not include money paid out in salaries (as it obviously shouldn't).

codexon 17y ago

15% of 35% is still lower than 35% of 35%. Why do you think so many CEOs like Steve Jobs have a $1 salary? Do you really think it is because they want to pay more taxes?

byrneseyeview 17y ago
Dividends are paid out of taxable earnings; salaries are paid out of pretax earnings
- codexon 17y ago
  Why talk about dividends? As you should know, Warren Buffet isn't a fan of dividends, and brk pays no dividends. There are quite a few tax benefits by using stock options which I cannot be bothered to list them all. The most important benefit is that the company can use the money saved to invest right now instead of paying it upfront in taxes. The employee also saves by being able to decide which tax bracket he falls in and when to liquidate and incur taxes (likely when a Republican is in office). http://hbswk.hbs.edu/archive/2233.html http://hbswk.hbs.edu/archive/2233.html http://www.nytimes.com/2007/06/07/business/07tax.html http://www.nytimes.com/2007/06/07/business/07tax.html
  - byrneseyeview 17y ago
    Those are good theoretical arguments, but Buffett's income is much more likely to be in the form of dividends and taxable gains than stock options. He does own non-Berkshire stock (or at least did fairly recently; there are SEC filings indicating that he had a substantial personal stake in USG in 2006.)
    - codexon 17y ago
      They are not theoretical. It's amusing how you think you are smarter than these billion dollar corporations in saving money. Your conjectures on the other hand, are theoretical. If you actually knew what you were talking about, you would know that USG hasn't paid dividends since Feb 21, 2001. And interestingly this happened shortly after the first SEC filings that showed Buffet bought USG.