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> In 2018, Warren Buffett had a net worth of $84 billion. The effective tax rate on his mountain of wealth? 0.006%—orders of magnitude lower than the tax rates

> In 2018, Warren Buffett had a net worth of $84 billion. The effective tax rate on his mountain of wealth? 0.006%—orders of magnitude lower than the tax rates paid by most middle-class families. What tax rate do middle-class families pay on their net worth? 0% I believe, since we don't have wealth taxes?

iammisc 5y ago
Yeah, this is written in extremely manipulative language. What was warren buffett's income in 2018? We have income tax, not wealth tax. Plus, a lot of that wealth is likely 'in' his company, which is really just fake money. I mean, I know accountants look at it and there is some overlap for taxes when doing things like options and share grants and FMV, but really, a company is worth zero until you sell it, like most assets. EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay. This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.
- Closi 5y ago
  > a company is worth zero until you sell it, like most assets. I don’t think that’s quite true - I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not. Stocks, piles of gold and cash are just different types of asset all of which have value. And you have to really tax all of that, otherwise the wealthy will just avoid taxes by being paid in untaxable gold bricks and trade those for purchases rather than dollars.
  - intended 5y ago
    I mean do we need to sell Apple to know it’s worth money ? The existence of the stock market immediately makes it possible to convert assets into liquidity - something which firms do regularly.
  - basseq 5y ago
    To clarify, if you were paid in gold, that's still income and you would still be taxed on the fair market value of that gold. It's income that's taxed, not USD. Same as stock grants: if you're paid in stock, you pay income taxes when that stock is granted, at the market value of that stock. You aren't taxed on the FMV increase of that stock until you sell it (at which point you're taxed on capital gains).
    - bin_bash 5y ago
      yes but billionaires never sell. They take out loans using their assets as collateral. That way they don't have to report income.
      - neosenate 5y ago
        How are the loans paid back? I could never figure this one out. If they have to sell assets to pay for the loan, don’t they then get taxed at point of sale?
        bin_bash 5y ago
        They either get terms where they have to make minimal payments if any, and refinance before the due date. Or they take out more loans to make the payments. Eventually they just die and the estate pays it off tax-free.
  - leetcrew 5y ago
    > I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not. this is a good definition for someone like me. if I had to liquidate all my assets today, I could easily figure out how much they are worth just by looking at existing bids. while no less "true", this definition isn't very helpful at scale. warren buffet can't just sell all his berkshire stock by filling orders. depending on the circumstances of the sale, it could either be worth a lot more than n * last price or a lot less.
  - mbg721 5y ago
    That definition works for things like gold bricks or stocks that are purely treated as assets, but it can create some odd outcomes. In the 90s there were stories of a fan who caught a milestone home-run baseball and because of its sentimental value didn't want to sell it, but had to do so in order to pay the tax bill. In the extreme case, if I have a child, does that constitute income equal to the price a human-trafficker would be willing to pay for him or her?
- belltaco 5y ago
  >Plus, a lot of that wealth is likely 'in' his company, which is really just fake money. Then maybe we should give the poor some of this "fake money" since it's fake and doesn't matter anyway. >EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay. >This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them. This is an actual big lie, since you can borrow against assets like this with secured loans. And you can turn it into cash without moving out immediately with reverse mortgages. How are you able to get "free real money" from "fake money"? Maybe it's not as fake as you think.
  - dahfizz 5y ago
    > you can borrow against assets like this with secured loans Okay, and how do you pay back these loans? That's right: with your income. You're just moving the problem around.
    - mrkurt 5y ago
      No, you die. Your assets get liquidated. The estate pays the loans. No income involved, at least in tax terms.
    - monocasa 5y ago
      Or you take out more loans to cover the interest until you die.
    - CyanLite2 5y ago
      Ultra-Wealthy secured loans don't work like mortgages you and I deal with. On a $1 billion dollar asset, they can borrow like 40% of that, with no monthly payments, just one big balloon payment at the end of the 10+ year term with a little bit of accrued interest. They simply refinance in 10 years, and now the asset is worth $3 billion and then they take out an even bigger loan. Because it's a loan, it's not considered taxable income. And the interest payments on this loan are tax deductible. And usually these assets (like real estate, or stocks) often pay out dividends or rental income. So they can borrow on these assets ad infinitum and use the proceeds to continue to reinvest in more hard assets and to fund their lavish lifestyle. They won't directly own a super-yacht, their company will own it and rent it back to them, with the maintenance expenses considered business expenses since it's a rental business. Same with their vacation houses. Along the way they may pay a modicum of capital gains taxes on the stock dividends, but it's usually offset by the tax-deductible interest on the loan itself. Rinse and repeat for a few decades. At the end of it all, they have enough dividends/rental income, that's paying for lavish lifestyles, and they still own all of the hard assets that they can then pass down to their heirs with minimal taxable events.
- fairity 5y ago
  > In real terms, both the stock market and real estate have been stagnant for decades What do you mean by this? Inflation over the past couple decades has come in around 2-3%. The stock market has appreciated by much more.
  - iammisc 5y ago
    Real inflation as measured before the cpi methodology changes in the 90s is likely in the 7-15% range. The government manipulates the basket of goods to 'achieve' low rates. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts In this view, there has been no asset appreciation. It's a myth to quell the masses achieved by manipulating inflation rates.
- deleted 5y ago
  [deleted]
- intended 5y ago
  I was an IB/PE financial analyst in another life and tax optimization by moving cash flows around is not only a thing, it’s the norm. Plus if your argument were fair, we wouldn’t be seeing the kind of wealth concentration in the system. It’s essentially a sign that financial engineering is an un-checked force multiplier which regulation has not kept up with. Finally - asset appreciation is real, yes interest rates have been low and would typically be inflationary - however we’ve also had multiple massive disasters in a short span of time which have crushed demand and economic activity.
- deepsun 5y ago
  We do have one kind of wealth taxes -- property tax. They have many problems as well, but that's a wealth tax.
- sroussey 5y ago
  Your home has a wealth tax, also known as property tax. These increase as the home appreciates.
downWidOutaFite 5y ago
Depends if you consider property tax to be a wealth tax.
alexwennerberg 5y ago
Property taxes are a form of wealth tax
avalys 5y ago
To be fair though, we do have property taxes, and many middle-class families have a substantial fraction of their net worth tied up in their house and other real property.
- aidenn0 5y ago
  I would even go so far as to say the typical middle-class family has real property in an amount that exceeds their net-worth.
  - jeffbee 5y ago
    Median American net worth is $121k. Median home price is $380k. Typical real property taxes are .5% - 2%. Call it 1% and that makes the typical wealth tax on middle-class people roughly 3% per year.
    - onlyrealcuzzo 5y ago
      >60% of homeowners are in debt on their house, though. So they are getting appreciation on leverage. I would argue the median homeowner is being subsidized, having a negative wealth tax. The local government takes away 1%, but the Federal government pumps up your asset price by >2% - that's a -1% wealth tax (paid entirely through inflation by non-homeowners).
      - jeffbee 5y ago
        Yes, there are many exemptions in tax policy for real estate. We exempt the first $500k of gains from income taxes, for example. And our whole society is structured around "building equity" i.e. making housing cost more.
        deleted 5y ago
        [deleted]
deleted 5y ago
[deleted]
temp8964 5y ago
Is inflation kind of wealth tax?
aidenn0 5y ago
If Buffet earned an average 1% return across his net assets, then he paid 0.6% tax on his returns.
d--b 5y ago
It should have said: the effective tax rate on the revenue he derived from his mountain of wealth.
alasdair_ 5y ago
Since most middle-class families have the bulk of their wealth in their primary residence, the effective tax rate is however much they are paying in property taxes divided by the equity in the home. In many cases this can amount to a sizable percentage of net worth.
deleted 5y ago
[deleted]
mrkurt 5y ago
Around 1%, in the form of property taxes. That's a tough number, though, because property taxes apply even when people are under water on their mortgages or rent. The only wealth taxes the US has are property taxes. We all just think of wealth as the stuff that doesn't get taxed. The richer you get, the less of your wealth is taxable. The poorer you get, the more you pay wealth taxes. In theory, we tax rich people when they convert their wealth to income. In practice, they all convert their wealth to income by borrowing against it, then dying, then having their estate pay their debts tax free.
nerdjon 5y ago
This is something I have always been curious about but really not talked about in any of these studies. (I am purposefully ignoring the companies not paying taxes since that I think is a valid issue if we are talking about income). So Warren Buffet may have $84 billion in stocks and assets, but how much did he actually sell? How much money went from selling stocks to his bank account? I think that number if far more important. Yes it is true that we have excise taxes on cars and property taxes on homes, I feel like a just plain "wealth" tax is not the right solution. I don't like the idea that the government can say, "you have X amount in stocks, you must sell a certain perfect so you can pay us in taxes". Which is what this sounds like to me? Or am I majorly missing something here. Taking the Warren Buffet example, he would have to come up with 2.5 billion in taxes
- mrkurt 5y ago
  You're not really missing anything, but there's a giant loophole. If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.
  - nerdjon 5y ago
    I never realized that... Wouldn't that loophole be the better thing to try to address then? Instead of just focusing on their wealth, instead focus on the loopholes.
    - mrkurt 5y ago
      There is tremendous resistance to addressing that loophole. A wealth tax is one way to address it. An estate tax is another. So far a "wealth tax" seems more popular, because most people like the idea of a tax free inheritance but don't have untaxed wealth. Most people actually pay wealth taxes already when they buy cars or houses or a boat or an RV.
  - satronaut 5y ago
ramblinrose 5y ago
How is this the top comment? It does nothing to move the discourse forward. You are trying to slam the brakes by homing in on some tricky terminology. I wish this kind of comment would get downvoted into oblivion anytime the topic of a wealth tax comes up, whether or not you agree with it. The difficulty you are having in parsing out the comparison here is because the comparison is difficult to make (and possibly you are just trolling). How would you word this sentence to make it more clear? It is clear from the rest of the document that what is being compared is not the "wealth tax" on families, because as you said we don't have wealth taxes. The comparison is what percentage of wealth do families already give to the government through taxes in general. Nowhere does it mention an existing "wealth tax". Most middle-class families build their wealth from a paycheck, while ultra-rich families can do so through other means that aren't taxed. Whether or not you agree that a wealth tax would be of benefit here, it's hard to argue against that point. And that is what your referenced quote is trying to elucidate.
- rufus_foreman 5y ago
  >> Nowhere does it mention an existing "wealth tax" Well of course not. There isn't one. And the Senate can't pass one because the Constitution (happy birthday) doesn't allow them. Elizabeth Warren knows that a wealth tax is unconstitutional. She swore to support and defend the Constitution. And she is championing a wealth tax.

iammisc 5y ago

Yeah, this is written in extremely manipulative language. What was warren buffett's income in 2018? We have income tax, not wealth tax. Plus, a lot of that wealth is likely 'in' his company, which is really just fake money. I mean, I know accountants look at it and there is some overlap for taxes when doing things like options and share grants and FMV, but really, a company is worth zero until you sell it, like most assets. EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay. This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.

Closi 5y ago
> a company is worth zero until you sell it, like most assets. I don’t think that’s quite true - I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not. Stocks, piles of gold and cash are just different types of asset all of which have value. And you have to really tax all of that, otherwise the wealthy will just avoid taxes by being paid in untaxable gold bricks and trade those for purchases rather than dollars.
- intended 5y ago
  I mean do we need to sell Apple to know it’s worth money ? The existence of the stock market immediately makes it possible to convert assets into liquidity - something which firms do regularly.
- basseq 5y ago
  To clarify, if you were paid in gold, that's still income and you would still be taxed on the fair market value of that gold. It's income that's taxed, not USD. Same as stock grants: if you're paid in stock, you pay income taxes when that stock is granted, at the market value of that stock. You aren't taxed on the FMV increase of that stock until you sell it (at which point you're taxed on capital gains).
  - bin_bash 5y ago
    yes but billionaires never sell. They take out loans using their assets as collateral. That way they don't have to report income.
    - neosenate 5y ago
      How are the loans paid back? I could never figure this one out. If they have to sell assets to pay for the loan, don’t they then get taxed at point of sale?
      - bin_bash 5y ago
        They either get terms where they have to make minimal payments if any, and refinance before the due date. Or they take out more loans to make the payments. Eventually they just die and the estate pays it off tax-free.
- leetcrew 5y ago
  > I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not. this is a good definition for someone like me. if I had to liquidate all my assets today, I could easily figure out how much they are worth just by looking at existing bids. while no less "true", this definition isn't very helpful at scale. warren buffet can't just sell all his berkshire stock by filling orders. depending on the circumstances of the sale, it could either be worth a lot more than n * last price or a lot less.
- mbg721 5y ago
  That definition works for things like gold bricks or stocks that are purely treated as assets, but it can create some odd outcomes. In the 90s there were stories of a fan who caught a milestone home-run baseball and because of its sentimental value didn't want to sell it, but had to do so in order to pay the tax bill. In the extreme case, if I have a child, does that constitute income equal to the price a human-trafficker would be willing to pay for him or her?
belltaco 5y ago
>Plus, a lot of that wealth is likely 'in' his company, which is really just fake money. Then maybe we should give the poor some of this "fake money" since it's fake and doesn't matter anyway. >EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay. >This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them. This is an actual big lie, since you can borrow against assets like this with secured loans. And you can turn it into cash without moving out immediately with reverse mortgages. How are you able to get "free real money" from "fake money"? Maybe it's not as fake as you think.
- dahfizz 5y ago
  > you can borrow against assets like this with secured loans Okay, and how do you pay back these loans? That's right: with your income. You're just moving the problem around.
  - mrkurt 5y ago
    No, you die. Your assets get liquidated. The estate pays the loans. No income involved, at least in tax terms.
  - monocasa 5y ago
    Or you take out more loans to cover the interest until you die.
  - CyanLite2 5y ago
    Ultra-Wealthy secured loans don't work like mortgages you and I deal with. On a $1 billion dollar asset, they can borrow like 40% of that, with no monthly payments, just one big balloon payment at the end of the 10+ year term with a little bit of accrued interest. They simply refinance in 10 years, and now the asset is worth $3 billion and then they take out an even bigger loan. Because it's a loan, it's not considered taxable income. And the interest payments on this loan are tax deductible. And usually these assets (like real estate, or stocks) often pay out dividends or rental income. So they can borrow on these assets ad infinitum and use the proceeds to continue to reinvest in more hard assets and to fund their lavish lifestyle. They won't directly own a super-yacht, their company will own it and rent it back to them, with the maintenance expenses considered business expenses since it's a rental business. Same with their vacation houses. Along the way they may pay a modicum of capital gains taxes on the stock dividends, but it's usually offset by the tax-deductible interest on the loan itself. Rinse and repeat for a few decades. At the end of it all, they have enough dividends/rental income, that's paying for lavish lifestyles, and they still own all of the hard assets that they can then pass down to their heirs with minimal taxable events.
fairity 5y ago
> In real terms, both the stock market and real estate have been stagnant for decades What do you mean by this? Inflation over the past couple decades has come in around 2-3%. The stock market has appreciated by much more.
- iammisc 5y ago
  Real inflation as measured before the cpi methodology changes in the 90s is likely in the 7-15% range. The government manipulates the basket of goods to 'achieve' low rates. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts In this view, there has been no asset appreciation. It's a myth to quell the masses achieved by manipulating inflation rates.
deleted 5y ago
[deleted]
intended 5y ago
I was an IB/PE financial analyst in another life and tax optimization by moving cash flows around is not only a thing, it’s the norm. Plus if your argument were fair, we wouldn’t be seeing the kind of wealth concentration in the system. It’s essentially a sign that financial engineering is an un-checked force multiplier which regulation has not kept up with. Finally - asset appreciation is real, yes interest rates have been low and would typically be inflationary - however we’ve also had multiple massive disasters in a short span of time which have crushed demand and economic activity.
deepsun 5y ago
We do have one kind of wealth taxes -- property tax. They have many problems as well, but that's a wealth tax.
sroussey 5y ago
Your home has a wealth tax, also known as property tax. These increase as the home appreciates.

downWidOutaFite 5y ago

Depends if you consider property tax to be a wealth tax.

alexwennerberg 5y ago

Property taxes are a form of wealth tax

avalys 5y ago

To be fair though, we do have property taxes, and many middle-class families have a substantial fraction of their net worth tied up in their house and other real property.

aidenn0 5y ago
I would even go so far as to say the typical middle-class family has real property in an amount that exceeds their net-worth.
- jeffbee 5y ago
  Median American net worth is $121k. Median home price is $380k. Typical real property taxes are .5% - 2%. Call it 1% and that makes the typical wealth tax on middle-class people roughly 3% per year.
  - onlyrealcuzzo 5y ago
    >60% of homeowners are in debt on their house, though. So they are getting appreciation on leverage. I would argue the median homeowner is being subsidized, having a negative wealth tax. The local government takes away 1%, but the Federal government pumps up your asset price by >2% - that's a -1% wealth tax (paid entirely through inflation by non-homeowners).
    - jeffbee 5y ago
      Yes, there are many exemptions in tax policy for real estate. We exempt the first $500k of gains from income taxes, for example. And our whole society is structured around "building equity" i.e. making housing cost more.
      - deleted 5y ago
        [deleted]

deleted 5y ago

[deleted]

temp8964 5y ago

Is inflation kind of wealth tax?

aidenn0 5y ago

If Buffet earned an average 1% return across his net assets, then he paid 0.6% tax on his returns.

d--b 5y ago

It should have said: the effective tax rate on the revenue he derived from his mountain of wealth.

alasdair_ 5y ago

Since most middle-class families have the bulk of their wealth in their primary residence, the effective tax rate is however much they are paying in property taxes divided by the equity in the home. In many cases this can amount to a sizable percentage of net worth.

deleted 5y ago

[deleted]

mrkurt 5y ago

Around 1%, in the form of property taxes. That's a tough number, though, because property taxes apply even when people are under water on their mortgages or rent. The only wealth taxes the US has are property taxes. We all just think of wealth as the stuff that doesn't get taxed. The richer you get, the less of your wealth is taxable. The poorer you get, the more you pay wealth taxes. In theory, we tax rich people when they convert their wealth to income. In practice, they all convert their wealth to income by borrowing against it, then dying, then having their estate pay their debts tax free.

nerdjon 5y ago

This is something I have always been curious about but really not talked about in any of these studies. (I am purposefully ignoring the companies not paying taxes since that I think is a valid issue if we are talking about income). So Warren Buffet may have $84 billion in stocks and assets, but how much did he actually sell? How much money went from selling stocks to his bank account? I think that number if far more important. Yes it is true that we have excise taxes on cars and property taxes on homes, I feel like a just plain "wealth" tax is not the right solution. I don't like the idea that the government can say, "you have X amount in stocks, you must sell a certain perfect so you can pay us in taxes". Which is what this sounds like to me? Or am I majorly missing something here. Taking the Warren Buffet example, he would have to come up with 2.5 billion in taxes

mrkurt 5y ago
You're not really missing anything, but there's a giant loophole. If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.
- nerdjon 5y ago
  I never realized that... Wouldn't that loophole be the better thing to try to address then? Instead of just focusing on their wealth, instead focus on the loopholes.
  - mrkurt 5y ago
    There is tremendous resistance to addressing that loophole. A wealth tax is one way to address it. An estate tax is another. So far a "wealth tax" seems more popular, because most people like the idea of a tax free inheritance but don't have untaxed wealth. Most people actually pay wealth taxes already when they buy cars or houses or a boat or an RV.
- satronaut 5y ago

ramblinrose 5y ago

How is this the top comment? It does nothing to move the discourse forward. You are trying to slam the brakes by homing in on some tricky terminology. I wish this kind of comment would get downvoted into oblivion anytime the topic of a wealth tax comes up, whether or not you agree with it. The difficulty you are having in parsing out the comparison here is because the comparison is difficult to make (and possibly you are just trolling). How would you word this sentence to make it more clear? It is clear from the rest of the document that what is being compared is not the "wealth tax" on families, because as you said we don't have wealth taxes. The comparison is what percentage of wealth do families already give to the government through taxes in general. Nowhere does it mention an existing "wealth tax". Most middle-class families build their wealth from a paycheck, while ultra-rich families can do so through other means that aren't taxed. Whether or not you agree that a wealth tax would be of benefit here, it's hard to argue against that point. And that is what your referenced quote is trying to elucidate.

rufus_foreman 5y ago
>> Nowhere does it mention an existing "wealth tax" Well of course not. There isn't one. And the Senate can't pass one because the Constitution (happy birthday) doesn't allow them. Elizabeth Warren knows that a wealth tax is unconstitutional. She swore to support and defend the Constitution. And she is championing a wealth tax.