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He points out regularly injustices such as the fact that his secretary pays a higher tax rate than he does, thanks to the ridiculous capital gains laws in this

He points out regularly injustices such as the fact that his secretary pays a higher tax rate than he does, thanks to the ridiculous capital gains laws in this country. Corporate tax rates plus capital gains tax rates exceed normal income tax rates. The only way you can claim that he pays less in taxes on selling stock is if you assume that the company's profits -- the sum of which, discounted to the present, is the value of the stock -- somehow don't affect the value of the stock. If we cut capital gains taxes to zero and added an equivalent amount to corporate profits (say, a 40% annual tax rate instead of 35%), the government would make an equivalent amount of money from the same economic activity, and Buffett's theoretical tax rate would go down. Similarly, if corporate income taxes were zero and his capital gains were taxed at 40%, he'd pay much more than his secretary, but the government would collect the same amount. If the strength of his argument is independent of the magnitude of the problem he's arguing against, there is a flaw there. Buffett is an admirable guy. But the line about his secretary is a rhetorical flourish, nothing more.

mattmaroon 17y ago
They're his words (paraphrased) not mine, and it is impossible Buffet is unaware of corporate tax. My guess is its more than rhetorical flourish too since he's not known for that. Your making the argument that corporate taxes reduce his personal income, and therefore should count as his taxes. Ok. But if corporations did not have to pay taxes, they would pay their employees more, including secretaries. It's impossible to say for sure that a 35% corporate tax rate reduces secretary salaries by 35%, but it is something highly significant. In a roundabout way the secretary is paying that corporate tax too. Its effect is not as directly measurable on her as it is on Buffet, and might not be 1 for 1, but it's undeniably there and equally applicable to her tax rate. Also Social Security reduces her pay by 12.4% (half of which is paid by her employer but again would likely go to her if not). Since its capped at $100k income, it rounds to 0% of Buffet's yearly earnings. *I should point out that I am aware I've grossly oversimplified the effect of the corporate tax on the secretary, I trust but you get the point.
- yummyfajitas 17y ago
  The corporate tax rate is only paid on profits. Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more. This is why many actual nonprofits are poorly managed; they are funneling profits to workers rather than to shareholders.
  - byrneseyeview 17y ago
    Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more. That is not how it works. When car companies start losing money, they don't give people raises; they fire them. When Goldman has a great quarter, they don't cut people's pay -- they give them bonuses. Nonprofits are managed because they exist to spend money, not to spend it well.
    - yummyfajitas 17y ago
      You are missing the point. A company has money after expenses (I'll abbreviate it MAE) which must be distributed. (Or in the case of GM, they have negative money after expenses.) You are discussing the behavior of companies in response to changes in MAE. I'm discussing how a fixed amount of MAE is distributed in response to changes in incentives. Each dollar of MAE can be given either to shareholders, to employees, or can be invested. If you raise the cost of distributing money to shareholders (this is what the corporate tax does), companies will divert money to employees and investments. I.e., no one will pay dividends if there is a 100% dividend tax.
      - kingnothing 17y ago
        I think you're mistaken in thinking that money will be distributed to the average worker in this scenario. It would all be paid out to the same shareholders as a salary instead of capital gains. The regular employees wouldn't see an extra dime.
- byrneseyeview 17y ago
jjs 17y ago
> If we cut capital gains taxes to zero and added an equivalent amount to corporate profits (say, a 40% annual tax rate instead of 35%), the government would make an equivalent amount of money from the same economic activity, and Buffett's theoretical tax rate would go down. Similarly, if corporate income taxes were zero and his capital gains were taxed at 40%, he'd pay much more than his secretary, but the government would collect the same amount. Neither of these are equivalent. The "only capital-gains tax" scenario creates incentives for foreign investors in US corporations. The "only corporate tax" scenario creates incentives for US investors in foreign corporations. The current scenario seems to be a "get some tax revenue from whomever we can" strategy, but it might be worth tinkering with the ratios, especially to determine whether a more capital-gains-heavy, corporate-tax-light regime might increase overall tax revenue, by altering in the US's favor the flow of foreign capital, domestic capital, corporate relocations, and corporate expenditures.
- byrneseyeview 17y ago
  I should have considered that. If you either a) assume we're only talking about US citizens, or b) assume that this law would also force foreign investors to pay, the point still stands.

mattmaroon 17y ago

They're his words (paraphrased) not mine, and it is impossible Buffet is unaware of corporate tax. My guess is its more than rhetorical flourish too since he's not known for that. Your making the argument that corporate taxes reduce his personal income, and therefore should count as his taxes. Ok. But if corporations did not have to pay taxes, they would pay their employees more, including secretaries. It's impossible to say for sure that a 35% corporate tax rate reduces secretary salaries by 35%, but it is something highly significant. In a roundabout way the secretary is paying that corporate tax too. Its effect is not as directly measurable on her as it is on Buffet, and might not be 1 for 1, but it's undeniably there and equally applicable to her tax rate. Also Social Security reduces her pay by 12.4% (half of which is paid by her employer but again would likely go to her if not). Since its capped at $100k income, it rounds to 0% of Buffet's yearly earnings. *I should point out that I am aware I've grossly oversimplified the effect of the corporate tax on the secretary, I trust but you get the point.

yummyfajitas 17y ago
The corporate tax rate is only paid on profits. Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more. This is why many actual nonprofits are poorly managed; they are funneling profits to workers rather than to shareholders.
- byrneseyeview 17y ago
  Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more. That is not how it works. When car companies start losing money, they don't give people raises; they fire them. When Goldman has a great quarter, they don't cut people's pay -- they give them bonuses. Nonprofits are managed because they exist to spend money, not to spend it well.
  - yummyfajitas 17y ago
    You are missing the point. A company has money after expenses (I'll abbreviate it MAE) which must be distributed. (Or in the case of GM, they have negative money after expenses.) You are discussing the behavior of companies in response to changes in MAE. I'm discussing how a fixed amount of MAE is distributed in response to changes in incentives. Each dollar of MAE can be given either to shareholders, to employees, or can be invested. If you raise the cost of distributing money to shareholders (this is what the corporate tax does), companies will divert money to employees and investments. I.e., no one will pay dividends if there is a 100% dividend tax.
    - kingnothing 17y ago
      I think you're mistaken in thinking that money will be distributed to the average worker in this scenario. It would all be paid out to the same shareholders as a salary instead of capital gains. The regular employees wouldn't see an extra dime.
byrneseyeview 17y ago

jjs 17y ago

> If we cut capital gains taxes to zero and added an equivalent amount to corporate profits (say, a 40% annual tax rate instead of 35%), the government would make an equivalent amount of money from the same economic activity, and Buffett's theoretical tax rate would go down. Similarly, if corporate income taxes were zero and his capital gains were taxed at 40%, he'd pay much more than his secretary, but the government would collect the same amount. Neither of these are equivalent. The "only capital-gains tax" scenario creates incentives for foreign investors in US corporations. The "only corporate tax" scenario creates incentives for US investors in foreign corporations. The current scenario seems to be a "get some tax revenue from whomever we can" strategy, but it might be worth tinkering with the ratios, especially to determine whether a more capital-gains-heavy, corporate-tax-light regime might increase overall tax revenue, by altering in the US's favor the flow of foreign capital, domestic capital, corporate relocations, and corporate expenditures.

byrneseyeview 17y ago
I should have considered that. If you either a) assume we're only talking about US citizens, or b) assume that this law would also force foreign investors to pay, the point still stands.