Three Pittsburghers are among the 1,000 richest people in the world

[BrianTH]

Warren Buffet has pointed out in the past that his overall tax rate is much lower than his secretary's:

Buffett blasts system that lets him pay less tax than secretary - Times Online

[zip95]

Originally Posted by Copanut

especially when I buy a Fox's Pizza.

I'm much younger than you, but I've met him. Nice guy, very approachable and still frequents certain establishments here in the metro.

[gg]

I suspect Pittsburgh people would rank much higher about 90ish years ago.

[BrianTH]

Carnegie may have been the second-richest person in history (after Rockefeller).

[gg]

Originally Posted by BrianTH

Carnegie may have been the second-richest person in history (after Rockefeller).

True, but I am thankful we had the better of those two as far as donating so much to communities. I suspect if he didn't donate so much he would have been the top dog. He is quoted saying, "A man who dies rich, dies in disgrace", or something to that effect. Pretty interesting man that was from Scotland. Sure spread it around. Glad we didn't have Rockefeller instead.

[soniqV]

While I have a great deal of respect for the man, on this issue Buffett conveniently glosses over the difference between ordinary income and capital gains. If he took the entire $46 million as short-term profit, he would have been taxed in the maximum bracket, higher than his secretary.

But he's a businessman - most of that money is getting reinvested into the economy. On top of that he is a very modest and frugal person. So he only takes what he needs to live comfortably as actual income, which I believe has been stated at $100k/year, only $40k more than his secretary.

So the real question at hand is: should long-term capital gains be taxed the same as ordinary income? If there is no discrepancy between the two, then there is no motivation for a businessman to favor long-term investments over short-term cash grabs. He can just keep buying low and selling high, riding the waves he is an expert at predicting, making huge profits but never providing any real stability for the market.

Of course, Buffett would never treat Berkshire that way, because he is also CEO and that's his baby. His wealth is inextricably tied to the company. This is part of the reason why many famous CEO's will only claim a $1 salary. But on Wall Street that's the exception, not the rule. For the most part, people are out to maximize personal profit.

[BrianTH]

Part of Buffet's point is that payroll taxes add up to a lot these days for lower-income people. So do state and local taxes, which tend to be regressive. He also thinks there should be a substantial inheritance tax, which probably is necessary given the current tax structure.

Personally, I think ideally we would adopt a highly-progressive consumption tax in lieu of some or all of the various personal income taxes, and maybe the inheritance tax (although for reasons I won't go into, a large inheritance tax might still be a good idea). It could be as simple as all income minus all savings, and then we could apply a large standard deduction and a highly-progressive rate structure to the remainder. That would reward the Buffets of the world for their frugality, and be neutral with respect to investment decisions (because if you immediately reinvested income from investments, capital or dividend, it wouldn't be taxed).

[gg]

Originally Posted by soniqV

While I have a great deal of respect for the man, on this issue Buffett conveniently glosses over the difference between ordinary income and capital gains. If he took the entire $46 million as short-term profit, he would have been taxed in the maximum bracket, higher than his secretary.

But he's a businessman - most of that money is getting reinvested into the economy. On top of that he is a very modest and frugal person. So he only takes what he needs to live comfortably as actual income, which I believe has been stated at $100k/year, only $40k more than his secretary.

So the real question at hand is: should long-term capital gains be taxed the same as ordinary income? If there is no discrepancy between the two, then there is no motivation for a businessman to favor long-term investments over short-term cash grabs. He can just keep buying low and selling high, riding the waves he is an expert at predicting, making huge profits but never providing any real stability for the market.

Of course, Buffett would never treat Berkshire that way, because he is also CEO and that's his baby. His wealth is inextricably tied to the company. This is part of the reason why many famous CEO's will only claim a $1 salary. But on Wall Street that's the exception, not the rule. For the most part, people are out to maximize personal profit.

Considering 75% market volume is because some idiots are using high level math/news to buy and sell stocks. It seems investing like Buffett is a little more rare these days. I am looking forward to the math people to take a bath on their quick cash schemes, which will probably happen at some point, because those kind of things usually are temporary gainers.

Buffett invests in companies for the 20 year runs. I have quite a bit of respect for him.

[soniqV]

Originally Posted by BrianTH

Part of Buffet's point is that payroll taxes add up to a lot these days for lower-income people. So do state and local taxes, which tend to be regressive. He also thinks there should be a substantial inheritance tax, which probably is necessary given the current tax structure.

Personally, I think ideally we would adopt a highly-progressive consumption tax in lieu of some or all of the various personal income taxes, and maybe the inheritance tax (although for reasons I won't go into, a large inheritance tax might still be a good idea). It could be as simple as all income minus all savings, and then we could apply a large standard deduction and a highly-progressive rate structure to the remainder. That would reward the Buffets of the world for their frugality, and be neutral with respect to investment decisions (because if you immediately reinvested income from investments, capital or dividend, it wouldn't be taxed).

I like where you're going this time Brian. But while I agree with the premise that a truly fair tax system should be based on consumption, not income, I've never seen any evidence of him endorsing that viewpoint. His "secretary" example makes it sound like he could be advocating higher capital gains taxes in exchange for smaller percentages on mid-to-low tax brackets, which I stated my economic beef with.

He does have a good point on inheritance taxes which I generally support. I feel this quote should be considered an excellent rule of thumb for the law: "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."

But while that's decent incentive to maximize market activity and not p*ss away empires on generations of unearned luxury, this cannot and should not be considered a reliable source of funding for increased gov't activity: Through exhaustive personal philanthropy, Buffett, Gates, and many others will make sure that the federal gov't never lays a finger on their inheritance.

Originally Posted by h_curtis

Considering 75% market volume is because some idiots are using high level math/news to buy and sell stocks. It seems investing like Buffett is a little more rare these days. I am looking forward to the math people to take a bath on their quick cash schemes, which will probably happen at some point, because those kind of things usually are temporary gainers.

Buffett invests in companies for the 20 year runs. I have quite a bit of respect for him.

Exactly, even in the highest bracket (35% I believe) a good technical analyst with the right insider connections can still make much bigger profits cashing in on economically vapid short-term trades than investing for the long haul at a measly 15%, which would seem to make the case for an even wider discrepancy. I think that is more what Buffett is getting at, which would be something I can support, though his ambiguity is dangerous fodder for those who rally to generic "tax the rich" messages.

[BrianTH]

Yeah, I wasn't speaking for Buffett necessarily, just myself.

Incidentally, even the amount of taxable income he was basing his claim on was really low considering his overall net worth.