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The Tax Prophet Newsletter   Issue #100 August, 2011

REDUCE TAXES!
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In This Issue:
Introduction
Buffet's Position
Taxes and Investing
Taxes and Jobs
Who Cares?
Howls of Betrayal
Conclusion


Buffet on Taxes

Introduction

On August 14, 2011, plain-talking, multi-billionaire Warren Buffet inked a New York Times editorial that rocked the world.

In essence, the globe's second wealthiest person (next to Bill Gates) stated U.S. tax policy favored billionaires (like him) over middle-class working stiffs and it was time for a change.

Buffet's Position

Buffet is fond of saying that there is class warfare in the U.S. and his class is winning. He observed that:

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as "carried interest," thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they'd been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species.

His effective tax rate 17.4%, which is lower than the tax rates of the other 20 people employees in his office.

Buffet explained that most of his income came from capital gains and dividends, taxed at 15% and that billionaires pay little, if any, payroll taxes. Those earning middle-class wages pay between 15-25% in income taxes, plus payroll taxes of roughly 7.65%.


Taxes and Investing

Buffet declared there was no correlation between tax rates and the amount of investing, noting that he and his billionaire buddies invested when the capital gains rates were 39.9% during 1976 and 1977.

Taxes are not the driving force for investors, money-making is, and this occurs when the economy is stable and growing, and when workers can find jobs.


Taxes and Jobs

The same is true regarding job creation, Buffet observed:

... a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation.

Note: the extension of the Bush tax cuts after 2010 has produced no significant job creation by those so-called "job creators," because, as Buffet proclaimed, there is no connection between tax cuts and job creation. To the contrary, many small business lament that it is demand by customers, not tax breaks, that causes companies to hire.


Who Cares?

Why write about what Warren Buffet says? Because when those advocating a fairer tax system speak, their critics scream "class warfare." Now that the world's most successor investor, known for his wisdom and common-sense approach to investing, says the same thing, the tables are turned.

This is not someone asking for a government handout, Buffet is at the top of the economic food chain and understands how the political system has been rigged against the poor and middle class.


Howls of Betrayal

For his frankness, Buffet was vilified as a "traitor to his class," ironically, a charge leveled at President Franklin Delano Roosevelt for proposing the New Deal.

Curiously, the blowback was personal and not aimed at the essence of Mr. Buffet's argument. Buffet, the world's leading investor and the most successful capitalist on the planet, was actually deemed a "socialist" by those evidently too ignorant to distinguish between capitalism and socialism.


Conclusion

Judging by the rabid personal attacks against Mr. Buffet, those who favor continuing the Bush tax cuts lack solid economic evidence or arguments to seriously debate him.

Their responses are focused on protecting multi-millionaires and billionaires, who pay handsomely for this political support. And Warren Buffet has just blown the cover off of this politically-motivated racket.



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All contents copyright 2011 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.