Monthly Archives: August 2011
August 14, 2011
From The New York Times
By WARREN E. BUFFETT
OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
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. It’s nice to have friends in high places.
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.
To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.
I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that 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.
Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)
I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.
Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.
My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.
‘Saturdays are Gold’ is a fascinating book as much for its use of language and its wonderful prose as its timeless and universal story. Although the story is set in South Africa, with that country’s unique cultural complications, it could just as easily be a story of the American south, or rural Australia.
Tadpoles view of the world is immaculately executed. The details he notices are wonderfully evocative of an era not so far gone. And the things that are unnoticed, and unsaid, about the society he lives in are even more telling to reader.
As with any story of the innocence of childhood, the story is filled with the major events of youth – the arrival of the family pet, the fully explored backyards of the neighborhood, and never solvable problem of no pocket money.
But the opening of the book, with the death of Tadpole’s mother, and the damage that does to his little sister, prime the reader for something much more serious and sinister.
In an era of disposable light-entertainment, ‘Saturdays are Gold’ is a welcome addition to the world of serious literature.
If the economy was a bush in the garden, you could pour all the water you wanted on the top of the plant, but it would only grow when the water was absorbed by the roots, and transported up the trunk to the leaves and fruit. The gardener would then harvest the fruit from the top of the bush, and prune the top back so there was space for more fruit to grow next season.
In response to the debt ceiling stunts happening in the US I’ve been stumbling across various related bits of information. It turns out that the Congressional Budget Office projects total revenues of $2.228 trillion, total outlays of $3.708 trillion, and a deficit of $1.48 trillion for 2011. We are so far away from having a balanced budget that it’s not even funny.
I just looked up Clinton’s budgets. He had a 0.2 trillion surplus, and was paying down the national debt. I remember people actually worrying about what would happen when the US had no debt – and there wasn’t the option for a ‘completely safe investment’. Bush II then passed out tax cuts to the rich and started 2 off-budget wars and now we have a 1.5 trillion deficit. Amazing – it’s obvious we have to tax the rich more.
Currently business – the so called ‘job creators’ the Republicans want to give tax relief to, are sitting on piles of cash. If they want more money the interest rates are almost zero – they just have to grab some. But they actually don’t need more cash, because they don’t need to create jobs – because there is no demand for their products and services.
What’s needed is to get the cash out of the hands of corporations, and the rich, and into the hands of the government so that it can create jobs re-building America. We need to tax the rich – why should anyone earn more than 100x the minimum wage? We need to give tax relief to the poor and middle class who will actually spend it buying necessary goods.
By Agence France-Presse
Monday, August 1st, 2011 — 7:22 pm
SELIGER, Russia — Russian Prime Minister Vladimir Putin on Monday accused the United States of acting as a “parasite” on the world economy by accumulating massive debts that threaten the global financial system.
“The country is living in debt. It is not living within its means, shifting the weight of responsibility on other countries and in a way acting as a parasite,” Putin told a group of pro-Kremlin youth in central Russia.
US President Barack Obama on Sunday announced an 11th hour debt deal that will allow the country to avoid its first default in history while pushing ahead with a painful austerity plan designed to slash Washington’s swelling debt.
The deal was met initially with relief on global financial markets and saw Moscow’s two stock exchanges open the day up about two percent but investors then began to have doubts about the plan and gains were reversed sharply.
Putin has repeatedly criticised the United States’ recent foreign exchange policy and its propensity to cover budget deficits with treasury bills and bonds held by sovereign clients such as China and Russia.
The value of that paper will shrink if US debt is downgraded by a major Western ratings agency and Putin was insistent Monday that the world should be seeking new reserve currencies for trade and savings.
“If the US encounters a systemic malfunction, this affects everyone,” Putin told the Seliger camp gathering. “There should be other reserve currencies.”
Putin added that the debt agreement announced by Obama “was not that great overall because it simply delayed the adoption of a more systemic solution.”
Russia’s de facto leader was attending the pro-Kremlin lakeside youth camp as part of a continuing series of public appearances that are being closely watched by political observers as December parliamentary elections approach.
Putin’s United Russia party is hoping for a strong performance in December that can catapult their leader into presidential elections scheduled for March.
The current Kremlin chief Dmitry Medvedev has found strong backing in some Washington circles and who has worked more closely on a “reset” in relations with Obama’s team.
Many people — politicians and pundits alike — prattle on that China and, to a lesser extent Japan, own most of America’s $14.3 trillion in government debt.
But there’s one little problem with that conventional wisdom: it’s just not true. While the Chinese, Japanese and plenty of other foreigners own substantial amounts, it’s really Americans who hold most of America’s debt.
Here’s a quick and fascinating breakdown by total amount held and percentage of total U.S. debt, according to Business Insider:
Hong Kong: $121.9 billion (0.9 percent)
Caribbean banking centers: $148.3 (1 percent)
Taiwan: $153.4 billion (1.1 percent)
Brazil: $211.4 billion (1.5 percent)
Oil exporting countries: $229.8 billion (1.6 percent)
Mutual funds: $300.5 billion (2 percent)
Commercial banks: $301.8 billion (2.1 percent)
State, local and federal retirement funds: $320.9 billion (2.2 percent)
Money market mutual funds: $337.7 billion (2.4 percent)
United Kingdom: $346.5 billion (2.4 percent)
Private pension funds: $504.7 billion (3.5 percent)
State and local governments: $506.1 billion (3.5 percent)
Japan: $912.4 billion (6.4 percent)
U.S. households: $959.4 billion (6.6 percent)
China: $1.16 trillion (8 percent)
The U.S. Treasury: $1.63 trillion (11.3 percent)
Social Security trust fund: $2.67 trillion (19 percent)
So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.
What I find interesting is the extent to which the Social Security system was robbed to fund the debt – it’s missing money, not an investment, when you take from yourself to give to yourself.
And the US Treasury printed new money to buy it’s share of the pie – not an investment either.
Therefore 30% of the debt is held in accounting lies – with the only solid buyer the silly communists of China who don’t understanding that investing in a currency which devalues faster than your interest income – is a loser.