Monday, November 26, 2012

Warren Buffett Outs Himself as a Political Shill


In his most recent New York Times Op-Ed, Warren Buffett makes even clearer what I, and many others, have known for some time.

He is a political shill.

He begins with a hypothetical situation:

Quote:
SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.


That would be precisely my response if the investment were, as are all investments more risky than leaving the money in my federally insured bank account; and the return on the investment was just beyond the threshold of return I had marked for the level of risk involved; and an increase in taxes would lessen that return enough to bring the return below that threshold.  This is not an unthinkable scenario, nor is it predictable as it relies on individual tastes.

Quote:
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.


That is because investment returns, as he has pointed out were very high.  But in assuming that the tax rates caused this supposed boom, or that they did not hinder it, he is committing the same logical fallacy that his literary pal Paul Krugman often employs.  Correlation, unfortunately, does not equal causation.

Quote:
So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.


But giving more of the return on those invested funds to the government is quite similar to (and likely worse than) stuffing it in a mattress.   Higher taxes means less after tax income to reinvest.  The difference is stuffed in the mattress of the government.

Quote:
And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent.


Well this is a complete contradiction to his earlier points, and is quite devastating to his argument.  The low tax rates of recent years, he is rightly pointing out, have left him and his wealthy friends with more capital to invest.

Quote:
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.)


I am sure he can personally attest that these folks do not work 40 hour weeks.

Quote:
Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.


That is because these ultra-wealthy are measured by wealth, not income.  So when they lose money, regardless of the rate, some will not pay any taxes.  Nice red herring though.

Quote:
But the reform of such complexities should not promote delay in our correcting simple and expensive inequities.


And now his true aim comes to light along with a clear tie in to the Obama rhetoric.

Quote:
Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P.


No.
__
Buffett is smarter than the politically guided arguments he is making.  He has let his political allies and their class war rhetoric cloud his logic to such a degree that, in his effort portray the rich just right, he has contradicted his own argument.  He said at one point in the article, "It’s nice to have friends in high places".  Ironically, one very obvious explanation for Buffett's political writings is the very real possibility that the financial benefit his political friendships (one, thanks in part to him, in, arguably, the highest place) will be far greater than the cost imposed by such a tax increase.

In short, he is a shill and a crony. 
 
http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-tax-for-the-wealthy.html

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