Archive for the ‘Buffett, Warren’ Category

Flashback: Buffett says”increase taxes on estates” (since mine is sheltered).

August 28, 2014

OK, he really didn’t say the last part., I made that up.

Since Buffett shed his hypocritical “please tax us more” sham and hopped on the BK inversion deal, I thought it was fair to flashback to some of Buffett’s pro-tax rants and our proposed “Buffett Rule”

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According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”

Buffett & friends say:

  1. “Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.”
  2. We (the wealthy) have “benefited significantly” by government investments in schools, infrastructure. and public safety, among other things, so it is “right morally and economically” to have a “significant” tax on large estates because it “promotes democracy by slowing the concentration of wealth and power.”
  3. “It is right to have a significant tax on large estates when they are passed on to the next generation …  it is right morally and economically, since an estate tax promotes democracy by slowing the concentration of wealth and power.”

OK, so what constitutes a sizable estate and how much of it should the government take?

(more…)

Is that Warren Buffett driving BK’s getaway car?

August 27, 2014

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This one is too good to be true.

Burger King is planning to buy Tim Hortons – a Canadian coffee-and-doughnut chain.

Forget for a second that this is 2014 and doughnuts are, shall we say, a bit out of fashion,

Conventional wisdom is that BK isn’t strategically driving thru the doughnut hole left by Krispy Kreme’s woes.

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Though the company denies it, BK seems aimed at turning things upside down tax=wise.

You know, “invert” itself into a Canadian company so that it doesn’t have to pay U.S. taxes on money it earns outside the boundaries of the U.S.

Here’s where things start to get interesting ….

(more…)

Bluster: Buffett says”increase taxes on estates” (since mine is sheltered).

December 14, 2012

OK, he really didn’t say the last part.

According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”

Buffett & friends say:

  1. “Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.”
  2. We (the wealthy) have “benefited significantly” by government investments in schools, infrastructure. and public safety, among other things, so it is “right morally and economically” to have a “significant” tax on large estates because it “promotes democracy by slowing the concentration of wealth and power.”
  3. “It is right to have a significant tax on large estates when they are passed on to the next generation …  it is right morally and economically, since an estate tax promotes democracy by slowing the concentration of wealth and power.”

OK, so what constitutes a sizable estate and how much of it should the government take?

(more…)

Uh-oh: Buffett isn’t going to like this …

December 10, 2012

Several companies have announced that they’ll pay special dividends this year while investors are still be taxed  “only” 15% on them.

My favorite had been Costco since co-founder and former CEO Jim Sinegal  lambasted the rich at the Democratic National Convention, saying that they aren’t paying their fair share!

Shortly after, Costco then rushed to save its investors some taxes by announcing a special dividend to be paid before year end.

Glance at Yahoo Finance’s list of beneficiaries:

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Yep, there’s the holier-than-thou Mr. Sinegal atop the leader board.

I guess he means other rich people should pay more.

Recognize the name coming in 5th at Costco?

Charles Munger is Warren Buffett’s sidekick.

Which provides a nice transition.

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Following Costco’s lead, the Washington Post will pay its 2013 dividends before the end of this year to try to spare investors from anticipated tax increases.

Guess who’ll benefit from that tax avoidance move …

Yep, no other than Warren “You Should Pay More Taxes” Buffett.

You see, Buffett’s firm Berkshire Hathaway is reported to be the WaPo’s largest shareholder with an estimated 1.7 million shares … and will get a dividend payment of roughly $17 million .

C’mon man, walk the talk … or shut-up !

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Buffett serves up some McNuggets on NPR …

November 29, 2012

Warren B. was waxing on NPR about investments and the economy.

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I listened to the podcast, expecting to scream when he started whining about his taxes being too low.

He didn’t, so I didn’t.

Below are some punch lines and a link to the audio of the interview.
(more…)

Buffett proposes his own “Buffett Rule” … we like our’s better.

November 27, 2012

Warren Buffet was back at it yesterday, venting his conscience by repping in an NYT op-ed for higher taxes on wealthy folks.

As part of his treatise, he argues that investors aren’t swayed by after-tax returns … pre-tax is what moves them.

Say, what?

Keep reading for his other thoughts and Ken’s proposed Buffett Rule …
(more…)

The “Buffett Rule” that I want to see …

November 18, 2012

Everybody knows that Warren Buffett feels awful because his marginal tax rate is less than his secretary’s ….  and so, he wants fellow millionaires & billionaires (i.e. those folks making more than $250,000) to throw more money into the Federal coffers.

Well, the current fiscal cliff mess has rekindled my thinking re: tax changes required to advance Buffett’s obsession with his “paying his fair share”.

Glad to report that I got it !

A tax change that will totally free Warren of guilt.

Simply stated:

Ken’s “Buffet Rule”

For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.

Now that Buffett has leveraged the tax laws to amass his $62 billion fortune, he advocates higher taxes for high-earners.

He’s suddenly amped about everybody paying their fair share.

Give me a break.

Let’s walk through Saint Warren’s personal “fair share” plan.

First, to the extent that any of Buffett’s wealth is in stocks with “unrealized capital gains” … the the dough gets bequeathed at a “stepped-up basis”.

English translation: no capital gains get paid on his “unrealized gains” … ever !

Nice dodge, right?

Ken’s Buffett Rule doesn’t fix that.

But, the big daddy tax dodge is that Buffett is bequeathing his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.

If his buddy Barack gets his way, estates will be taxed a minimum of 45%.

That means that Buffett dodges over $25 Billion in Federal estate taxes by channeling the estate to his buddy Gates.

Note: According to the Wash Post, Obama’s Buffett Rule is only projected (by Obama) to raise $46 billion over 10 years … $4.6 billion annually … and most analysts think that number is a pipe dream.

So, Ken’s Buffett Rule would cop over half of Obama’s 10 year Buffet Rule tax haul, while isolating the tax to the man who won’t shut up about wanting pay his fair share … put YOUR money where your mouth is Warren.

Great idea, right?

P.S. For folks who worry about the collateral damage done to charities, the deduction limit can be raised to $1 billion per estate …. that would exclude practically every estate … except Buffett’s.

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Buffett Rule passes the House … now, you’re talking.

September 20, 2012

What gridlock in Washington?

Yesterday, the House of Reps passed a Buffett Rule that should put an end to Warren’s carping about how his taxes are too low.

According to the Washington Times:

The House passed Republicans’ own version of the Buffett Rule, which allows wealthy Americans to voluntarily pony up to reduce the deficit.

The bill, labeled the Buffett Rule Act, passed by voice vote, meaning Democrats and Republicans agreed with it.

Under the legislation, taxpayers can check a box on their taxes and send in a check for more than they owe to the IRS.

“If Warren Buffett and others like him truly feel they’re not paying enough in taxes, they can use the Buffett Rule Act to put their money where their mouth is and voluntarily send in more to pay down the national debt, rather than changing the entire tax code to inflict more job-killing tax hikes on hard-working Americans.”

Current law already allows taxpayers to send money to pay down the debt, but the process is a bit onerous.

Under their new plan, taxpayers would have an easy option on their tax returns allowing them to pay more.

Under the legislation, the money would go directly toward reducing the debt.

So, do you think Buffett will put his money where his mouth is?

I’m betting the under.

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The “Buffett Rule” that I want to see …

April 18, 2012

Two events this week got me thinking.

First, the Senate held the campaign-ploy vote on Obama’s Buffett Rule — intended to double capital gains tax rates on millionaires & billionaires”.

Then last nite, Buffett disclosed that he has been diagnosed with prostate cancer.  Consistent with the experience of several of my friends, Buffett says it’s not life-threatening, given the early detection and high success rate of treatments.  I wish him well … in our family, we take cancer very seriously.

That said, the events rekindled my thinking re: tax changes required to advance Buffett’s mission to “pay his fair share”. 

I got it !

 Simply stated:

Ken’s “Buffet Rule”

For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations. 

Now that Buffett has leveraged the tax laws to amass his $62 billion fortune, he advocates higher taxes for high-earners.

He’s suddenly amped about everybody paying their fair share.

Give me a break.

Let’s walk through Saint Warren’s personal “fair share” plan.

First, to the extent that any of Buffett’s wealth is in stocks with  “unrealized capital gains” … the the dough gets bequeathed at a “stepped-up basis”.

English translation: no capital gains get paid on his “unrealized gains” … ever !

Nice dodge, right? 

Ken’s Buffett Rule doesn’t fix that.

But, the  big daddy tax dodge is that  Buffett is bequeathing his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.

If his buddy Barack gets his way, estates will be taxed a minimum of 45%.

That means that Buffett dodges over $25 Billion in Federal estate taxes by channeling the estate to his buddy Gates.

Note: According to the Wash Post, Obama’s Buffett Rule is only projected (by Obama) to raise $46 billion over 10 years …  $4.6 billion annually … and most analysts think that number is a pipe dream.

So, Ken’s Buffett Rule would cop over half of Obama’s 10 year Buffet Rule tax haul, while isolating the tax to the man who won’t shut up about wanting pay his fair share … put YOUR money where your mouth is Warren.

Great idea, right?

P.S. For folks who worry about the collateral damage done to charities, the deduction limit can be raised to $1 billion per estate …. that would exclude practically every estate … except Buffett’s.

>> Latest Posts

What’s the difference between the “Buffett Rule” and the AMT?

April 17, 2012

Finished up my taxes this weekend …. OUCH.

Along with more than 30 million other taxpayers, I got caught by the Alternative Minimum Tax (AMT).

There are about 130 million Fed tax filings each year … about half of them pay no Fed income taxes (or get a refundable credit) … that means that about half of all tax payers get hit with the AMT.  it only takes about $75,000 in income to make somebody a candidate for the AMT.

This year — in part because of the hoopla re: the Buffett Rule — I dug dig into the AMT calculations rather than just take Turbo Tax’s answer and run.

The bottom line — based on my dissection — is that the AMT requires that high earners pay about 28% on their ordinary taxable income — wages, interest, pensions, etc.

So, on ordinary taxable income the Obama-Buffett Rule (OBR) boosts the rate from 28% to 30%.

Big deal, right?

The real impact is what happens to capital gains and “qualified” dividends — which are currently capped at a 15% rate — even under the AMT.

Under the Obama-Buffett Rule, capital gains and qualified dividends would be taxed at 30% – a doubling of the current AMT rate.

Now, that is a big deal.

When you cut to to the chase, the Obama-Buffett Rule is simply a doubling of the capital gains tax rate — selectively applied to those people who earn most of the capital gains.

The OBR simply takes capital out of play from the private sector and transfers it to the government sector.

If you think that the government does a better job allocating capital than the free market, then you gotta love the Obama-Buffett Rule.

If you think the government uses capital less efficiently than the private sector, you gotta hate it.

Put me in the latter camp …

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Buffett: Giving to the Gates Foundation because it’s run more efficiently than the gov’t … no (bleep), Warren.

March 8, 2012

Interesting interview with Warren Buffett on CNBC last week.

The dialogue that caught my attention had to do, of course, with Buffett’s whining that his taxes are too low … paired with the hypocrisy that he’s sheltering his estate from taxes by dishing his end-of-life dough to the Gates Foundation.

CNBC’s Joe Kiernan observed to Buffett:

I’ve gotten you to admit in the past that one of the reasons you think the Gates Foundation will do a lot better with your 50 or 60 billion is because charities have a better — a much better reputation for watching how money is spend and for doing more good.

Buffetts retort:

Anytime an organization is as big as the US government or any other government, they are not going to be as efficient, obviously, as smaller organizations.

Kiernan followed up:

So with all that in mind, can you at least see how someone might, on an intellectual basis, be opposed to just giving a blank check to such a profligate entity?

Buffett’s answer:

On the other hand, we have successfully defended the country, we’ve built the greatest industrial machine the world’s ever seen, we’ve built the richest population the world’s ever seen.

The truth is, we can have a country that works wonderfully with 19 percent or so of revenues going to Washington and spending 21 percent.

Say, what?

Kiernan politely went in for the kill:

If the government was a business and Berkshire was looking at it, there’s no way Berkshire would even take a 1 percent stake in the government with their track record of investments. Right?

All Buffett could do was stammer …

Full transcript

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The Buffett Rule … a few facts might help.

January 31, 2012

At the risk of stifling the tax rate hysteria with facts, the Congressional Research Service did a great study on the “Buffett Rule”.

One of the key charts – with a couple of Homa Files accentuators – says that

  • “Millionaires & billionaires” tax rate is – on average – 11 points higher than folks making under $100k.
  • About 1 in 4 millionaires & billionaires (less than 100,000 tax payers) – those with the lowest effect tax rates – pay a lower rate than about 10% of the more than 100 million folks making under $100,000
  • Applying the SOTU Buffett Rule – minimum 30% for folks making more than $1 million – would jack up taxes for about 1/2 of millionarires and billionaires.

Is jacking the rate on about 200,000 taxpayers really going to get us out of this fiscal mess we’re in?

I’m betting the under.

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Supplementary data:

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Buffett, Romney & the Give Back to Society Rate

January 30, 2012

The cameo by Buffett’s secretary at last night’s SOTU address, and Mitt’s released tax returns have re-elevated the issue “coddling the rich” with low tax rates (compared to their secretaries).

Last fall, when we dissected Buffett’s taxes, we coined a  measure: the GBSR™ – “Give Back to Society Rate

We defined the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

We crunched the numbers and concluded that Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ of almost 50% (47.6% to be precise).

We concluded that Buffett may not be the piker that he claims to be.  And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

In Romney’s case, his release says that he made $21 million … paid $3 million in taxes … and donated $3.7 million to charities.  So, his tax rate may sound meager @ 14%, but his GBSR™ is almost 32% – and that’s not counting state & local income taxes.  My bet: add S&L taxes in and Mitt ‘s GBSR™ is way over 40%, too.

So, it just may be that the tax code is leading fat cats to do the right thing – it’s just that they’re giving much of their dough to private charities instead of the Feds.

Do you blame them?

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Here’s the original HomaFIles post:

Squeezing Buffett’s numbers … Part 5 (and done !)
Homa Files 10/21/2011

OK, today should about do it.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

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Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair. Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ – “Give Back to Society Rate

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above. Her charitable deductions would be at most $5,700. Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

So, her GBSR™ @ $100,000 AGI is 27.5% ($5,700 + $21,709 = 27,409 / $100,0000 = 27.5%).

That means that Buffett’s GBSR™ is almost twice his secretary’s.

Hmmm.

Maybe he’s not such a bad guy and I should stop ranting about him.

And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

It just may be that the tax code is leading to the right answer.

Just have to look around the trees to see the forest.

AMEN

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Let’s see HER tax returns !

January 26, 2012

Obama seems determined to structure the U.S. income tax code around Warren Buffett and his secretary.

There she was … in Michelle’s box for the SOUTU address.

Well, seems that cameo appearance is sparking some scrutiny.

Is she, in fact,  a tax-abused waif living from paycheck to paycheck?

According to Forbes: Warren Buffett’s Secretary Likely Makes Between $200,000 And $500,000/Year

Warren Buffet’s secretary, Debbie Bosanek, served as a stage prop for President Obama’s State of the Union speech. She was the President’s chief display of the alleged unfairness of our tax system – a little person paying a higher tax rate than her billionaire boss.

Bosanek’s prominent role in Obama’s “fairness” campaign has finally  piqued curiosity.

How much does her boss pay this downtrodden woman?

So far, no one has volunteered this information.

We can get an approximate answer by consulting IRS data on tax rates by adjusted gross income, which would approximate her salary, assuming she does not have significant dividend, interest or capital-gains income (like her boss).

I assume the tax rate Obama refers to is from her own earnings.

Insofar as Buffet (like Mitt Romney) earns income primarily from capital gains, which are taxed at 15 percent (and according to Obama need to be raised for reasons of fairness), we need to determine how much income a taxpayer like Bosanek must earn in order to pay an average tax rate above fifteen percent. This is easy to do.

The IRS publishes detailed tax tables by income level.

The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent.

12% is below Buffet’s rate; so she must earn more than that.

Taxpayers earning adjusted gross incomes of $200,000 to $500,000, pay an average tax rate of nineteen percent.

Therefore Buffet must pay Debbie Bosanke a salary above two hundred thousand.

At that level of income, she is scarcely the symbol of injustice that Obama wishes her to project.

While we’re at it, how about a peek at Buffett’s returns?

After all, if we’re going to revamp the entire tax code off of 2 data points, let’s at least have all the data that the points have to offer.

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Tech point re: charitable contributions …

October 24, 2011

I know that I said that Part 5 of my Buffett tax analysis would be my last. but …

First, I got input from a loyal reader that my analysis was wrong because “only 5% of charitable contributions can be deducted in 1040s”

That sent me back to the tax code.  Specifically to Publication 526 : Charitable Donations.

Keeping in mind that HomaFiles doesn’t offer tax or investing advice, here’s the law:

The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income depending on the type of property you give and the type of organization you give it to.

Here’s the English translation.

In general, for all typical charities,e.g. churches, schools, hospitals, disease-causes, a taxpayer can deduct 100% of his charitable … but there’s a ceiling …. the total amount of charitable deductions is limited to 50% of the taxpayer’s AGI.

So, if a taxpayer had $100,000 AGI, he can write $50,000 in  checks to qualified charities and deduct all $50,000.  If he writes checks for $60,000 … he can deduct only $50,000.

The major exception: donating appreciated assets (think “stocks).  A taxpayer can claim a charitable deduction for the fair market value of the asset, pay no capital gains, and deduct up to 30% of his AGI.

Things get a bit trickier if there are both cash donations and appreciated assets in the mix.

The general  takeaway: up to a total of 50% AGI, all charitable contributions can be deducted ,,, slightly less if the donations are stock not cash.

That said, the Buffett analysis survives intact.

We estimated charitable contributions at $20 million …about 1/3 of Buffett’s $63 million AGI … so, based on our anlysis, he can deduct all of his charitable deductions, sheltering all or most of his ordinary income.

Whew.

* * * * *

Separately, I got a few emails and replies commenting on the HomaFiles-coined GBSR™ – “Give Back to Society Rate” … the sum of fed & state taxes, and charitable contributions divided by AGI.

Some of the emails said “you’re on to something”, so I’ve trademarked the metric by adding the legal “TM” super-script.

Gotta protect your intellectual property, right?

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Squeezing Buffett’s numbers … Part 5 (and done !)

October 21, 2011

OK, today should about do it.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

image

Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair.  Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ — “Give Back to Society Rate

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities.  ,,, for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above.  Her charitable deductions would be at most $5,700.  Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

So, her GBSR™ @ $100,000 AGI is 27.5%   ($5,700 + $21,709 = 27,409 / $100,0000 = 27.5%).

That means that Buffett’s GBSR™ is almost twice his secretary’s.

Hmmm.

Maybe he’s not such a bad guy and I should stop ranting about him.

And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

It just may be that the tax code is leading to the right answer.

Just have to look around the trees to see the forest.

AMEN

>> Latest Posts

Squeezing Buffett’s numbers … Part 4

October 20, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity.  Not realistic, but mathematically possible.

Whew.

Now let’s start pulling things together.

The chart below makes the obvious clear … at least to me to me.

image

Note that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our secretary surrogates.

Now that’s a gap!

But, I haven’t seen anybody in the mainstream media even notice.  They, and Chuckie Shumer, just focus on the rate to taxable income.

What’s going on?

Same story as before: Buffett shelters over a third of his AGI – and practically all of his ordinary income with charitable deductions.

Simply stated, because he gives money away to charities (e.g. the Bill Gates Foundation) he only has to give a pittance to the Feds.

Is that a good thing or a bad thing?

We’ll save that for a subsequent post.

>> Latest Posts

Squeezing Buffett’s numbers … Part 3

October 19, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right?  Why give it to the government and have it waste the money?

Today, let’s look at the popular headline: “Buffett’s Tax Rate Lower than His Secretary’s”

Since we don’t know his secretary’s specifics, we looked at 3 hypotheticals: a single taxpayer (i.e. not married), all ordinary income,  no dependents, standard deduction (i.e. doesn’t itemize).

The bottom line: The headline seems reasonable.  In each of 3 income scenarios ($50k, $75k and $100k) the rate to taxable income is in the lower 20s – about 5 points higher than Buffett’s rate.

But, keep reading …

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First, these are scenarios the get to the highest possible tax rates – a joint-married filer with dependents and itemized deductions would pay less.

Nonetheless, it’s hard to imagine an ordinary person closing the gap to Warren’s rate unless they had a big mortgage deduction and played the charity angle: giving a lot to charity to shelter income down to the 15% rate.

For example, if our 50K single taxpayer had no mortgage interest and paid about 5% in state & local taxes, he could make a charitable contribution of about $10,000 and land in the 15% tax bracket (which is capped at $34,000)

Here’s the arithmetic: $50,000 less $3,650 in exemptions, less about $2,500 in state and local taxes, less $10,000 in charitable deductions is less than$34,000 – which is the top of the 15% bracket.

The charitable deduction would be 20% of AGI … which is lower than Buffett’s apparent 30% donations’ rate ($20 million / $63 million = 31.4%) … but probably not practical at that income level.

And, using the same logic, getting our $75k and $100k ordinary income earners into the 15% bracket would require a  charitable giving rate approaching 50% of AGI.

That certainly doesn’t seem practical.

What’s the point?

Buffett’s case illustrates how a completely discretionary itemized deduction – charitable contributions – can be used by folks – especially rich folks – to shelter ordinary income from taxes … and get them to a low effective tax rate.

That’s not a shot at charitable deductions – more on that in subsequent posts – just raises the point that closing the gap between Buffett and his secretary may be less a matter of raising tax rates (on capital gains) and more a matter of how deductions are allowed and applied.

More to come ..

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Squeezing Buffett’s numbers … Part 2

October 18, 2011

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%).

We tested the conventional wisdom that the rate is low because Buffett gets practically all of his income from capital gains and dividends.

Maybe and maybe not.

We showed that, in fact, almost half of Buffett’s income could be from ordinary income and he’d still pay the low rate.

Why?

Because deductions are first applied to higher taxed income (think ordinary income @ 35%) and then to lower taxed capital gains.

Buffett could, in effect, be getting his ordinary income tax-free.

Let’s dig a little deeper on Warren’s tax data.

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The key numbers: AGI = $53 million, Deductions (aka. “loopholes”= $23, Taxable Income =$40 million, and taxes = $7 million … 17.4%

Let’s think about the deductions for a moment

Some pundits have theorized that many of the deductions are “interest on investment borrowing”, suggesting that Buffett buys a lot of his holdings on margin.

I don’t think so.

First, he’s a frugal guy who doesn’t strike me as margin kind of guy.

Second, interest rates are essentially zero … especially for a big hitter like Buffett … and zero times any balance is, well, zero.

Third, Buffett himself says it ain’t so.

He says the roughly $23 million difference between his AGI and taxable income is due largely to deductions he took for charitable giving and local taxes.

Let’s do taxes first.

Nebraska state income taxes have a max marginal rate of just under 7%.  So, Buffett probably pays about $3 million in state & local taxes.

That leaves about $20 million in charitable deductions.  It’s oft reported that many of those donations go to the Gates Foundation.

We’ll come back to the charitable deductions in a subsequent post.

We’re not saying they’re necessarily good or bad … just remember the $20 million number.

* * * * *
Next up: How does the 17.4% compare to ordinary folks?  And, is it the right  number to focus on?

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Squeezing Buffett’s numbers … Part 1

October 17, 2011

Last week Warren “Don’t Coddle Me” Buffett released some of his tax info.

Just some highlights, but enough to give fodder to some analyses.

I think I have some interesting unreported angles on the nums that I’ll be dribbling out in this and subsequent posts.

First, the facts:

  • Buffett’s adjusted gross income (AGI) was $62,855,038  last year
  • His taxable income was $39,814,784
  • His federal income tax bill came to $6,923,494, or 17.4% of his taxable income.
  • He said The roughly $23 million difference between his AGI and taxable income was due largely to deductions he took for charitable giving and local taxes
  • He paid $15,300 in payroll taxes … but, so what?

You may remember, the buzz us about how Buffett’s 17.4% is lower than his secretary’s mid-20s tax rate.

Conventional wisdom is saying that the issue stems from so much of Buffett’s income comes from capital gains and dividend (taxed at 15%) rather than ordinary earned income (taxed at 35% at the margin).

A simple analysis suggests that for Buffett to have an overall 17.4% tax rate, his $40 million in taxable  income must be split roughly $35 million from capital gains & dividends (taxed at 15%) and $5 million in ordinary income (virtually all taxed at 35%).

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But, not so fast …

I’m not a tax adviser but …here’s something that I think is right and that I bet you didn’t know:

Mechanics for applying the tax code work to the tax payer’s advantage in at least one very import way … deductions against income aren’t applied pro-rata across tax categories – ordinary income and capital gains … rather they get applied to the highest taxed category of income first.

Said differently, deductions are first applied to ordinary income, then to capital gains (if there are any left).

That’s a big deal … for Buffett and for us ordinary folks.

What it could mean for Buffett is that the could pay his 17.4% rate with an almost 50 / 50 mix or ordinary income and capital gains.

Here are the nums:

image

So what?

Well, if I’m right then maybe Buffett’s right … he is being coddled.

But, the problem isn’t the tax rate (sorry, Chuckie Shumer) it’s those devilish loopholes.

It’s that he can generate tax deductions by giving mucho  $$$ to his buddy Gates’ foundation … and, in effect, can shelter almost all of his ordinary income from any taxes.

Now, that’s a big deal!

More in subsequent posts.  Trust me, I’m not done with this one.

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Why not Occupy Omaha ?

October 12, 2011

Well, Tuesday was the day that, according to CNN Money

Community groups and progressive organizations that have been working with the broader Occupy Wall Street movement marched on the homes of JP Morgan Chase CEO Jamie Dimon, billionaire David Koch, hedge fund honcho John Paulson, and News Corp  CEO Rupert Murdoch.

The millionaires and billionaires are being targeted for what event organizers called a “willingness to hoard wealth at the expense of the 99%.”

Why not stake out Warren’s place until he agrees to forego all of his tax loop holes (e.g. deductible contributions to his buddy Gates)?

Or, better yet, Washington … picket the millionaire who has been pushing hard for class warfare.

Hope Barry & Warren are proud … mission accomplished.

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Fair share revisited…

October 11, 2011

Obama’s tax plans don’t really impact , so this issue is strictly philosophical.

I’m still struggling with his “fair share” riff.

Out of 140 million tax filers, there 1,470 millionaires who pay no taxes of them.

Doesn’t sound like they’re paying their fair share, but there aren’t many of them … and, I bet each has an interesting story.

More generally, according to the IRS, folks making:
• More than $1 million pay 24% of income in taxes
•  $200,000 to $300,000 pay 17.5%
•  $100,000 to $125,000 pay 9.9%
•  $50,000 to $60,000 pay 6.3%
•  $20,000 to $30,000 pay 2.5%

And, the IRS reports that – as a % of income tax revenues:
• The top 1% pays 39%
• The top 5% pays 60%
• The top 10% pays 72%
• The bottom half pays 3%

So, what’s “fair share”?

Neither Obama nor his frontmen seem comfortable saying/

Wouldn’t you like to know?

Hmmm.

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SEC goes after S&P … Moody’s gets a pass … hmmm.

September 27, 2011

Well, well, well.

According to the WSJ: “The SEC has given S&P a so-called Wells notice alleging that S&P violated federal securities laws with respect to its ratings for a collateralized debt obligation known as Delphinus CDO 2007-1”.

Hmmm. About 4 years after the fact … but only a month or so after S&P lower the U.S. credit rating.

Coincidence.

Probably so.

And, here’s another twist: Moody’s was also up to its eyeballs slapping AAA ratings on CDOs.

But, Moody’s isn’t under investigation.

Did I mention that Warren “Please Tax Me More” Buffet owns a big chunk of Moody’s.

Double hmmm.

Probably just a coincidence.

But, it doesn’t smell right, does it?

Gotta love that good, old fashioned Chicago politics.

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Geez, all the fuss over 7,000 rich guys…

September 26, 2011

Punch line: Chasing after a couple of thousand rich dudes seems like a wild goose chase to me.

I’m more concerned about the 50% of folks who don’t have any skin in the game … who pay no taxes and think other folks should pay more.

Old refrain: “Don’t tax you, don’t tax me, tax the guy behind the tree.”

Tax Policy Center analysis reported in The Atlantic

76 million people won’t legally owe individual income taxes in 2011

The vast majority of this group is poor. They won’t owe individual income taxes because they won’t earn a lot of money to start, and various exemptions, like the earned income tax credit, will wipe out any tax liability … maybe even getting them a refundable credit – a check in the mail from the Feds.

Among families making more than $100,000, there will also be  half a million tax units that will also pay no income tax.

And, 7,000 millionaires will pay no individual income tax.

How can that be?

Couple of ways:

  • Tax-free income … think gov’t bonds
  • Catastrophic losses …  e.g. mansion gets wiped out by a hurricane, very high uninsured medical expenses
  • Discretionary deductions … think charitable deductions
  • Fraud and other shenanigans …

 

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Millionaires pay a lower tax rate than $50K teachers … not!

September 21, 2011

The press were abuzz yesterday debunking O’s key premise that millionaires pay taxes at a lower rate than teachers making $50,000.

Yesterday, we showed that a married  teacher with 2 kids who earns $50,000 pays at a 5.5% rate.  Even if you add 7.65 in payroll taxes to that, the resulting  13.15% is still less than a millionaire who pays only capital gains taxes at 15%.

That was a micro analysis.

The WSJ presented the macro analysis:

In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%.

That’s slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends.

The rate for a relative handful of the rich — 400 people — fell to 18%.

But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000.

The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum.

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I think the President should modify his Buffett Rule to read: anybody who earns more than $1 million … and who has accumulated wealth greater than $25 billion  … and who plans to bequeath practically all of his estate to a pal’s “foundation” shall pay an effective income tax rate of 90% … unless he /she whines that they’re being  coddled, in which case the tax rate escalates to 100%.

My real recommendation: limit the charitable estate exemption to $1 million so that Buffet has to fork about half of his estate over to the government … that’ll keep him from bring coddled in the grave.

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Channeling Buffett: Is Obama proposing a (substantial) hike in capital gains tax rates?

September 13, 2011

OK, I keep harping on the point, but …

At 7:25 pm last Thursday, Obama repeated the tired refrain about how Warren Buffet pays less taxes than his secretary and wants to pay more – his fair share.

Cutting to the chase: Buffett pays more in dollars, but pays at a lower rate.

Why?

Because most of Buffett’s income is “unearned income”.

English translation: capital gains and dividends.

So, there are only two ways to get Warren-the-sage on an equal rate  footing with his secretary: (1) lower marginal tax tax rates on the secretary’s earned income or (2) increase Buffett’s tax rate on his capital gains … to be taxed at the same rate as “earned income”.

Here’s the good news for Buffett: thanks to the ObamaCare bill, Warren will be paying a higher tax rate on his cap gains and dividends starting in 2013 (after the next election, of course).

So, the Buffett-secretarial gap will narrow.

 

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Technical note: The ObamaCare Surtax on Investment Income takes effect Jan. 2013.

It’s a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single).

Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations.

Source

But, even then there still may still be a gap.

So, either the rate on earned income comes down or rate on cap gains goes up.

I’m betting the latter.

So, to stop Warren from whining, Obama will likely raise the cap gains and choke capital flows – in order to stimulate the economy.

Huh?

Or, maybe Obama doesn’t understand the implications of his applause lines.

Hmmm.

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Golub to Buffett: Here’s how you can pay higher taxes.

September 9, 2011

At the 19 minute mark of Obama’s job speech, he channeled Warren Buffett’s whine about how his (Warren’s) taxes are too low.

A week or so ago, in a WSJ op-ed, Harvey Golub – former MxKinsey partner and AMEX CEO – responded to Warren Buffett’s plea to pay higher taxes.

One of his answers: lose the estate & income tax deductions for gifts to charitable foundations – especially personal family foundations and foundations set-up by their friends.

Gifts to charities are deductible but gifts to grandchildren are not.

The super-rich could pay higher taxes if they choose.

They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible.

They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

HomaFiles has been advocating such a change for quite awhile.

If Buffett thinks the gov’t works so well, let’s see him pony up …. and not just continue wield his influence under the cover of gifts to his buddy Gates

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While gov’t coddles Warren, Berkshire Hathaway stiff arms gov’t … shame, shame, Mr. Buffett

August 31, 2011

Punch line: Warren “Please Make Me Pay More Taxes” Buffett has been outted by his company’s proxy statement.

Apparently, Berkshire Hathaway owes back taxes … and is fighting the Federal gov’t tooth & nail to grab some disputable deductions and favorable tax treatments.

Excerpted from NY Post: “Warren Buffett, hypocrite

This one’s truly, uh … rich: Billionaire Warren Buffett says folks like him should have to pay more taxes — but it turns out his firm, Berkshire Hathaway, hasn’t paid what it’s already owed for years.

That’s right:  The company openly admits that it owes back taxes since as long ago as 2002.

“We anticipate that we will resolve all adjustments proposed by the US Internal Revenue Service (“IRS”) for the 2002 through 2004 tax years … within the next 12 months,” the firm’s annual report says.

The company also has outstanding tax issues for 2005 through 2009.

Obvious question: If Buffett really thinks he and his “mega-rich friends” should pay higher taxes, why doesn’t his firm fork over what the IRS says it already owes under current rates?

Couldn’t have said it better myself.

Pay up, Mr. Buffett … no more coddling, right?

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Got a spare $35,000 ? … If yes, you can hear B&O tell you your taxes are too low.

August 26, 2011

It’s reported that Warren Buffett  is hosting a fund-raiser for Obama’s re-election, billed as an “economic forum,”

According to the NY Post:

Tickets for the event at New York’s Four Seasons restaurant on Sept. 30 start at $10,000 a head, with VIP tickets a budget-boosting $35,800.

Guests get an hour of “Q&A moderated by one of President Obama’s closest economic advisors, Austan Goolsbee.”

What will be discussed is Buffett’s recent highly publicized claim that the wealthy should pay higher taxes.

As one invitee reportedly sniffed, “Nothing like advocating tax equality when you are charging $35,800 a ticket.”

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Does Warren Buffett really think pre-tax returns should guide investment decisions?

August 25, 2011

From the “Everything You Learned in Business School is Wrong” file …

Anybody who has taken a b-school finance course has learned to evaluate investments on an after-tax basis.

Right?

Well, apparently Warren Buffett thinks finance profs are spewing garbage.

In his recent “coddled” op-ed, Buffett said:

…  the notion that high taxes discourage hiring and investment is false.

I have yet to see anyone … 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.

So, the Oracle of Omaha thinks pre-tax is the way to evaluate investments.

Really?

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Memo to Buffett: Here’s the way I’d like to see your coddling get stopped …

August 16, 2011

Warren Buffett is back at it … whining that his taxes are too low.

In a NY Times op-ed he says:

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.

Since Warren won’t just pony up extra dough to the Treasury (why not?), I suggest that:

  1. All personal wealth  (not income !) over $1 billion should be confiscated immediately.
  2. Tax-dodging charitable deductions from estates greater than, say, $5 million, should be eliminated.

No, I’m not serious about the first idea … though, it would be nice to clarify the distinction between income & wealth … and, it would be fun to see the fattest of the fat cats squirm.

I am serious about eliminating the estate deduction for charitable gifts.

That would get Warren whining another tune.

You see, he’s reported to be bequeathing most of his estate to his buddy & fellow fat-cat Bill Gates’ foundation. 

Let’s see, he ducks a lot of estate taxes, just by channeling money to his mega-rich buddy.

Sounds like a loophole to me.

Mr. Buffett: why not pay your fair share and then ship after-tax dollars to your friend, Bill.

Let’s really end the coddling …

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More whining from Warren Buffett … and I’ve got the remedy.

November 29, 2010

Warren Buffett is back on the talk shows sanctimoniously asserting that the wealthy don’t get taxed enough.

ABC, Warren Buffett: “There’s No Sacrifice Among The Rich”
http://www.realclearpolitics.com/video/2010/11/28/warren_buffett_theres_no_sacrifice_among_the_rich.html

Since he won’t shut up, I suggest that the extension of the Bush tax cuts come with the following modifications:

  • For anyone with wealth (not income) totaling more than $1 billion, all current income – whether ordinary income or capital gains — shall be taxed 95%.  Call it the Gates / Buffet tax.
  • For anyone with wealth totaling more than $1 billion, no deductions shall be allowed against adjusted gross incomes.  Specifically, charitable deductions shall be made after-tax.  Sorry, Bill, but I want to see more of Buffet’s money going to the Feds instead of Gates Foundation … just like mine.
  • For all citizens, an estate can be sheltered by a maximum of $1 million of charitable gifts. Ditto the prior point. Confiscate Buffet’s estate and throw it into the gov’t grinder.

And, while we’re at it:

  • For all members of Congress (House & Senate) and all members of the Administration who report directly to the President, no income tax deductions shall be allowed and all income – regardless of source, type or amount – shall be taxed in its entirety at the highest marginal rate paid by any taxpayer. Let’s make the Congressional tax discussions a bit more personal.
  • For all retired members of Congress and any retired members of any Administration who reported directly to the President, all government pension and retirements benefits (including gov’t paid healthcare premiums) shall be taxed in its entirety – with no allowable deductions —  at the highest current marginal rate paid by any taxpayer. Let them ‘feel our pain’ everyday when they wake up

The above plans kill many birds with relatively few stones:

  1. Raises some dough for deficit reduction
  2. ‘Sensitizes’ our lawmakers.
  3. Potentially, gets Buffett to shut the blank up.

Win, win, win.


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