Comment by byrneseyeview | Hacker News Reader

Comment by byrneseyeview | Hacker News Reader

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He points out regularly injustices such as the fact that his secretary pays a higher tax rate than he does, thanks to the ridiculous capital gains laws in this country.

Corporate tax rates plus capital gains tax rates exceed normal income tax rates. The only way you can claim that he pays less in taxes on selling stock is if you assume that the company's profits -- the sum of which, discounted to the present, is the value of the stock -- somehow don't affect the value of the stock.

If we cut capital gains taxes to zero and added an equivalent amount to corporate profits (say, a 40% annual tax rate instead of 35%), the government would make an equivalent amount of money from the same economic activity, and Buffett's theoretical tax rate would go down. Similarly, if corporate income taxes were zero and his capital gains were taxed at 40%, he'd pay much more than his secretary, but the government would collect the same amount.

If the strength of his argument is independent of the magnitude of the problem he's arguing against, there is a flaw there.

Buffett is an admirable guy. But the line about his secretary is a rhetorical flourish, nothing more.

They're his words (paraphrased) not mine, and it is impossible Buffet is unaware of corporate tax. My guess is its more than rhetorical flourish too since he's not known for that.

Your making the argument that corporate taxes reduce his personal income, and therefore should count as his taxes. Ok. But if corporations did not have to pay taxes, they would pay their employees more, including secretaries. It's impossible to say for sure that a 35% corporate tax rate reduces secretary salaries by 35%, but it is something highly significant.

In a roundabout way the secretary is paying that corporate tax too. Its effect is not as directly measurable on her as it is on Buffet, and might not be 1 for 1, but it's undeniably there and equally applicable to her tax rate.

Also Social Security reduces her pay by 12.4% (half of which is paid by her employer but again would likely go to her if not). Since its capped at $100k income, it rounds to 0% of Buffet's yearly earnings.

*I should point out that I am aware I've grossly oversimplified the effect of the corporate tax on the secretary, I trust but you get the point.

The corporate tax rate is only paid on profits.

Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more. This is why many actual nonprofits are poorly managed; they are funneling profits to workers rather than to shareholders.

Profits and pay for workers are in competition. So raising the cost of profits actually increases the incentive to pay workers more.

That is not how it works. When car companies start losing money, they don't give people raises; they fire them. When Goldman has a great quarter, they don't cut people's pay -- they give them bonuses.

Nonprofits are managed because they exist to spend money, not to spend it well.

You are missing the point. A company has money after expenses (I'll abbreviate it MAE) which must be distributed. (Or in the case of GM, they have negative money after expenses.) You are discussing the behavior of companies in response to changes in MAE.

I'm discussing how a fixed amount of MAE is distributed in response to changes in incentives. Each dollar of MAE can be given either to shareholders, to employees, or can be invested. If you raise the cost of distributing money to shareholders (this is what the corporate tax does), companies will divert money to employees and investments. I.e., no one will pay dividends if there is a 100% dividend tax.

I think you're mistaken in thinking that money will be distributed to the average worker in this scenario. It would all be paid out to the same shareholders as a salary instead of capital gains. The regular employees wouldn't see an extra dime.

Your making the argument that corporate taxes reduce his personal income, and therefore should count as his taxes. Ok. But if corporations did not have to pay taxes, they would pay their employees more, including secretaries. It's impossible to say for sure that a 35% corporate tax rate reduces secretary salaries by 35%, but it is something highly significant.

And if he paid less in taxes, he'd buy more goods and services, too. In fact, he probably spends money more intelligently than your average bureaucrat -- certainly, he's able to balance the budget, and that's without even owning a monopoly on first-class mail delivery and taxation of income!

>And if he paid less in taxes, he'd buy more goods and services, too.

I disagree. Buffett is so wealthy that it simply doesn't matter if his bottom line is reduced by 35%. His net worth is $40 billion. It is simply impossible for him to run out of money at this point.

Think about this for a moment. At $200M each, he could have a personal Boeing 777 on call in every state in the country ($10B) and still have $30B left over. The most expensive house in the United States is a $165M compound in Beverly Hills with 72,000 square feet of living space. Why not build 100 of them around the world for $16B? There's still $14B left for the cheap stuff: Ferraris, Bugattis, servants, chefs, and whatever else you can dream up.

Barring any bad business deals, it's effectively impossible to squander away one billion dollars much less forty. A 35% tax hike or cut won't affect his spending in any way, shape, or form.

Only if you define "spending" as "immediate spending on consumer goods." Saving is just that kind of spending, deferred -- in Buffett's case, deferring it increases the amount that's spent, since he compounds his net worth at an above-average rate. So take whatever numbers you'd use assuming my previous comment was correct, and bump them up drastically.

> If we cut capital gains taxes to zero and added an equivalent amount to corporate profits (say, a 40% annual tax rate instead of 35%), the government would make an equivalent amount of money from the same economic activity, and Buffett's theoretical tax rate would go down. Similarly, if corporate income taxes were zero and his capital gains were taxed at 40%, he'd pay much more than his secretary, but the government would collect the same amount.

Neither of these are equivalent. The "only capital-gains tax" scenario creates incentives for foreign investors in US corporations. The "only corporate tax" scenario creates incentives for US investors in foreign corporations.

The current scenario seems to be a "get some tax revenue from whomever we can" strategy, but it might be worth tinkering with the ratios, especially to determine whether a more capital-gains-heavy, corporate-tax-light regime might increase overall tax revenue, by altering in the US's favor the flow of foreign capital, domestic capital, corporate relocations, and corporate expenditures.

I should have considered that. If you either a) assume we're only talking about US citizens, or b) assume that this law would also force foreign investors to pay, the point still stands.

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