How Unfair-Buffet Rule Blockage

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lennygoran
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How Unfair-Buffet Rule Blockage

Post by lennygoran » Tue Apr 17, 2012 5:31 am

Gallup poll: 60% back Obama's 'Buffett Rule'

http://articles.latimes.com/2012/apr/13 ... e-20120413

And yet the President had to issue this statement--may this obstruction to an absolutely fair rule cost the Repubicans mucho votes--just goes to show how big money lobbying by the rich can stomp out the wishes of the majority. :(

Statement by the President on the Buffett Rule

Tonight, Senate Republicans voted to block the Buffett Rule, choosing once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class.

The Buffett Rule is common sense. At a time when we have significant deficits to close and serious investments to make to strengthen our economy, we simply cannot afford to keep spending money on tax cuts that the wealthiest Americans don’t need and didn’t ask for. But it’s also about basic fairness – it’s just plain wrong that millions of middle-class Americans pay a higher share of their income in taxes than some millionaires and billionaires. America prospers when we’re all in it together and everyone has the opportunity to succeed.

One of the fundamental challenges of our time is building an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. And I will continue to push Congress to take steps to not only restore economic security for the middle class and those trying to reach the middle class, but also to create an economy that’s built to last.

Regards, Len

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Re: How Unfair-Buffet Rule Blockage

Post by John F » Tue Apr 17, 2012 7:07 am

Absolutely predictable, since the Republicans are determined to help the rich get richer (notably including Mitt Romney) and devil take the rest of us. We'll see whether they pay for it in November or if the chumps - er, voters reward them for it.
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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Tue Apr 17, 2012 8:13 am

John F wrote:Absolutely predictable, since the Republicans are determined to help the rich get richer (notably including Mitt Romney) and devil take the rest of us. We'll see whether they pay for it in November or if the chumps - er, voters reward them for it.
On NPR's Morning Edition this morning there was a segment on Romney appearing before a big Tea Party bunch and getting a good reception. One woman was interviewed and explained how her doubts about Romney had been allayed and she was now ready to support him, with one remaining concern. Some area in which he is not far enough to the right, you think? No. She said she wanted him to show that he was concerned about the middle class.

They're clueless.

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nut-job
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Re: How Unfair-Buffet Rule Blockage

Post by nut-job » Tue Apr 17, 2012 10:07 am

Although I sympathize with the motivation, I think the last thing the tax code needs is another Gimmick. This Buffet rule sounds like a new version of the alternate minimum tax.

What we need is a simple tax code. Income is income, no matter where it comes from. The first X dollars are tax free, maybe that depends on how many dependents in the household. Above that deductible you pay a percentage, whatever is required to produce necessary revenue. No deductions. It can be made as progressive as we want by adjusting the deductible and the rate. There is no hope that our government can produce anything resembling that. What we have is two idiots wrestling for control of the steering wheel as the car drives off the cliff.

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Re: How Unfair-Buffet Rule Blockage

Post by John F » Tue Apr 17, 2012 12:45 pm

nut-job wrote:Although I sympathize with the motivation, I think the last thing the tax code needs is another Gimmick. This Buffet rule sounds like a new version of the alternate minimum tax.
It might have a similar effect, but it wouldn't be an alternative tax for people who'd managed to shelter most of their income, it would be an increased tax rate period. As I understand it.
nut-job wrote:What we need is a simple tax code. Income is income, no matter where it comes from. The first X dollars are tax free, maybe that depends on how many dependents in the household. Above that deductible you pay a percentage, whatever is required to produce necessary revenue. No deductions. It can be made as progressive as we want by adjusting the deductible and the rate. There is no hope that our government can produce anything resembling that. What we have is two idiots wrestling for control of the steering wheel as the car drives off the cliff.
Many agree that we need a simple tax code, but they don't agree on what it should be. For example, if you eliminate the charitable deduction, that could have a devastating effect on philanthropy and those dependent on it - private colleges, schools, hospitals, museums, orchestras, you name it. In a country that abhors public funding of such institutions, especially those connected with the arts, the charitable deduction is an indirect way of providing the funding on which their survival depends.

All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
John Francis

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Re: How Unfair-Buffet Rule Blockage

Post by nut-job » Tue Apr 17, 2012 3:30 pm

John F wrote:Many agree that we need a simple tax code, but they don't agree on what it should be. For example, if you eliminate the charitable deduction, that could have a devastating effect on philanthropy and those dependent on it - private colleges, schools, hospitals, museums, orchestras, you name it. In a country that abhors public funding of such institutions, especially those connected with the arts, the charitable deduction is an indirect way of providing the funding on which their survival depends.
All of these modifications of the tax code that are supposed to manipulate us into being good normally backfire. Home mortgage interest is tax deducible. But according to economists, that just drives up the price of housing, so homeowners end up paying the same cost and non homeowners get punished. Pharm companies can "donate" expiring, unsellable medication and avoid paying tax. Since it almost impossible to take a tax break out of the code, attempts to manipulate peoples behavior through tax incentives inevitably leads to the mess we have.
All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
Sad but true.

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Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Tue Apr 17, 2012 3:37 pm

John F wrote:.

All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
yep, all you have to do is abolish corporate income taxes and set a 45% max tax rate, eliminating special rates for capital gains and dividends

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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Tue Apr 17, 2012 4:28 pm

BWV 1080 wrote:
John F wrote:.

All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
yep, all you have to do is abolish corporate income taxes and set a 45% max tax rate, eliminating special rates for capital gains and dividends
That's exactly what you need to do, but are you being serious? :?

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Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Tue Apr 17, 2012 4:36 pm

jbuck919 wrote:
BWV 1080 wrote:
John F wrote:.

All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
yep, all you have to do is abolish corporate income taxes and set a 45% max tax rate, eliminating special rates for capital gains and dividends
That's exactly what you need to do, but are you being serious? :?
yes

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Re: How Unfair-Buffet Rule Blockage

Post by RebLem » Tue Apr 17, 2012 6:10 pm

BWV 1080 wrote:
jbuck919 wrote:
BWV 1080 wrote:
John F wrote:.
All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
yep, all you have to do is abolish corporate income taxes and set a 45% max tax rate, eliminating special rates for capital gains and dividends
That's exactly what you need to do, but are you being serious? :?
yes
I'm not so sure about the 45% cap. I think it should be more like 60-65%. And I'm not so sure about eliminaing as many deductions as you want to eliminate. But, although it may surprise you to see this from me, I agree that corporate income taxes should be completely eliminated, because they don't pay taxes; their customers do. I also think that states should be forbidden to offer corporations special tax deals that competitors are not offered to attract business and jobs to their states, so we don't have a race to the bottom, with states offering big box companies like Lowe's and Home Depot, for example, special deals when their main effect is to drive out competition from local businessmen.
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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Tue Apr 17, 2012 6:29 pm

RebLem wrote:
BWV 1080 wrote:
jbuck919 wrote:
BWV 1080 wrote:
John F wrote:.
All this is academic, however, as there's no way the tax code is actually going to be simplified. Partisan politics won't allow it.
yep, all you have to do is abolish corporate income taxes and set a 45% max tax rate, eliminating special rates for capital gains and dividends
That's exactly what you need to do, but are you being serious? :?
yes
I'm not so sure about the 45% cap. I think it should be more like 60-65%. And I'm not so sure about eliminaing as many deductions as you want to eliminate. But, although it may surprise you to see this from me, I agree that corporate income taxes should be completely eliminated, because they don't pay taxes; their customers do. I also think that states should be forbidden to offer corporations special tax deals that competitors are not offered to attract business and jobs to their states, so we don't have a race to the bottom, with states offering big box companies like Lowe's and Home Depot, for example, special deals when their main effect is to drive out competition from local businessmen.
I was not sure about 45% but have no basis to name another, and it sure sounds better than 25% or 30% (not a lot of difference there, really, is there?). The percentage and the cutoff for that bracket should be what is needed to fund a government that does what we need it to do, and Steve's idea of that has tended to be a little different from yours and mine.

What we have with the Buffet rule is another situation where the Republicans have pulled things so far to the right that all the other side feels it can offer is a position which would itself have looked far-right 30 years ago. And then it's going to be a task to sell it to the American public as something other than radically leftist. (Part of the problem is that Americans love their billionaires and think it's cool to let them keep all their money.)

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Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Tue Apr 17, 2012 8:35 pm

45% is slightly higher than the net after a double taxation of 35% corporate and 35% individual

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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Tue Apr 17, 2012 9:28 pm

BWV 1080 wrote:45% is slightly higher than the net after a double taxation of 35% corporate and 35% individual
Please define what you mean by "double taxation," since you are clearly not referring to the misnomer for the practice of taxing unearned income made by investing or saving after-tax earned income. And then please explain why you settled on the figure of 35% (not that I am assuming it is unreasonable). It seems to me that the rational way to do this is to consider a hypothetical but realistic budget for the federal government and then decide what the maximum rate and the income cut-off for that rate should be to fund said budget. Without further explanation, your 35%/45% seems arbitrary, and I did not initially agree with you because I thought you were being arbitrary. :wink:

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Re: How Unfair-Buffet Rule Blockage

Post by RebLem » Wed Apr 18, 2012 6:12 am

A moral measurement for candidates' tax plans

By Fred Kammer | National Catholic Reporter ( http://ncronline.org ) | Apr. 10, 2012

Viewpoint

“The tax system should be continually evaluated in terms of its impact on the poor.” So stated the U.S. bishops in their 1986 pastoral letter, “Economic Justice for All.” They enunciated three guiding principles:

First, the tax system should raise adequate revenues to pay for the public needs of society, especially to meet the basic needs of the poor. Secondly, the tax system should be structured according to the principle of progressivity, so that those with relatively greater financial resources pay a higher rate of taxation. The inclusion of such a principle in tax policies is an important means of reducing the severe inequalities of income and wealth in the nation. ... Thirdly, families below the official poverty line should not be required to pay income taxes. Such families are, by definition, without sufficient resources to purchase the basic necessities of life. They should not be forced to bear the additional burden of paying income taxes.

These principles reflect Catholic tradition and the new Catholic catechism. In 1961, in Mater et Magistra, Pope John XXIII stated the core principle, “As regards taxation, assessment according to the ability to pay is fundamental to a just and equitable system.” In the catechism, payment of taxes is integral to one’s responsibility for the common good: “Submission to authority and co-responsibility for the common good make it morally obligatory to pay taxes, to exercise the right to vote, and to defend one’s country.”

Progressivity is fundamental to the Catholic tax tradition. It reflects belief in the universal destination of all goods -- they must serve the common good -- as well as stewardship of all creation, whose origin is God. As stewards, this progressivity reflects the teaching of Jesus in Luke 12:48: “From everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded.”

Evaluating tax morality requires measuring the progressivity and regressivity of systems -- the more progressive, the more moral. In general, personal income tax can be the most just system, if structured progressively. A flat tax is regressive since, by definition, it taxes the wealthiest and poorest families at the same rate. Even income tax systems with nominally graduated tax rates may be regressive where, for instance, the percentage of those paying the highest rate is very large (66 percent of Alabama families pay the highest rate, starting at $6,000 of taxable income for couples). [I happen to know that in Nebraska, where Warren Buffett lives, they have four slightly progressive rates, but the top rate begins at $60 K per couple. RebLem]

Estate taxes can be progressive if they tax larger estates at higher rates, and elimination of estate taxes is regressive since it allows wealthy families to hold excessive wealth for generations. [Andrew Carnegie favored an estate tax of at least 50%. RebLem]

Property taxes typically are “somewhat regressive” because poor homeowners and renters pay more of their income than other groups and the wealthiest owners pay the least.

Finally, sales taxes and excise taxes (e.g., on cigarettes, gasoline and beer) are the most regressive because they take a larger share of income from low and moderate income families. State systems relying heavily on sales taxes are very regressive. One moderating factor can be exclusion of necessary items such as groceries. [That is the case in New Mexico, but it is a fairly recent development. I have always favored taxes on groceries, as the poorest can get food stamps, and food stamp recipients don't have to pay taxes on food purchases anyway. Also, such a system is at least a slight disincentive to illegal immigration, because poor illegals are not eligible for food stamps and still have to pay the sales tax. In addition, the New Mexico tax is a bit more progressive than most, because unlike most states, our sales tax applies also to professional services, such as accounting services and attorneys' fees, which tend to be used more by the very prosperous. RebLem]

We’ve heard much about our debt and deficit in this campaign, and we can expect even more. Importantly, our bishops reminded last summer’s debt reduction “super-committee” that raising revenues must be integral to any solution: “A just framework also requires shared sacrifice by all, including raising adequate revenues, eliminating unnecessary military and other spending, and addressing the long-term costs of health insurance and retirement programs fairly.”

How do we morally measure the tax proposals from the remaining Republican candidates and President Barack Obama?

Candidates Newt Gingrich, Mitt Romney and Rick Santorum each propose, not added revenue, but plans that over 10 years will cost $18.1 trillion, $6.6 trillion and $9.4 trillion. The Gingrich plan would give the richest 1 percent of Americans a tax cut 190 times that of the middle fifth of taxpayers, while the tax cuts for the wealthiest in the Romney and Santorum plans would be 100 times that of the middle fifth. (Candidate Ron Paul would eliminate the income tax completely, substituting a national sales tax or “flat tax.”)

The president’s tax plan reduces revenues by $3.5 trillion by making permanent 78 percent of the Bush tax cuts, actually costing $4.2 trillion over 10 years due to the increased interest on the debt. His income tax plan is more “progressive” by reducing the tax cuts for the wealthiest, but it fails to raise added revenue. His corporate tax plan, heralded for raising $250 billion by closing loopholes, gives that away in lower corporate tax rates, to become “revenue neutral.”

All these plans and that of House Budget Chairman Paul Ryan (R-Wis.) propose massive tax cuts when U.S. total taxes -- federal, state and local -- are among the lowest of industrialized countries, and where brutal cuts in Medicaid, Medicare, Social Security, and discretionary domestic and defense spending are put forward for reducing the debt and deficit. Go figure!

[Jesuit Fr. Fred Kammer is director of the Jesuit Social Research Institute at Loyola University New Orleans.]

http://ncronline.org/print/news/politic ... -tax-plans
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Re: How Unfair-Buffet Rule Blockage

Post by John F » Wed Apr 18, 2012 7:18 am

In New York, groceries are exempt from sales taxes, but food bought in restaurants etc. is taxed. Also, newspapers and magazines are exempt from sales taxes, but books and other reading matter is not. Clothing and footwear under $110 are exempt from the state and local sales taxes; above $110, you pay tax.

I'm emphatically in favor of not levying a sales tax on the basic necessities of life. I also think it's enlightened of my state and city not to tax news sources that are necessary to an informed electorate. RebLem's view on taxing sales of groceries, as distinct from prepared food, may make economic sense, to him at least, but I think it's morally indefensible, and I applaud his state for seeing the light.
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Re: How Unfair-Buffet Rule Blockage

Post by Cosima___J » Wed Apr 18, 2012 4:35 pm

Oh, I think we should keep the tax code system exactly the way it is. I love it because it's so simple and neat. Here's an example (quoted from the Christian Science Monitor):

EXACTLY WHAT IS IT YOU DON'T GET? This passage, from Section 509 of the federal tax code, shows how opaque IRS language can be:
"For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c) (4), (5) or (6) which would be described in paragraph (2) if it were an organization described in section 501(c) (3)."

Ha!

Another quote from the Monitor: "110 million is the number of calls the IRS gets each year, more than 25 percent of which go unanswered."

How about this? "Number of pages contained in the US tax code and related federal explanatory material as compiled by the financial services firm CCH Inc. for 2012 is 73,608"

http://www.csmonitor.com/USA/2012/0412/ ... Nina-Olson

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Re: How Unfair-Buffet Rule Blockage

Post by Cosima___J » Wed Apr 18, 2012 9:06 pm

Oh, Buffet Rule, Schmuffet Rule. It's more of a makes-me-feel-good political smoke and mirrors than a real solution to any of our problems. Here's a pretty good article:

Editor's note: Edward J. McCaffery is Robert C. Packard Trustee Chair in law and professor of law, economics and political science at the University of Southern California. He is the author of "Fair Not Flat: How to Make the Tax System Better and Simpler."

(CNN) -- April, the cruelest month: Time for tax deadlines and tax policy follies. Hence, the resurrection of the so-called Buffett Rule.

Named after Warren Buffett, who said it was an outrage that he pays a lower tax rate than his secretary, the proposal is designed to ensure that the really rich -- those with annual reported taxable incomes of more than $1 million -- pay an "effective tax rate" of 30%.

The idea is another attempt by President Barack Obama to restore some measure of progressivity to the tax code. Baffled and blocked by the mythical Joe the Plumber, Obama has been unable to restore the top marginal tax rate on those reporting more than $250,000 a year to their pre-George Bush levels, a top rate of 39.6% from its current 35%. That seemingly modest proposal was a centerpiece of Obama's landslide 2008 election campaign. It has gone nowhere. Neither will the Buffett Rule. Why? Because the idea has three fatal flaws.


Edward J. McCaffery1. The Buffett Rule is moot.

It's dead on arrival. The rule has no chance of getting through the House, even it can get through the Senate. And if history is any guide, any form of tax increase, on anyone, will not bring votes to any person or party in November, so there are no political points to score here. Ask Joe the Plumber. The practical political fact sits alongside some pressing fiscal facts: America is running massive deficits. Our spending is too high. Our revenues are too low. We are a Greece waiting to happen. Meanwhile, inequality of all forms is getting worse. We need to do something, not nothing. Empty April symbolism is nothing.



Explain it to me: The 'Buffett Rule' 2. The Buffett Rule won't help solve the real problems.

It won't help the fiscal problem because it is a drop in the bucket. The most optimistic projections are that the rule might raise $50 billion a year. That's unlikely, because people plan around tax increases, but even if we get it, it is about 3% of the projected $1.5 trillion deficit. The rule could only be meaningful if it were some kind of first step. But first step toward what?

History shows that marginal tax rates were raised on the very highest bracket to 94% in the midst of World War II. History also shows that almost no one paid tax in this bracket. Why do it then? Because a top rate of 94% made lower rates of 50% and 70% look more palatable. Is the Buffett Rule a first step toward lowering the 30% flat rate to those making more than $250,000, or raising other middle-class taxes? It is hard to see anything very good happening here.

3. The Buffett Rule, even if enacted, won't work because it won't really affect Warren Buffett!

The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.

We can and should attack Tax Planning 101 and make the really, really rich pay some tax. We should address the tax benefits of unrealized appreciation and, even more so, of borrowing.

We can do so, surprisingly simply, by a progressive consumption tax, as I and others, like Robert Frank and Greg Mankiw, have advocated for years. That's real reform that would really affect Warren Buffett. As such, I suppose it must wait until April passes.

http://www.cnn.com/2012/04/16/opinion/m ... index.html

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Re: How Unfair-Buffet Rule Blockage

Post by lennygoran » Thu Apr 19, 2012 6:07 am

Cosima___J wrote:
We can and should attack Tax Planning 101 and make the really, really rich pay some tax. We should address the tax benefits of unrealized appreciation and, even more so, of borrowing.
Hey if there's a plan out there that is better than Buffet's for really making the rich pay more I'm all for it--are you? Regards, Len

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Re: How Unfair-Buffet Rule Blockage

Post by living_stradivarius » Thu Apr 19, 2012 11:31 am

The Buffet rule conversation should have been settled months ago:

http://techcrunch.com/2011/08/15/screw- ... 33a6fd1d86
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Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Thu Apr 19, 2012 5:17 pm

Cosima___J wrote: The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.


http://www.cnn.com/2012/04/16/opinion/m ... index.html
This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.

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Re: How Unfair-Buffet Rule Blockage

Post by nut-job » Thu Apr 19, 2012 5:33 pm

BWV 1080 wrote:This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.
Nevertheless, some have used this strategy. This report in the NY times indicates that Steve Jobs managed to avoid paying any federal tax since 1997 by borrowing whatever he needed against his Apple Stock. His wife takes possession of the 2 billion in Apple stock he owned at his death and owes no tax.

http://www.nytimes.com/2012/02/08/opini ... g-tax.html

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Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Thu Apr 19, 2012 5:40 pm

nut-job wrote:
BWV 1080 wrote:This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.
Nevertheless, some have used this strategy. This report in the NY times indicates that Steve Jobs managed to avoid paying any federal tax since 1997 by borrowing whatever he needed against his Apple Stock. His wife takes possession of the 2 billion in Apple stock he owned at his death and owes no tax.

http://www.nytimes.com/2012/02/08/opini ... g-tax.html
But again this is completely wrong - you do not get a step-up in property passed to a spouse through the marital deduction, the basis remains. You only get a step up in basis when there is an event that would trigger estate taxes. Assuming this was the case, when Jobs wife dies she will pay 45% of the value of the Apple stock in her estate. And do you really think when the stock market tanks like it did in 2008 the government needs to be refunding cash to rich people out of the treasury?

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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Thu Apr 19, 2012 6:16 pm

BWV 1080 wrote:
Cosima___J wrote: The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.


http://www.cnn.com/2012/04/16/opinion/m ... index.html
This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.
But that explanation agrees with what I've read elsewhere: That the very rich never spend their money but remain fully invested and borrow everything they need for expenditures, at historically low interest rates (which are optimized for them as the most desirable credit risks), while their investments make far more money, the distinction between growth and income being nearly irrelevant. The reason their wealth as opposed to income cannot be garnished in lieu of taxes is that it would be expropriation, which is rightly unconstitutional. Even taxing their capital gains at income rates on an annual basis would not defeat this reality, as their investment schemes are so sophisticated that they are still bound to come out ahead of simply taking $100 million out of investments as income to pay for that yacht and paying the tax, it making little difference whether the rate is 30% or much less.

I don't have any problem with grandfathering enormous wealth, since the problems related to getting at it are greater than those they would solve (we are not looking for a Russian Revolution). What I do have a problem with is the elimination of estate taxes which keeps this wealth intact across generations. This will either create a hereditary economic elite resembling ancient European royalty, or leave everything up to private philanthropy when the disposition of the national wealth should be a public and not a private matter.
Last edited by jbuck919 on Thu Apr 19, 2012 6:24 pm, edited 1 time in total.

There's nothing remarkable about it. All one has to do is hit the right keys at the right time and the instrument plays itself.
-- Johann Sebastian Bach

BWV 1080
Posts: 4451
Joined: Sun Apr 24, 2005 10:05 pm

Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Thu Apr 19, 2012 6:23 pm

jbuck919 wrote:
BWV 1080 wrote:
Cosima___J wrote: The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.


http://www.cnn.com/2012/04/16/opinion/m ... index.html
This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.
But that explanation agrees with what I've read elsewhere: That the very rich never spend their money but remain fully invested and borrow everything they need for expenditures, at historically low interest rates (which are optimized for them as the most desirable credit risks), while their investments make far more money, the distinction between growth and income being nearly irrelevant. The reason their wealth as opposed to income cannot be garnished in lieu of taxes is that it would be expropriation, which is rightly unconstitutional. Even taxing their capital gains at income rates on an annual basis would not defeat this reality, as their investment schemes are so sophisticated that they are still bound to come out ahead of simply taking $100 million out of investments as income to pay for that yacht and paying taxes on it.

I don't have any problem with grandfathering enormous wealth, since the problems related to getting at it are greater than those they would solve (we are not looking for a Russian Revolution). What I do have a problem with is the elimination of estate taxes which keeps this wealth intact across generations. This will either create a hereditary economic elite resembling ancient European royalty, or leave everything up to private philanthropy when the disposition of the national wealth should be a public and not a private matter.
There are other than financial reasons why a famous CEO would borrow against his or her shares rather than sell them. The math is fairly easy, you can sell a dollar worth of stock and receive 85 cents net of the cap gains tax or borrow a dollar against it and pay 100 basis points or so over prevailing short term rates. Even at these low rates, the interest costs will exceed the tax costs over a relatively short period of time.

jbuck919
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Re: How Unfair-Buffet Rule Blockage

Post by jbuck919 » Thu Apr 19, 2012 7:06 pm

BWV 1080 wrote:
jbuck919 wrote:
BWV 1080 wrote:
Cosima___J wrote: The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.


http://www.cnn.com/2012/04/16/opinion/m ... index.html
This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.

But that explanation agrees with what I've read elsewhere: That the very rich never spend their money but remain fully invested and borrow everything they need for expenditures, at historically low interest rates (which are optimized for them as the most desirable credit risks), while their investments make far more money, the distinction between growth and income being nearly irrelevant. The reason their wealth as opposed to income cannot be garnished in lieu of taxes is that it would be expropriation, which is rightly unconstitutional. Even taxing their capital gains at income rates on an annual basis would not defeat this reality, as their investment schemes are so sophisticated that they are still bound to come out ahead of simply taking $100 million out of investments as income to pay for that yacht and paying taxes on it.

I don't have any problem with grandfathering enormous wealth, since the problems related to getting at it are greater than those they would solve (we are not looking for a Russian Revolution). What I do have a problem with is the elimination of estate taxes which keeps this wealth intact across generations. This will either create a hereditary economic elite resembling ancient European royalty, or leave everything up to private philanthropy when the disposition of the national wealth should be a public and not a private matter.
There are other than financial reasons why a famous CEO would borrow against his or her shares rather than sell them. The math is fairly easy, you can sell a dollar worth of stock and receive 85 cents net of the cap gains tax or borrow a dollar against it and pay 100 basis points or so over prevailing short term rates. Even at these low rates, the interest costs will exceed the tax costs over a relatively short period of time.
First, what are those other reasons? That a CEO might not want to start a run on his own company's stock by selling his shares? We are talking about far more extensive and complicated investments than that simple scenario suggests. Then, you are assuming that these folks take as long to pay off loans as ordinary people and are bound to lose money over what they would by paying capital gains tax. I suppose it might work out that way, but another factor is how much the non-cashed-in investment is earning by sitting there while the loan is being repaid. These people hire expert accountants to make sure that their repayments are on a schedule that is overall not going to result in a loss, which of course takes into account how much their real taxable current income (what they are earning that is not just capital growth) is going to lose by being used for repayment rather than being immediately invested. I am not saying that they are guaranteed never to lose money (they all lost fortunes on paper with the crash in 2008), but they simply don't play by the same rules as even well-off people of lesser means. If I read in multiple places that they generally manage an end run around taxable income as a percentage of most of what their wealth earns, I don't have a problem getting the picture.

There's nothing remarkable about it. All one has to do is hit the right keys at the right time and the instrument plays itself.
-- Johann Sebastian Bach

BWV 1080
Posts: 4451
Joined: Sun Apr 24, 2005 10:05 pm

Re: How Unfair-Buffet Rule Blockage

Post by BWV 1080 » Thu Apr 19, 2012 7:10 pm

jbuck919 wrote:
BWV 1080 wrote:
jbuck919 wrote:
BWV 1080 wrote:
Cosima___J wrote: The really, really rich in America don't pay high taxes because they don't report high incomes. And they don't report high incomes for perfectly legal reasons. As I have been writing for decades now, the really, really rich, including Robert Kiyosaki's "Rich Dad," follow the three simple steps of Tax Planning 101: Buy, borrow and die.

By buying assets that rise in value without producing cash, the really, really rich benefit from "unrealized appreciation" that need not go down on any tax form. This is key to the business and investment strategy of Buffett's Berkshire Hathaway. When the really, really rich want to consume, they borrow, also tax-free under the income tax. To cash it all out, the really, really rich die, like we all do -- and then the so-called stepped-up basis on death means that their heirs can sell off assets and pay off debts, tax-free.


http://www.cnn.com/2012/04/16/opinion/m ... index.html
This is just pure crap, I don't know whether the professor is lying or just an idiot. Borrowing against non-income producing assets is very expensive and risky (you end up paying interest on interest and your loan may get called at the worst time). The interest costs can easily outweigh any savings from income taxes. assets that step up in basis in an estate are subject to much higher estate tax rates (that is the rationale for the step-up). Also Robert Kiyosaki is a worthless hack that no one in finance has any respect for.

But that explanation agrees with what I've read elsewhere: That the very rich never spend their money but remain fully invested and borrow everything they need for expenditures, at historically low interest rates (which are optimized for them as the most desirable credit risks), while their investments make far more money, the distinction between growth and income being nearly irrelevant. The reason their wealth as opposed to income cannot be garnished in lieu of taxes is that it would be expropriation, which is rightly unconstitutional. Even taxing their capital gains at income rates on an annual basis would not defeat this reality, as their investment schemes are so sophisticated that they are still bound to come out ahead of simply taking $100 million out of investments as income to pay for that yacht and paying taxes on it.

I don't have any problem with grandfathering enormous wealth, since the problems related to getting at it are greater than those they would solve (we are not looking for a Russian Revolution). What I do have a problem with is the elimination of estate taxes which keeps this wealth intact across generations. This will either create a hereditary economic elite resembling ancient European royalty, or leave everything up to private philanthropy when the disposition of the national wealth should be a public and not a private matter.
There are other than financial reasons why a famous CEO would borrow against his or her shares rather than sell them. The math is fairly easy, you can sell a dollar worth of stock and receive 85 cents net of the cap gains tax or borrow a dollar against it and pay 100 basis points or so over prevailing short term rates. Even at these low rates, the interest costs will exceed the tax costs over a relatively short period of time.
First, what are those other reasons? That a CEO might not want to start a run on his own company's stock by selling his shares? We are talking about far more extensive and complicated investments than that simple scenario suggests. Then, you are assuming that these folks take as long to pay off loans as ordinary people and are bound to lose money over what they would by paying capital gains tax. I suppose it might work out that way, but another factor is how much the non-cashed-in investment is earning by sitting there while the loan is being repaid. These people hire expert accountants to make sure that their repayments are on a schedule that is overall not going to result in a loss, which of course takes into account how much their real taxable current income (what they are earning that is not just capital growth) is going to lose by being used for repayment rather than being immediately invested. I am not saying that they are guaranteed never to lose money (they all lost fortunes on paper with the crash in 2008), but they simply don't play by the same rules as even well-off people of lesser means. If I read in multiple places that they generally manage an end run around taxable income as a percentage of most of what their wealth earns, I don't have a problem getting the picture.
I am just saying I know from professional experience that it is not that easy, and in fact can be very risky and expensive.

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