Why Are We Bashing Buffett?

What is altruism? Warren Buffett recently proposed a surtax on the very wealthiest Americans, including himself to help reduce the federal deficit.  (This is a mild version of Obama’s perfectly reasonable proposal to tax family incomes above $250,000, i.e., fewer than 2% of families.) Buffett is being altruistic—the tax will reduce his net income. I always thought altruism was desirable, yet I’ve seen Buffett lampooned in the press.

I suppose one can argue that he’s really doing this to preserve the value of Berkshire Hathaway stock.  (The same argument might apply when I donate blood—perhaps I do it because it makes me feel good, not to help others.) But: it’s a pretty sorry state of the world when someone offers to reduce his circumstances in order to help his country and is mocked.


HeavyD

A large and complicated topic which I would boil down by saying:
a) WB's mid 80s and already got his taken care off a few billion times over
b) he proposes taxing income, not wealth - where was he the past 50 years while earning?
c) taxing the richest 500 Americans sounds good but won't move the meter on our real problem (spending 40% too much)
d) find me lots of people making $200k-$500k who tell you they want to pay more. You won't because those are the upward "aspiring" rich who aren't set for life yet - but hope to be one day.
e) this is a clear cut case of limo-liberal attitude - I won the lottery and feel badly that so many others don't have it so easy. See Hollywood Actors for more details.

DJS

Well-said, mon ami!!

William

Family incomes above $250,000 are already being taxed. Don't you mean raising the tax rate? And why is it perfectly reasonable? I am not going to get into the issue of who actually pays the income tax, as that has been adequately documented elsewhere. Also, Warren is not offering to reduce just his circumstances, but is offering to reduce other's as well. How nice of Warren to offer to reduce the disposable income of others. As others have commented, if he wants to pay more in taxes, nothing is stopping him from sending the IRS a check. I don't agree that it is a pretty sorry state of the world when people do not appreciate Warren deciding that they should have more of the income seized by the government. Would this "help his country"? Not if, as I believe, the problem is a spending one and not a revenue one.

Mike B

Imagine if you were very wealthy (which probably isn't very hard) and you belonged to an organization whose facilities were getting rundown and shabby. You go around to the other wealthy people of the club and suggest that they all pay more in dues so the facilities can get fixed up, however they refuse and respond that if you want things fixed so badly why don't you write a check on your own. How would that make you feel? Would you do it? No, that would make you a sucker and only cause a free rider situation.

G Butler

That's nice, but Buffett said outright that he wasn't being taxed enough. That he doesn't send the IRS a check for the difference is a legitimate point. A more important point is that Berkshire Hathaway is still fighting with the IRS over taxes due from over a decade ago. Despite his bluster, he still minimizes taxes (like everyone else with functional neurons) because he knows he can spend his dollars more effectively than the government.

Anyone arguing for more taxes on themself must think the government can spend their money more efficiently than they can themselves. This should be prima facia evidence of insanity.

Michael B

"because he knows he can spend his dollars more effectively than the government."
He minimizes taxes because it is to his personal benefit, not because he can spend it more effectively on providing social security, training American soldiers etc. Everyone minimizes their personal taxes for this reason.

The reason for government intervention is market failure, it is all well and good to suggest that no one wants to pay for this intervention, but where do those who are unable to work or unable to afford housing go?

If the US wants to change its tax structure and reduce any freeloading, unfair tax breaks etc, then they can change to a consumption tax and reduce the income tax brackets, this will capture more income from the rich if they choose to spend more and will result in a more stable long term outlook, as the number of producers in the economy contracts, their will be a wider tax base.

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Chris BeHanna

Michael B wrote, "The reason for government intervention is market failure."

Er, no. Government intervention CAUSES market failure. Without government intervention, there would not have been massive sub-prime lending--no lender who wanted to stay in business would have given mortgages to people who couldn't prove they could pay them, and without the government forcing lenders to make these loans under the rubric of the Community Reinvestment Act on the one hand, and backstopping these loans with taxpayer money (Fannie and Freddie) on the other, there would have been no subprime meltdown--the spark that lit the economic fire in late '08. Without subprime loans, there couldn't have been securitized derivative products based upon subprime loans, and so on and so forth.

Then there's that little matter of Helicopter Ben and Turbo Tax Timmy blatantly trying to hyperinflate our way out of this. Currency devaluation is a regressive hidden tax that all pay. Buffett has protected himself by largely getting out of the dollar--he has large positions in other currencies, as well as in commodities, which Ben and Tim can't inflate.

To quote a great man, "The best thing that government can do is get out of the way."

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Dave Roland

I don't know about others, but I question Mr. Buffett's sincerity. After all, if he (or any other extraordinarily wealthy person) truly believes that putting more of their money in the government's hands will help solve the nation's problems, they have always been free to write as large a check as they'd like. That they have not chosen to do so speaks volumes about their "altruism."

L

That they have not chosen to do so speaks volumes about their “altruism.”

You do know that Buffett has committed to giving away the vast majority of his wealth right? To question his "altruism" because he didn't write a check to the government is just stupid.

One person voluntarily writing a check to the gov't is not the same as having a whole class of people write a check to the gov't. He is looking for a greater impact.

Ryan

It is exactly the fact that he has chosen to give away the majority of his wealth to exclusively NGOs that makes it seem disingenuous to require that others be forced to give up their money to the US gov't. If he felt that the US gov't was the best medium for advancing humanity's quality of life, why did he choose to give to the Gates Foundation and not to Uncle Sam?

Horatio

Daniel, Mr. Buffett is free to 'give' more of his money to the government now. Nothing is stopping him from doing it on his own yet he has not done so, which brings into question any altruistic motivation on his part. Why hasn't he just set the example and written the check?

I believe it is because this is a purely political move. It isn't about raising taxes on a few rich people who won't notice the difference, it's about changing the argument to how much we should raise taxes- period. On everyone.

We don't have to few taxes we have too much spending. By constantly focusing the argument on unsympathetic people likely the extremely wealthy the real issue and real solutions do not get discussed.

Joshua Northey

We have too much spending and too few taxes. Taxes are at an all time low, and the services we demand from government are at an all time high. That doesn't seem incongruous to you?

Mike B

Not at all because he probably has enough resources at his disposal to meet all his needs. Why pay taxes if you don't get more out than you put in. It's just un-American to not screw people over.

BL1Y

Perhaps it would rock the national psyche too much to believe that the very wealthy are not the enemy. People want to find someone to blame for their problems, and politicians and the news media are willing to quickly name anyone but themselves.

Colin

Altruism is desirable, but how is Buffett being altruistic? He has done nothing except pen an editorial. Furthermore, why is giving money to the government altruistic? Buffett keeping the money and investing it would do a lot more good then handing it over to a bunch of politicians to spend on their own various pet projects.

Mike B

Why are investments that benefit private individuals beneficial to everyone when investments undertaken by the public sector a waste? Are non-profit organizations a waste as well because they seek to enact their founders "pet vision"? Investment is investment and there is no difference between skimming off the top for profit and skimming off the top for corruption. Because business investments have the expectation of profit built into them one stands a better public return from public investment where such skimming is illegal.

Colin

This is nonsensical. Profit is earned by providing a valuable good or service. Apple makes big profits because it provides goods that people want, as do evil, greedy oil firms. Failure to provide useful goods and services will result in the company going out of business, which tends to concentrate the mind. Government, on the other hand, can waste money willy-nilly without any such concern. Time and time again the private sector has demonstrated that it is much more effective than the public sector in allocating resources to productive ends.

I wish Buffett would allocate more money than the government, as he is much more likely to put it to a productive use.

Mike B

How can it waste money willy-nilly? Government has to answer to the voters for its expenditures like any other mutual organization. Are credit unions or anything else with a voting membership therefore bad and inefficient? Moreover companies ARE constantly going out of business, which means they were in fact inefficient and the threat of going out of business didn't make them any more prone to being efficient or competently managed.

The only difference between public and the private, for-profit sector is that in the public sector everybody has their skin in the game so they can't sit back and laugh when an investment crashes and burns in flames. Sure you don't want the government running supermarkets and Popsicle stands, but just remember the private sector isn't there to help you, its there to extract every last ounce of consumer surplus it can. Where it can be managed and where market conditions make sense, an organization owned by the public will provide more value for money than one attempting to return a profit to an external group of owners.

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agingcynic

"Where it can be managed and where market conditions make sense, an organization owned by the public will provide more value for money than one attempting to return a profit to an external group of owners."
And if my aunt had a whatzis she would be my uncle. When has a government entity EVER been more efficient than private enterprise? If we could legislate human nature you would be hypothetically correct. We can't.

coloradojim

2 points -

1) You betray your bias when you use the opinion-laden phrase "perfectly reasonable". You should have just said "....Obama's proposal to tax...." and dropped the phrase altogether.

2) I believe the main point people are making with respect to Buffet is that if he truly believes he is paying too little in taxes, then there are two questions - a) Why doesn't he just write a bigger check and voluntarily pay more, and b) Why does he still aggressively try to reduce his own taxes by reporting his income as capital gains rather than regular income?

Clifton Griffin

I left that phrase alone in my response, but you are absolutely right.

Hamermesh hardly positioned himself as an unbiased moderator in this discussion.

Alex

Although we have a tax code that requires you to pay a certain amount of taxes, no one is stopping you from paying more taxes on your own. You can easily file a return and leave out deductions, thus increasing the taxes you pay. Saying I am willing to pay more taxes only if everyone pays them as well, is not altruistic at all.

Having said that, the tax code as currently structured is vastly unfair, however it is mostly due to the regressive nature of local and state taxes, not federal taxes (although there is room for improvement here). http://www.itepnet.org/whopays3.pdf

I applaud Mr. Buffet for speaking out, however he makes billions in his sleep. (Didn't he just invest Billions in BOA because the stock price was so low, and just because he bought the stock the price increased significantly!). I am thankful that he is as giving as he is, and everything i read about makes me admire him more, but lets not make him a saint just yet, and no one should be immune from criticism.

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Clifton Griffin

While I have great respect for Buffet's personal generosity and business accumen, his involvement in politics in the last few years is a bit uncomfortable.

I think it's the implicit assumption that because he's super rich and super successful we should listen to all of his ideas, political, economic, humanitarian, et al.

As a free market, laissez-faire Capitalist, his mixture of the three doesn't sit right. I get the distinct impression that, having made his billions, he's not completely realistic in his assessment of the economic plight of those standing on the other side of the wall. Who haven't been wildly successful.

Personal altruism is a fantastic and admirable. But mixing that with the politics of progressive taxation and wealth transfer through the tax code? It conjures up visions of Woodrow Wilson's brand of pseudo-religious, socialist leaning ideals. Which is to say, I get freaked out.

Just my two cents.

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Mike

I think Warren Buffett is being bashed by people who think the Federal Government has a spending problem rather than a revenue problem. Why focus on the wrong problem?

The other aspect of the revenue problem is what is fair. There's (very little or) no discussion of what the proper tax rates should be - everyone states as facts that the tax rates are for rich people are too low.

Ryan

I like the first point, Mike.

If one looks at any plot over time of inflation-adjusted revenue vs. spending (of any variation of those...as a % of GDP, absolute, etc) it's hard to make the argument that revenues are the primary cause of debt & deficit.

Obviously not an unbiased source, but:
http://www.heritage.org/budgetchartbook/growth-federal-spending
http://www.heritage.org/budgetchartbook/runaway-spending-tax-revenue

nobody.really

Thanks for attempting to add some rigor to the discussion. And yeah, the Heritage Foundation is an iffy source. I’m not aware that they’re saying anything that’s inaccurate. But it’s what they refrain from saying that is really revealing.

Sure enough, real US federal spending has increased tremendously since 1970. Of course, the US population increased by 50% during this same period. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.

The bulk of the US budget is spent on Social Security, Medicare and Medicaid, programs that will have increasing outlays as the nation ages. In 1970 the nation had 21 million people aged 65+; in 2010 that number had reached 40 million. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.

And a lot of government spending is counter-cyclical: that is, we spend more to help people when more people need help. Right now we’re in the middle of the biggest economic collapse since the Great Depression. Where does that fit into the Heritage Foundation’s analysis? Oh, it doesn’t.

In short, the Heritage Foundation doesn’t seem very forthcoming about identifying the variables that you might expect to drive the demand for government services. Nor, as it turns out, are they very forthcoming about identifying the variables that might drive the supply of those services.

What DOES fit into the Heritage Foundation analysis? A comparison of federal spending to median household income. And sure enough, the comparison is stark. Median household income hasn’t grown much since 1970.

But what makes median household income a relevant basis of comparison? More generally, when determining how much government a nation can afford, does it make sense to look at measurements of median income, or at measurements of total income? Because once you look at measurements of total income, you realize that real GNP as tripled since 1970. We’re the richest nation in history!

But wait – how can it be possible that real GNP has tripled, when median household income has barely grown? That seems impossible – until you realize that over this period the rich have grown RICHER THAN RONALD REAGAN’s WILDEST DREAMS. As Martin Wolf reported last July in the Financial Times, 58% of all the real income growth since 1976 has gone to the top 1% of households. In the US we’ve managed to conceal this disparity between rich and poor by permitting people to spend down the equity in their homes. But we’ve kind of hit the limit on that strategy.

And these top 1% of US households are the ones whimpering about Buffet’s proposed tax increase.

I acknowledge that taxation impedes incentives. So how’s this for a proposal: Let’s structure our tax code such that the richest 1-2% continue to receive the same amount, in real per capital terms, that they received under Ronald Reagan. After all, if that amount of income was enough incentive to be productive in the 1980s, why wouldn’t it be enough incentive today?

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Clifton Griffin

I'll stop with your second paragraph. The fact that the population has grown by 50% does nothing to discredit their graph that shows government spending has increased an adjusted 300%.

If the population had tripled you might have had an argument.

JohnFx

I think Mr. Hamermesh should donate a million dollars to charity this year. Does that make me altruistic too?

No? Maybe that's because it isn't considered charity when you do it with other peoples money using the police powers of the Government. The 2% argument is specious. Fair treatment by the tax code isn't limited to the majority.

As for the whole donating blood thing. That's fine if you want to do that, but to argue that everyone should be required to donate blood or be fined by the Government is more analogous to what Buffet is suggesting. Of course, it would be less offensive if you only forced Native Americans to donate blood since there are so few of them out there and they are not you.

Nathan

Saying Mr. Hamermesh should donate a million dollars to charity this year is not altruistic. Saying, that you, Mr. Hamermesh, and everyone that fits into the class you both fit into should donate a million dollars to charity is. Altruism starts with personal sacrifice.

Chris BeHanna

Charity at gunpoint is not altruism, though it is personal sacrifice.

Jimbo

It is important to note that there is a significant segment of the American media who loves to bash anyone if it gets them viewers/readers.

There are some legitimate reasons to criticize Mr. Buffett, however. Firstly, taxing those whose family incomes are above $250,000 more will do little to fill the massive budget deficit we have. Mr. Buffett is proposing putting a Band-Aid on a grievous wound - its effects will be nearly entirely symbolic. Secondly, a very large percentage of business activity and employment in the United States is with firms that could be categorized as small and medium-sized companies. Most of these firms are not incorporated, but instead are closely held, which in most cases means that they are reported on the owner's personal income tax statement. Raising taxes in the way Mr. Buffett proposes will have a chilling effect on business expansion and new hires right at the time the economy needs these jobs and this investment the most. Thirdly, Mr. Buffett seems to be talking out of both sides of his mouth. He complains that he does not pay enough in personal taxes, but he chooses to donate his personal wealth to the Gates Foundation rather than the US government - money that he contends that he should have paid at least a portion of in taxes. I've seen Mr. Buffett in person, and he is intelligent, quick-witted and charming, but I cannot ignore his long-standing hypocrisy. Not to channel Ronald Reagan too much, but we are not in trouble because our government taxes too little, we are in trouble because our government spends too much.

That said, I applaud Mr. Buffet for his decision to donate much of his wealth, and I think he has made an excellent choice of a recipient in the Gates Foundation. His wealth will do a great deal of good. But what I think Mr. Buffett and many others discount is that his personal wealth has already done a great deal of good. Mr. Buffett has been doing the job of Adam Smith's Invisible Hand for the duration of his storied career. His investments have saved and grown companies which have put hundreds to work, created new and innovative goods and services that have benefited humankind and have helped pay for hundreds of thousands of retirements of those who directly or indirectly invested in Berkshire Hathaway. We value the money that he is giving through the Gates Foundation that will help to cure malaria in Africa, develop cures for AIDS, and improve education, and well we should. But in the end it might turn out that the greatest good he accomplished was in serving the interests of himself and the shareholders of Berkshire Hathaway.

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Ron Rimkus

Buffett is being lambasted appropriately for several reasons. For starters, we citizens reject the premise that current taxation is inadequate. Obama has increased government spending by 30% per year. Why should taxes be raised and spending not be lowered? Second, raising taxes on millionaires and billionaires is very different from raising taxes those making more than $250k. Even if marginal tax rates went up to 90%, Buffett would still be a billionaire. America is about enabling people to work hard and save for themselves - giving everyone a chance to become wealthy/successful. Once again, you adhere to the false premise that the fruits of our labor should go to other people simply because you say so. And if Buffett wants his taxes raised, tell him to write an extra check come April, but he should not volunteer anyone else to pay more. That's un-American. Which brings me to my last point, government by its very essence confiscates (via taxation). Who has the right to say in any given situation how money should be spent? Other than people that own the money? Taxation is involuntary and as such those who already have wealth will see to it that they preserve any and all possible tax loopholes. For instance, Mr. Buffett has long ago figured out how to gain a superior tax structure for his business/wealth by paying himself very little and keeping his wealth locked-up inside Berkshire. When income tax rates go up, it will hit the savers hard - people who make in excess of $250k - but not the people who are truly wealthy. (For more discussion on income fallacies, see Thomas Sowell). Your article reveals how little you understand the reality of both Mr. Buffett's situation as well as that of the average American. If you really believe in a particular social service, right your own check and lobby not Congress, but your fellow citizens to donate to a cause you believe is worthy. If it truly has merit, then your cause will find donors - America has many generous and giving citizens - another thing that tax & spend blow-hards like you seem to overlook.

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Erwin van de Velde

You live in a country where the richest 400 people own the same amount of wealth and possessions as the poorest 150 million (!). This is unhealthy, unsustainable and if in the next 2 years the world is going to drop the dollar as the world's reserve currency you are all gonna be in for a big surprise. WB and his JPM, GMS and B0A friends are going to crash you all into mayhem and you thank them for it, it's unbelievable and this should be the real "hidden side" that this website should talk about.

Mike B

Hmmm, 400 vs 150 million. I wonder who would win in a fight. I guess if we keep going down this path we'll soon find out. The wealthy in this country that they live at the pleasure of those at the bottom of the pyramid. A year ago the major Arab autocrats felt safe in their power, now they are all fearing for their necks. Enjoy your gilded life while you can because at some point the branch will snap back and you'll see what a real socialist president looks like.

Clifton Griffin

Oh come off it.

This is purely petty class envy. This is not a zero sum game. You are not poor (or middle class, or etc) because Warren Buffet is rich.

You probably owe any livelihood you have to some *greeeeeedy* rich guy who was selfish enough to start a company and hire you.

80% of millionaires in this country are first generation rich. They bear no resemblance to Arab autocrats. Especially in a relatively free market economy like we enjoy.

Dan

I think the reasons people are skeptical are many-fold. (Disclaimer: I've been a huge Buffett fan in the past.)

Firstly, Buffett's (legal) tax avoidance across the years is legendary. He has a reasonable claim to be the number one tax expert in the country. He had no difficulty growing his gains tax-free inside investment vehicles and through unrealized gains when personal income tax rates on the wealthy were much higher. Indeed, Buffett owes an enormous share of his wealth to successful tax avoidance over many years. This continues to this day. Even as his wealth grows by the billions, his 'realized income' remains just a few percent of this.

Secondly, everyone who has ever done their own taxes knows there is a box to use to send in more money to the IRS if you want but Warren Buffett has declined to do this for many years.

Finally, there is an element of self-interest, too. The one kind of insidious tax that Buffett cannot personally avoid is inflation which would eat away at the real value of his assets. If no solution is reached, this is how the budget would find 'balance.' If instead, a tax solution is reached, the inflation outcome that Buffett so dislikes would be avoided.

In Buffett's defense, he is an amazingly charitable guy and has been very generous with knowledge if not tax payments over the years.

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James

Let me preface this with "I am a fan of Mr. Buffett". That being said I had the opportunity to ask him a question when he made a surprise visit to my Alma Mater Weber State University, during the Bush/Clinton campaign season. I asked him something about presidential politics and its relation to the economy. He replied the more money he made the less he worried about politics. This was an interesting observation from a multi-billionaire since I had recently heard the opposite from a multi-millionaire. Seems time and age have redirected some of his concerns.

Ray

Now that Buffett has invested in BofA, is he going to refuse a bailout if it is needed to protect his investment? I think we all know the answer to that one. He is being hypocritical.

Erwin van de Velde

Maybe this explains something:

http://maxkeiser.com/2010/10/18/max-keiser-lights-up-tehran-warren-buffett-should-be-hung-for-acts-of-financial-terrorism/

Oden

I believe that most people's problem with Mr. Buffet's editorial is this:
He thinks he is being taxed at an unfairly low rate. What has he done about it? Write an editorial. One would think that if he really thinks he is paying too little in taxes he would: figure out how much is a "fair" amount for him, calculate the difference, than cut a check to the government for that amount. So far, Mr. Buffet has not done so (Uncle Sam is not going to refuse money).

To use your blood giving analogy, Mr. Buffet's actions are akin to someone lobbying for a mandatory blood donation law, while never bothering to voluntarily give blood.

Brian

It's only altruism when it's his own money. He is advocating the confiscation of wealth of thousands of other people, which most non-ideologically motivated economists will tell you is bad for capital formation and risk-taking enterprise.

He's not after money. He's after the respect of left-leaning opinion-makers. Sounds like it worked.

Donnie

America has high per capita GDP, low taxes, and high inequality.
Scandinavian countries have high per capita GDP, high taxes and low inequality.
Americans are either bad (they don't care about inequality) or idiots (they believe in trickle down economics/that by and large people are worth what they earn/that life chances are the same wherever you start from).
Discuss?

James

What's wrong with inequality? In all honesty, I think myself superior in many respects to most Americans, and have worked quite hard to become so. Do we think that something's wrong when a athletes train hard to become better at their sports? Or do you think that in the name of equality we should just field teams of randomly-selected individuals?

donnie

What is wrong with inequality? Depends what kind of inequality you mean - how rich different people are, or what peoples life chances are when born - and on how much inequality there is really.

On life chances, I think it would be a wonderful, if everybody started out with an equal chance of success in life. Obviously, we've all different genes, parents, schools etc. so that'll never happen. But the only good thing I can see in the inequality in life chances is as motivating factor to be a good parent..

On inequality in wealth, I agree that you have to have some, as a matter of fairness - if you work harder than the next man it's not fair that he gets as much as you - and as a matter of practicality- if you don't get more for working harder people won't work hard.

On the other hand, you don't want too much. It seems to me that in a country as rich as America, to deny people basic health care, a good education, have them living in undignified conditions because even when in work they can't afford it is morally abhorent and economically non-sensical. There are huge costs to not helping the disadvantged within society - for example jail and a less productive future work force.

Of course, while you might devise fairly objective measures of the best level of inequality to maximise total economic output, it's really a subjective question as to what's right. Having said that I think there are a few things worth considering when you come to a view on what the right level of inequality is.

I think the belief that those who are rich under a capitalist system deserve to be/are worth what they earn is quite engrained in the American psyche. For a number of reasons I believ that this often isn't the case, and a more redistributive tax system is fair.

First, rich people often control lots of people. Either directly by - eg. running a company - or indirectly - eg. investing money. Because their in charge of a lot or resources their actions have a relatively large affect on economic output and they can command large salaries/make lots of money in shares. You might argue that its fair that they earn in relation to the 'extra' output they can squeese out of said resources. To my mind, they could not earn so much money if the peoples weren't their for them to control in the first place so they should share the benefit with those people they control.

Second, often people get rich by being good at grabbing a share of what's produced rather than providing a benefit to society or by doing things that do not to the benefit of society at all. For example, the benefit to society of short term trading in stocks and shares is less than we pay the traders, the exploitation of monopoly power is often bad for society (research/inovation excepted). I think these things tend to be more prevalent amongst the rich than the poor.

If you believe that every man should go out and make what he can for himself, regardless of whether his means are good or bad for society, then fine.. but I hope you'd question whether you're worth what you earn and whether you should give some more back...

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