Warren Buffet hammers conservative economic doomsayers.

How much do I love Warren Buffet?  Answer: so much.

He has an op ed in the New York Times in which he skewers the people saying that increasing the capital gains tax will stop people from investing.

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

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

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

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

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

Bingo.  Seriously, go read the whole thing, especially the zinger at the end:

…maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

I posted this to my facebook wall where a Libertarian who has a habit of charging into my political posts with bad arguments a-blazin’ decided to hold true to form by offering up this nugget.

The thing most people don’t realize about capital gains taxes is that it is a tax on money that has already been taxed at the corporate tax rate.

Dad came right in after him.

That is not correct. It is the tax on the profit from the sale of an asset. For instance, if I buy a house for 100K, keep it over a year, and then sell it for 150K, I pay capitol gains tax on the 50K of profit. That profit has not been taxed at corporate or any other tax rate. Here is the definition from wiki: “A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale.”

Note: the house in the above example would be a house bought for investment, not one bought as a personal residence.

He didn’t re-emerge…

About JT Eberhard

When not defending the planet from inevitable apocalypse at the rotting hands of the undead, JT is a writer and public speaker about atheism, gay rights, and more. He spent two and a half years with the Secular Student Alliance as their first high school organizer. During that time he built the SSA’s high school program and oversaw the development of groups nationwide. JT is also the co-founder of the popular Skepticon conference and served as the events lead organizer during its first three years.

  • James Landis

    I think what your straw Libertarian meant was that capital gains taxes on *stock dividends* have already been taxed because of corporate income tax (dividends are usually paid out of profits). I don’t think that that really means much in terms of Buffet’s argument, though, and it certainly doesn’t apply to all capital gains as your dad points out.

    • Azkyroth

      …yes, and your grocer pays taxes on the price of the food you just bought even though you’ve already paid income taxes on it. How the fuck is this relevant?

      • John Horstman

        It’s not, but since they don’t have any real arguments…

    • RuQu

      And, in fact, dividends are only taxed at the capital gains rate since 2003. It was a Bush era change, and was set to expire, though Obama has extended the expiration deadline. Previously, and after this temporary measure expires, it will return to being taxed at the standard income rate.

      It is also worth noting that Warren Buffet specifically separates the two in his op-ed. “…when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases…” The advantage of setting a high marginal income bracket to include dividend income is that it discourages pay out of profits to shareholders instead of keeping the profits as “retained earnings,” reinvesting them in R&D or capital, or paying them to employees.

  • Pingback: How well did tax cuts work last time?


CLOSE | X

HIDE | X