Thursday, August 18, 2011

My View

Random ruminations from your resident curmudgeon...

Most of my readers would say that their total tax bill is high enough and that they do not need to send the federal government any more money. Not Warren Buffet, the CEO of Berkshire Hathaway and a man revered for his investment savvy. Buffett says that the super rich (households that have $1 million or more in income according to him) are "coddled" (his word) and they should have to pay more taxes.As with anything and most anyone, it is important to look a little further to accurately frame Buffet's call for more taxes on the "super rich". Here is what you should know. Buffett decided in 2007 that the federal government was not worthy of taxing and confiscating a majority of the assets that he had accumulated and that he could make better decisions about how to charitably spend his money. So he created several foundations and dumped his Berkshire Hathaway stock into them, establishing charitable foundations not only for himself, but for his two sons and daughter as well. Here is what he had to say at the time,
"... my two sons foundations, my daughter's foundation will do a better job with lower administrative costs than the federal government." 
By the way, as officers of their respective foundations, his children can draw a handsome salary from these foundations. What Buffett has demonstrated is what economists and central planners in the federal government miss, ignore, or forget all the time: human beings respond to the environment around them. This is especially true when it comes to money and finances. Individuals and families will use tax loopholes and legal maneuvers to avoid as much taxation as possible. Buffett did this in 2007, and if taxes are increased, the great majority of Americans will do this when that occurs. The next time you hear of someone on the left or super wealthy, or both, calling for increasing taxes, do a little digging and see what they have done to avoid the tax bite themselves to put everything in perspective.

I was sitting at a bar when a girl a few seats down sneezed violently. Seems she had a glass eye and it popped out. I caught it as it rolled down the bar and gave it back to her. She gratefully offered to buy me a drink. I asked if she did that for all the guys, and she said, "No, just those that catch my eye."

For a moment, suppose the "rich" are under-taxed ("coddled" to use Buffet's term), and suppose we should tax the living daylights out of them. Fairness and all, you know? If that premise is true, why does President Obama's tax proposals, and other proposals from the left, all start raising taxes on families that are making $250,000 or more? Here are the numbers from the IRS as of 2009: 237,000 households in the U.S. reported income of $1 million or more, and they paid $178 billion in taxes; 8,274 households reported income of $10 million or more and paid $54 billion in taxes. However, there were 3,920,000 households with income above $200,000 and they paid $434 billion in taxes. There are two things that strike me about these number: the rich really do work to avoid excessive taxation; and the middle class earning $250K is where the money is. Notice how the absolute dollars decline in taxes paid by the very wealthy as well as the percentage of income that is paid in taxes. From the experience of working with clients, I can tell you that there are certain tax shelters- completely legal- that are incredibly expensive and not cost effective for many in the middle class.The "rich" work harder than most to legally avoid taxes. Nothing wrong with that, but you and I should realize "taxing the rich" is nothing more than leftist class warfare rhetoric and that the real burden of paying for the spending binge that our country has been on is going to fall on those that are in the middle class as far as earnings. The middle class is large in number and is the easiest target for those in Washington to go after. You have been warned.

If a leper gives you the finger, do you have to give it back?

Want to know why the call to raise taxes grows ever louder from this administration and from those on the left? Besides being  a part of their political DNA, higher taxes are going to have to occur to keep the level of entitlement spending intact and a larger and larger segment of the population beholden to the federal government for their financial well being. Don't believe me? Take a look at the chart below from the Federal Office of Management and Budget:

Currently, 66% of federal expenditures are for entitlement programs of some form. Yes, I know that we have paid in to the Social Security fund, but over the years, Congress has spent that money on other things, and all that is in there now is a bunch of IOU's in the form of U.S. Treasury bonds, so it is, in my opinion, an entitlement program. Not only do we have a high level of entitlement spending now, but demographics will drive it even higher as more and more baby boomers move into their retirement years. Until we as a nation get serious about reforming entitlements and approach our financial situation in a non-partisan, honest, and thoughtful way, we will continue to suffer through volatility both in our financial markets and in our political discourse.

I was checking into a hotel on a recent business trip, and being a modest man, I asked the desk clerk if the porn channel in my room was disabled. She said, "No, it's regular porn, you sicko."

And that, my friends, is my view.

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