Monday, November 26, 2012

Warren Buffett as a Big Government Central Planner

Warren Buffett is out with an op-ed in NYT that calls for more taxes AND more deficit spending.

He writes:
Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again.
This is simply a bizarre view by Buffett. As he correctly points out in his op-ed, this will result in an expansion of the deficit. How can he possibly justify this? With a very weak argument:
As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.
What's with the modifier "even conservative" projections? What point is he trying to make? Conservative projections are the problem. The man is completely ignoring the very strong possibility of an increase in price inflation and interest rates which would send the deficit soaring. Further, he is ignoring unfunded off the books liabilities of trillions. Buffett knows better. He has totally sold out and become a big government promoter.

Which means Buffett is also for more taxes on high income earners:
Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. 
As I have pointed out many times before, it is the high earners who have funds to put into capital investments. They are really the last people you want to tax. It is their investments that are the key to the high standard of living we all experience here in the U.S.

This aggressive pro-government stance is mind numbing. He also writes very misleadingly:
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.
First, as mentioned above, if taxes are raised on the rich, the rich will have less to put into investments. Second, why is Buffett bringing up the 91% tax rate? It has been shown many times that no one paid taxes at the 91% rate thanks to loopholes. But, most important, Buffett clearly states that for capital gains the rate was only 25% and then 27.5%. Could that be why he did well as a stock broker in those years, because the tax edge was given to those hustling stocks?

And, I note, that Buffett again does not address where any of this money directed to government is actually going. It's as though if you put the big government G on it, Buffett is for it. Which is completely different from his personal life, where he appears to be quite the cheapskate. In the Buffett biography by Alice Schroeder, Snowball, the index references 34 pages for  Buffett, Warren frugality and tightfistedness.

Buffett has been quite suspect in his dealings with government from the time he started dating  Washington Post publisher Katharine Graham. He took a sleazy further step by investing five billion dollars in Goldman Sachs just days before the government put in billions.

Now, this op-ed is over the top. Buffett is clearly much too cozy with Barack Obama. There are cards Buffett isn't showing. When he plays the cards, they will all read "BENEFIT OF COZYING UP TO GOVERNMENT."


  1. The man is a slime ball. He knows that the ultra rich already have money and do not concern themselves with high income taxes. And if you increase capital gains taxes, they've more than likely have holding on to positions for so long that the tax increase is insignificant to them.

    Buffett is clearly declaring war on ultra PRODUCTIVE people. The small business owner. The upper level management. The hedge fund manager that scalps his trading gains.

    He's not appealing to have HIS taxes raised. Why would anyone advocate for that?

    1. I was a tax consultant to the wealthy for a long time and you are correct. Its more about wealth preservation with them than wealth creation. There is also this belief among many that all you need is a good tax guy to reposition your wealth to avoid increased taxation. You would also be surprised at how many are totally clueless about their holdings and simply rely on a generous stipend that their wealth manager transfers to their general household account that is usually managed by their personal assistant. In other words, they have no idea how taxes might impact them and in most cases believe that their lawyers and accountants will figure it out while they throw parties and play golf. Note, this is not the case with Buffet. He knows where every penny goes and is totally about wealth creation with him.

  2. His fortune is in Dollars is it not? I'm not sure what to think of this other than he's old as dirt, and who knows where his fortune is going when he dies?

  3. People like Warren Buffett are a major part of the problem. Here is his take on business:

    “Consider this set of coin-tossing possibilities, proposed by Warren [Buffett]. Suppose 225 million Americans all join in a coin-tossing contest in which each player bets a dollar each day on whether the toss of a coin will turn up heads or tails. Each day, the losers turn their dollars over to the winners, who then stake their wings on the next day’s toss. The laws of chance tel us that, after ten flips on ten mornings, only 220,000 people will be in the contest, and each will have won a little over $1,000. After that, the game heat up. Ten days later, only 215 people will still be playing, but each of them will be worth over $1,050,000.

    “[Buffett] suggests that this small group of winners will marvel at their own skills. Some of them will write books on “How I turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning.” Or, they will tackle skeptical professors of finance with “If it can’t be don, why are there 215 of us?” But, [Buffett] goes on to pount out, “…then some business chool professor will probably be rude enough to bring up the fact that if ]225] million orangutans had engaged in a similar exercise, the results would be much the same – 215 egotistical orangutans with 20 strait winning flips.”

    Peter Bernstein, Capital Ideas: The Improbable Origins of Wall Street p. 142-143 cited in “Applied Value Investing” by Joseph Calandro, Jr.

    In other words, no one contributes to wealth creation. The wealth pie is fixes and chance redistributes it. Since no one earns what they get, it's unfair and the state has the right to take from the winners as much as it wants to give to the losers.

  4. IMO, Buffet knows that without a big government backstopping his portfolio, his job of trying to run a conglomerate of companies becomes impossible. The man is as dependent on the government every bit as much as the welfare mom in South Chicago. Remember also that Buffet has massive amounts of accumulated capital and when you raise taxes as he proposes, you make it much harder for others to accumulate capital and thus you eliminate a ton of investment competition. You also make it impossible for small profitable companies to fund themselves from working capital and thus they are forced to seek out investors like Buffet who will take a large portion of their company in return for hard to get capital. Higher taxes means accumulated Capital is worth a lot more and thus one can charge more for it.

    The one downside risk the econ illiterates in DC are ignoring is that higher tax rates means demand for higher yields which means that the delta between a treasury and a top rated corporate bond are going to spread. This could have the effect of driving treasury yields higher which could throw US government finances into a tail spin.

  5. I would prefer a 150% tax on wealth over 50 million dollars - oops, sorry Warren, now you're broke.