Buffett: Stop Coddling the Small Investor
Super Rich Cuddling (Creative Commons)
There’s an element to Warren Buffett’s rant against his fellow rich brethren that rings true. It hits a nerve. Most of us who aren’t in the upper stratosphere of annual earnings do not like the wealthy. Maybe it’s jealousy, maybe it’s a sense of fair play, but we just generally want to see someone stick it to the rich.
Yours truly among them. I don’t like rich people. They can be snobby. They can be shallow. And they can pretend like they’re all-knowing. (Ahem… I’m looking at you, Warren.)
But be careful, creating a tax system based on jealousy and indignation. It will not just harm rich people’s wallets and purses; it’ll be devastating to independent investors.
You only have to examine Buffett’s plan to realize the folks who might be most affected by the plan to put a tax smackdown on the rich might be the small investor.
Buffett seems to be saying that we need to raise taxes only on the income of really wealthy people. But look again. Since most income for the wealthy is in the form of capital gains and dividends, he’s also saying we must raise taxes on investing. Buffet wants capital gains and dividend taxes upped. He never says he wants them only levied against the super rich. With that statement he’s lumping in small investors, including lots of his own Berkshire Hathaway investors, many of whom are middle class investors who have looked to him to provide stable returns and solid dividends for retirement and financial independence.
Where the money goes? Or where the money grows?
Finally, the most important point that Buffett fails to grasp is that increased revenue for the government does not translate to increased efficiency of government spending. Let me put it in terms Mr. Buffett can understand. Suppose, a manager at one of Berkshire-Hathaway’s companies came to Omaha and said, “Warren. Here’s the thing. I burned through nearly 800 billion of your and your investor’s dollars and I didn’t really achieve any of the objectives you asked me. But if you give me another $800 billion I think I can do better.” What would Buffett’s reaction be? I believe he would show the manager the door and let someone in who could do the job more efficiently. Sound familiar. The government is in business to preserve the government, not to solve problems that’s why there’s a list of wars on poverty, wars on drugs, and czars and czarinas of problems that seem impossible to win or fix.
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I'm George Ulmer. Matt and I started this blog and launched the Online Investing AI business. Our goal is to develop the technology to allow anyone to retire after working for 10 years.
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
I have a very different take on Warren Buffett’s tax rant. I think it’s both honest and patriotic. He has been highlighting the problem of tax inequality for many years and I completely agree with him. This is a huge problem for Americans and it’s getting worse.
It’s not just about the 15% LTCG tax rate; it’s about companies like GE making $5.5B in the U.S. last year and paying zero taxes. Meanwhile, small businesses, who are the only ones creating any jobs, are getting taxed nearly 40% of their net, after self-employment tax. Taxes don’t need to be raised; the tax disparity just needs to be eliminated. That means all of the special tax credits have to go. And, if they raised the LTCG rate to 20%, it won’t affect small investors, because they would pay their standard tax rate.
I’m not one of the “stick it to the rich” advocates. I have no problem with rich people. In fact, I hope to become rich myself at some point. Sure, rich people can be pretty argogant, but they create a lot of jobs. And, they produce products and services that benefit everyone. As long as they are making money legally and paying their taxes, it’s a win for everyone.
Hi Brett–
Thanks for your comment.
I think there’s room for agreement. The tax code itself is a vehicle for tax disparity and should be cleaned up first. I think all exemptions and credits should go, too.
But I think the key point–in my mind, at least–is can you guarantee me that the dollar I invest will be invested more wisely by the government? That my dollar won’t go toward a bridge to nowhere, a $600 wrench, billions of no-bid government contracts, a $800 billion stimulus, etc.
We have a government that doesn’t even set a budget. That spends money it doesn’t have.
Until we do, Warren’s, my, and your tax plan are meaningless.
Matt,
I think we both know that somewhere around 25% of every tax dollar is either wasted or spiphoned off by fraud. And, they need to fix that problem before they come back with their hands out again.
Even worse, over $400 billion per year just goes to pay the interest on the deficit. And, that is getting worse every year.
But, the ultimate problem is that 65% of our federal budget is now spent on entitlements and that is catastrophic.
I think a balanced budget ammendment is one of the best things we could do for our nation.
Bret
I totally agree, Bret.
Thanks for the comment.
Hi Bret,
That’s a good point. I think that even more than 25% of every tax dollar is wasted. I would say 50%. Just go down to a city hall and it is obvious to everyone that everything could be done 10 times more efficiently. By implementing new systems and technology, and getting rid of waste like lawsuits and tax law it would be possible to double the efficiency of the government.
I don’t think anyone would ever try to do it. It would mean laying off most of the administrative staff who work in the government, millions of tax return preparers and IRS employees, and most of the lawyers.
The problem du jour is a “lack of jobs”, so anything that reduces jobs is out of favor.
George
@George
“The problem du jour is a lack of jobs, so anything that reduces jobs is out of favor.”
George,
I have been saying for years on my blog, this is the next shoe to drop. Goverments, at every level, are completely bloated with very highly paid and inefficient employees with unrealistic benefits. They are bankrupting states and municipalities. No matter what the political climate, this problem is going to blow up soon, everywhere. There is no alternative. A lot of public jobs and benefits will have to be cut.