Originally posted by KazetNagorra
Much of Buffett's income is from capital gains, which is taxed at a low rate.
I think we're all aware of the basic theory here. It is the glossing over of details that is the issue. Furthermore, how do we know that the proposed tax code changes would even make a difference for Buffett? Do we take his word for it?
For those not familiar with US tax codes, long term capital gains are taxed at a maximum rate of 15%, where as short term (held less than one year) capital gains are treated as regular income.
Assuming Buffett has a lot of long term capital gains, that still doesn't help bring his tax rate below 15%.
Everyone is entitled to take a standard deduction, which means the first several thousand dollars are tax free. Also, everyone can claim themselves as an "exemption", which is a few more thousand of tax free income. For married people, the first $69 or so thousand AFTER these exemptions are taxed at either 10% or 15%. So for a marrried person, it is not until you reach around $80,000 (assuming no mortgage deduction) do you start exceeding 15% marginal tax rates. And then, you have to get a bit higher before your "average" tax rate exceeds 15%. These numbers only get higher if you have kids, give to charity, have a mortgage, contribute to an IRA, etc. I think the public should know the details of Buffett and his secretary if Buffett's secretary is held up as an example of the need to change the tax code.
Are we to assume that 100% of Buffett's income is long term capital gains? I say not if that is what we're basing sweeping legislation on.
Presumably, Buffett is using other avenues for lowering his tax rate. There are some cases of tax free bonds, for example. Passive income is treated more favorably than earned income. Also, there is a reason that long term capital gains are treated differently than short term capital gains. Congress has decided to encourage long term investing and penalize short horizon investing. Is this good or bad? Honest men can disagree, but if we decide it is a good idea to encourage "long term view" investing, then it is absolutely absurd to then say, "well, we want people to think long term because that encourages better business practices, but for those that are rich and control more wealth, we don't want to encourage long term thinking".
If treating long term and short term gains is sufficiently a good idea, then it is sufficiently a good idea. There is no good reason to then stoke hatred for those that utilize it. If congress thinks it's not a good idea to encourage long term investing, let's do away with that provision for everyone.
Likewise, congress allows extra deductions for those that are blind. If that's a good idea fine. But if a blind man is wealthy, why shouldn't he take advantage of it? After all, he still has a few extra expenses that the rest of us don't have.