Buffett and Taxes

Reader comment on: Buffett and Taxes

Submitted by David Miller (United States), Jul 29, 2011 13:48

So long as Buffett never sells his shares, then he and his heirs will never pay any income tax on the appreciation. (Buffett's shares appreciated by $5 billion in 2010 alone.)

So Buffett pays far less than 17% tax on his economic income (including the appreciation in his stock). And he can borrow against that appreciation and spend it all without tax. (Larry Ellison, for example, has borrowed over $1 billion against the value of his Oracles shares.)

This is one reason why there is significant income inequality in the United States. Wage earners are subject to immediate income tax on all of their economic income (i.e., their wages), except what they can put in tax-deferred retirement accounts; however, founders and wealthy investors never pay any income tax on the economic income attributable to appreciated securities.

The only way to fix this is to enact a "mark-to-market tax" on the annual appreciation of the publicly-traded securities of wealthy Americans. See http://www.cadwalader.com/assets/article/120505MillerTaxNotes.pdf

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The Future of Capitalism replies:

What happens if the price of the shares goes down? Do the founders and investors get a refund from the government on the tax they paid on the unrealized gains? Such a refund would be awfully countercyclical from a government budget perspective -- imagine if the year after the Nasdaq tanked the government had to pay everyone back all the taxes they had paid on their "gains" in prior years. Though I guess you could argue in some way it'd be a Keynesian stablilizer.

Other reader comments on this item

Title By Date
⇒ Buffett and Taxes
[w/response] [161 words]
David MillerJul 29, 2011 13:48
Buffett and Taxes [29 words]David MillerAug 18, 2011 09:22
Buffett's Tax Hypocrisies [392 words]Dave in FairfaxJul 28, 2011 13:12

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