Warren Buffet's advice to Congress (1 Viewer)

[Maurile Tremblay]

e.g., acknowledging that corporate taxes are effectively paid by shareholders

Why not "corporate taxes are paid by the employees?"If cost goes up what is the most likely to happen - dividends cut? prices raised? do without a few employees?In this argument "corporate taxes are effectively paid by shareholders".In other arguments "corporate taxes are past on to customers".

Tax rates do affect prices, and therefore do affect consumers and employees as well. But I'm talking about the portion paid by the corporation directly to the IRS -- not the portion paid by consumers in the form of higher prices or paid by employees in the form of lower wages.If a partnership makes $10, the partners collectively pay $3 (or whatever) in taxes -- making the partners $7 richer after taxes. If a corporation makes $10, the corporation will pay $3 in taxes, making the shareholders $7 richer after corporate income taxes (but before taxes on dividends or capital gains -- but let's ignore the "double taxation" associated with corporations for now).Based on the form of business entity, we could say that the business owners paid $3 in taxes in the first scenario and $0 in the second scenario (if we don't count corporate taxes as being paid by shareholders), but that's rather artificial. Realistically, the business owners paid $3 in both scenarios (not including taxes on dividends or capital gains). If we do the accounting that way, the non-artificial way, I think Buffett's challenge would be easy to meet. In fact, I think it'd be easy to meet regardless of that -- but that's why I asked if there was a link to the exact rules. There must be something a bit screwy in them, like counting corporate profits as profits, but not counting corporate taxes as taxes, or something like that.

 

[Maurile Tremblay]

Much like Buffett can be assumed to do a better job with his money than the Bill and Melinda Gates foundation . . .

Maybe I missed the context (I haven't read the thread; I just saw your post quoted by Michael Fox), but what does that mean? The fact that Buffett has donated so much of his money to the Bill and Melinda Gates foundation seems to indicate that Buffett himself would disagree with your statement.

And to those criticizing Buffett for not giving away his money fast enough, here are two very clear reasons for Buffett to space it out:1) Buffett's fortune is in Berkshire Hathaway stock. In order for those receiving his wealth to make use of it, they need to sell the stock. In essence, if Buffett gave away all of his stock tomorrow and those foundations then tried to sell it, the price would bottom out, destroying much of the value in the stock. And if those organizations don't intend on selling it right away, then…2) If the stock is not to be immediately sold, why not leave it in the hands of the man who has shown the ability to increase it's value more than anyone else? Per Buffett himself:"And someone who was compounding money at a high rate, I thought, was the better party to be taking care of the philanthropy that was to be done 20 years out, while the people compounding at a lower rate should logically take care of the current philanthropy."

Thanks. (By "do a better job" you meant "invest it profitably in the meantime," rather than "find a good charitable use for it.")

 

[dparker713]

e.g., acknowledging that corporate taxes are effectively paid by shareholders

Why not "corporate taxes are paid by the employees?"If cost goes up what is the most likely to happen - dividends cut? prices raised? do without a few employees?In this argument "corporate taxes are effectively paid by shareholders".In other arguments "corporate taxes are past on to customers".

Whenever "the company" pays for something, it's paid for by the shareholders. Every asset the company owns, and every liability, belongs to the shareholders. When the company hires people, it's because the leadership team, which reports to the shareholders, feels that it will increase shareholder wealth. When the company decides how much to charge for their goods and services, the management team put in place by the shareholders determines the amount that will maximize shareholder wealth. That's pretty much the defintion of what for-profit companies do. For the same reason, the argument that companies pass anything on to their customers is wrongheaded. For example, when we discussed taxing banks, there were a lot of conservatives arguing that if we taxed the banks, they'd just pass the price increase on to their customers. If the company could increase prices without losing customers, they would have done so already. They may determine that, because the cost of providing their goods and services has gone up, it would be more profitable to charge more and have fewer customers. Or they may determine that their competitors will also increase prices, and the implicit price collusion will lead them to all "pass the cost along to their consumers". But that's just spin. The people who pay for costs to the company are the shareholders. Part of management's job is to minimize the impact of those costs by constantly seeking to increase shareholder wealth.

Shareholders no more pay the corporate taxes than a bondholder in a MBS collects mortgage payments. Every asset and liability belongs to the company, not the shareholders - hence the protection from stockholder liability. Also, the management board does not report to the shareholders. They are required to report to the SEC and shareholders can request an accounting, but the management team is under no obligation to act in accordance with the shareholders wishes. The only recourse for the shareholders is to vote in a new set of directors or modify the articles of incorporation - both indirect measures of control. Just as the corporate tax rate, indirectly, effects the cost of goods and services.

 

[dparker713]

e.g., acknowledging that corporate taxes are effectively paid by shareholders

Why not "corporate taxes are paid by the employees?"If cost goes up what is the most likely to happen - dividends cut? prices raised? do without a few employees?In this argument "corporate taxes are effectively paid by shareholders".In other arguments "corporate taxes are past on to customers".

Tax rates do affect prices, and therefore do affect consumers and employees as well. But I'm talking about the portion paid by the corporation directly to the IRS -- not the portion paid by consumers in the form of higher prices or paid by employees in the form of lower wages.If a partnership makes $10, the partners collectively pay $3 (or whatever) in taxes -- making the partners $7 richer after taxes. If a corporation makes $10, the corporation will pay $3 in taxes, making the shareholders $7 richer after corporate income taxes (but before taxes on dividends or capital gains -- but let's ignore the "double taxation" associated with corporations for now).Based on the form of business entity, we could say that the business owners paid $3 in taxes in the first scenario and $0 in the second scenario (if we don't count corporate taxes as being paid by shareholders), but that's rather artificial. Realistically, the business owners paid $3 in both scenarios (not including taxes on dividends or capital gains). If we do the accounting that way, the non-artificial way, I think Buffett's challenge would be easy to meet. In fact, I think it'd be easy to meet regardless of that -- but that's why I asked if there was a link to the exact rules. There must be something a bit screwy in them, like counting corporate profits as profits, but not counting corporate taxes as taxes, or something like that.

Except its not just an artificial accounting procedure. Corporations, excluding S-Corps, are legal entities of themselves with rights and obligations that do not eminate from their stockholders. The partners own the business, the corporation owns the business, the shareholders own a stock that has perceived value and potential returns but no obligations.

 

[bostonfred]

Whenever "the company" pays for something, it's paid for by the shareholders. Every asset the company owns, and every liability, belongs to the shareholders. When the company hires people, it's because the leadership team, which reports to the shareholders, feels that it will increase shareholder wealth. When the company decides how much to charge for their goods and services, the management team put in place by the shareholders determines the amount that will maximize shareholder wealth. That's pretty much the defintion of what for-profit companies do. For the same reason, the argument that companies pass anything on to their customers is wrongheaded. For example, when we discussed taxing banks, there were a lot of conservatives arguing that if we taxed the banks, they'd just pass the price increase on to their customers. If the company could increase prices without losing customers, they would have done so already. They may determine that, because the cost of providing their goods and services has gone up, it would be more profitable to charge more and have fewer customers. Or they may determine that their competitors will also increase prices, and the implicit price collusion will lead them to all "pass the cost along to their consumers". But that's just spin. The people who pay for costs to the company are the shareholders. Part of management's job is to minimize the impact of those costs by constantly seeking to increase shareholder wealth.

Shareholders no more pay the corporate taxes than a bondholder in a MBS collects mortgage payments. Every asset and liability belongs to the company, not the shareholders - hence the protection from stockholder liability. Also, the management board does not report to the shareholders. They are required to report to the SEC and shareholders can request an accounting, but the management team is under no obligation to act in accordance with the shareholders wishes. The only recourse for the shareholders is to vote in a new set of directors or modify the articles of incorporation - both indirect measures of control. Just as the corporate tax rate, indirectly, effects the cost of goods and services.

OK. Those all seem like small but reasonable quibbles.

 

[Maurile Tremblay]

He lives in a house worth $700k and owns another house worth $4M. He's still the 2nd richest man alive even after giving away about $20B. Yeah, he has a plan setup to give away most of his wealth after he dies. Why wait until then? Why not give away $35B of his remaining $36B right now?

This is worth a read: Warren Buffett’s Best Investment, by Bill and Melinda Gates. Stuff like this is, in fact, a big part of What Makes America Great.