Monday, March 19, 2012

The Apparently Contradictory Buffett

As Warren Buffett has become more public with his political views, he has been the target of an increasing number of attacks. Some of the arguments against Buffett's proposals are intelligent, but these don't appear to be the ones that get the most airtime. Instead, the most common response from those who oppose Buffett's minimum tax on the wealthy argues that Buffett is a hypocrite for saying one thing, but behaving in an apparently contradictory matter. The argument goes something like this:

"If Buffett thinks taxes should be higher, why doesn't he just pay more and leave the rest of us alone?"

But are Buffett's actions really contradictory/hypocritical? Absolutely not. We are all entitled, both legally and morally, to enjoy the benefits of the rules that govern us. The onus is not on the generous to pay for society's needs, it's on all of us.

Let me illustrate with an example. If the government started considering yet another subsidy for certain industries, I would almost undoubtedly be against it. But if one of these "favoured industries" was financial blogging, I would have no qualms about claiming the benefit for myself. (Stay calm, readers; since blogging requires no physical manufacturing or the production of goods for export, such a measure is unlikely to pass in the current political climate.)

Or, to borrow examples from the comments section on the great site csinvesting, an American League team may not agree with the DH rule, but to harm only itself by not taking advantage of it would be foolish. Or, you may think a tax on gas prices is a good way to combat some of the negative externalities of burning oil and funding dictatorial governments, but does that mean you are a hypocrite if you don't pay extra every time you fill up?

You may not agree with Buffett's philosophy on taxes or even on this particular tax (a minimum rate payable by those making $1 million+), but surely readers of this blog don't buy into this particular counter-argument...or do you? What are your thoughts on this matter?

Disclosure: Author has taken advantage of a social program in the past, even though he supports changes to that program that would have reduced or eliminated his benefit.


juan said...

What's amazing to me is that intelligent people like Governor Christie can wield that silly argument without blushing.

writser said...

Most of the time I agree with Warren Buffett. I think his ideas about taxation are sensible. However, when he was personally attacked, I think he let his opponents drag him down into the mudfight, stating:

"Billionaire Warren Buffett said he will match voluntary tax contributions from Republican members of Congress, and triple that of the Senate Republican leader, Time magazine reported."

That's kinda cheesy if you are the richest guy on the planet, right?

Anonymous said...

I think part of the problem is the treatment of carried interest and/or the 20% gains on limited partnerships which is how guys like buffet and romney made so much in a low tax environment...the gains are obviously on LPs capital, not their own so its a suspect treatment and is really a disguised mgmt fee for funds. I understand cap gain taxes being lower if you are reinvesting your own capital after it has already been taxed but getting the same treatment on LPs capital (which they will take 20% 0f) is less clear. he bundles together all rich people but the reality is that the carried interest taxation is very suspect.

Anonymous said...

An increased tax of the nations wealthiest is not a long term solution to the problem. If we look at history, we find that the only time in history our nation was able to operate debt free was during Andrew Jackson's subsequent veto of the national bank. The main problem was was creating so much debt, that incidentally wasn't fully recognized at the time, was monopolized fractional lending.

Increasing taxes, although I'm not opposed for the short term, will do nothing but justify the federal governments excess spending and the federal reserves controlled monopoly. Why Buffett, an economic historian in his own right, is choosing to ignore the past lessons of Adam Smith I don't know but in my opinion he certainly isn't promoting a long term means to eliminating debt. The only way that will happen is for congress to revoke the federal reserves charter and give the power back to the states.

Anonymous said...

Why give more money to government employees.
Would Warren hire Congress & the President for his

I don't think the management we have in DC deserves a raise.(Higher Taxes)

Cogitator said...

Buffett's point was that taxes for the rich are at historical lows, or the lows for the past decade or two. Given that the government is (and has been) squeezing the little guy, it seems appropriate that those who have benefited the most from society should pay a proportionally larger share.

That aside, I find the oversimplification by the Republicans disgusting. Buffett gives a reasoned argument, but being unable to fight back with logic, they simply attack him.

Anonymous said...

I believe it is universally known what Buffett's intentions have been but I fail to see how they address the problem of national debt. I see many inherent flaws. Buffett, along with the value investing community, has long argued that people most often work for their own self interests which often times creates irrational outcomes because not everyone holds the same self interests evident. As Friedman, also coming from the same vain, has noted that it is irrational to expect your capital to be employed to the degree of serving your best interest when you have given up direct control of it. By expecting someone else, in this case the government, to allocate the capital you've turned over to them to be managed in your best interest is irrational as they will always do what is in the best interest for themselves. This is one of the primary flaws of man. Another point important to understand is that the majority of people are the facilitators of inflation. Everyone wants to pay the lowest price when buying a product and also wants the best price they can achieve when selling their product. Therefore, society's action is the only possibility of eradicating inflation which can never be achieved. What Buffett has proposed not goes against his own philosophies that recognize the irrational behavior of man, it does nothing but assume that somehow the government will become more responsible with the capital that is allocated to them. History has taught us that, with the exception of one particular period of our history, at no point was there a time in which the government hasn't majorly acted in their own self interest.

Knowing these historical facts, Buffett's solution is to simply feed this machine more money at the expense of one class and at no guaranteed benefit to the other. As Friedman has noted, their is a direct correlation between inflation and the money supply. Taxing a particular class of the people does not solve the money supply disparity. Increasing taxes on a particular class only allows the government additional resources to control the populous for its own self interest which most often times, as history has revealed, doesn't work in the best interests of the people.

I see it as an irrational notion to assume taxes have any correlation with governments ability to eradicate the national debt. There are other projects that need exploring that will provide a more suitable outcome for the nation as a whole which will preserve the opportunities thare available in a capitalistic society. The only time in history that our national debt was paid off in full is when Andrew Jackson took away the 2nd Bank of the US charter and the unnecessary printing of money, fractional reserve banking, and inflation was completely eradicated. That period in history, as well as the civil war period in which Lincoln allowed the government itself to issue money "greenbacks" at 0% interest to the borrower, needs to be explored if we are to have even the slightest chance of eradicating our national debt. However, in the long run, emotion will always overshadow mans ability to act rationally making it improbable for a true solution to ever be obtained. That, unfortunately, is the human condition.

Anonymous said...

In continuation, to use Buffett's famous example, does it make any sense to allocate capital towards an entinity who continuously shows a complete lack of how to budget that capital. If the idea is that the rich make too much and that the general population is unhappy of such a disparity; the irrationality of that argument is very prevalent because then the goal has now become to expense to liberty of one class with the promise and desire that it will provide a means to another class. I see no good in suppressing the liberties of men from any class.

Apple_Cougar said...

" but being unable to fight back with logic, they simply attack him."

that would be a very good for attacking him imo.

Anonymous said...

Buffett's logic is quite simple. His goal is not just to reduce the deficit a little bit, but to effect social change. He could hand over his entire net worth to the Treasury and that might put a dent in the deficit, but it does nothing to change what other people do. Anyone who WANTS to understand this can see that it is obvious. Alas, when it comes to strongly held beliefs, people do not or cannot understand alternate viewpoints.

Anonymous said...

If the goal is to change what people do - diminishing their liberty isn't the way to do it nor is targeting one particular class of people. Buffett's net worth equates to less that one quarter of one percent of the national debt. It wouldn't even make a speck on a dent. Unfortunately stating your opinion to be "obvious" does nothing for the critical thinker who requires proof. The only change I see is that of the current Presidents job title. I'm a huge advocate of Warren Buffett and owe much to him. However, I refuse to agree with an idea he has just because of his namesake. A rational argument has yet to be made of why an excess tax on a particular class of people should be exercised.

Alexis said...

A true capitalist should know that taxes do not improve an economy. They destroy it. Buffet has invested all his life in the freest country on earth. Now he wants socialism. Damn him.