The Smartest Guy in the Room Speaks

[quote]Gambit_Lost wrote:

[quote]koffea wrote:

warren buffett has been saying this for years, its really nothing new. yet he has failed to ever lead the charge and actually start forking over his money voluntarily.

buffett does give a ton of money to charity which is good. but if he really wanted to help he could start an angel fund, investing in risky longterm development projects like solar (ie start building new industry in america through innovation), or giving grants to small business owners.
[/quote]

Mate, you might want to wiki Buffett and the Bill and Melinda Gates Foundation.
[/quote]

i was specifically talking about things that would develop jobs within the United States. None of the gates foundation economic development is done within the US. its all done in places like africa (not that its bad to help them out too). Most of their US stuff centers around high school development and has been an utter failure which is really disappointing.

[quote]swoleupinya wrote:
The important term, BTW, is “net.” A sole proprietor is responsible for “gross” profits and losses. It’s an entirely different ball game.

Having seen how much money it is possible to shelter and avoid paying taxes on in a small business, if the owner of an LLC or S-corp ends up with $250K + at the end of the year, then they are no more immune to a higher tax bracket than a person on payroll making those numbers, in my opinion.
[/quote]

So I know you don’t agree with ZEB on how LLC and S-Corps are taxed but:

Assuming ZEB is right about LLC’s and S-Corps, do you think it is a good move to let the Bush tax cuts expire?

[quote]milod wrote:

No, it’s pretty much the same for a sole proprietorship as well. The business is taxed using Schedule C on your 1040 form. You pay taxes on the net income after expenses. You don’t have a payroll in that case (no employees), but any money that you pay out to sub-contractors or use to purchase expense items is tax deductible. If you buy capital equipment you can, with some limitations, choose to expense it or depreciate it over time. In either situation, the money spent on the equipment is tax deductible over one year or several.

The point of “pass through” taxation, whether for a SP, LLC, or S-Corp, is that the net income of the business is only taxed once. Every dollar that comes in either goes out as expenses (and is taxed as income for the vendor/contractor) or is paid out to the owner as profit and taxed. With a C-Corp, the company pays taxes on its profit, and then the owner/employees pay taxes on their distributions. Money paid out to employees or vendors is still only taxed once, as far as I know.

Anyway, this is all kind of beside the point. If I’m a small business owner and I rely on my company’s profits to pay for my room and board, then I’m going to expect to take a certain amount of money out of the company every year so I can feed myself and my family and keep a roof over our heads. The dollar value that I need to take out of the business every year has a lower bound determined by my personal expenses. Let’s say that number is $300,000, and let’s also assume that I routinely meet or exceed that number most years.

Now, what happens when my taxes are increased? I still need to net at least $300,000, but now more of my top-line is going to the government in taxes. Now I need to take out at lease $325,000 to get the same after-tax take home pay as before. In order to meet my needs, I either need to increase sales or decrease expenses to make up the difference. If the business cycle is on the down swing, then I may not be able to increase sales enough to cover that additional tax burden. The only options left are to cut business expenses or to live with less take home pay. Hmmmn. Maybe I can live without a secretary, or perhaps I could eliminate a position and get more hours out of the remaining employees. I’ll probably save on overhead even if I have to pay more for the hours worked.

Hey, it’s easier than telling my kids they’re not going to Disneyland this year, right?

By the way, I’m not arguing for or against tax cuts or increases here. It just seemed that the way people were framing the discussion wasn’t helping anyone understand the issue.
[/quote]

this is pretty much how it works. I can keep money in my business, but i always have to pay taxes on it for the year that the money was earned. I dont get to just shelter the money in there. The money is only taxed once. So if I keep money in their during say the 2008 business year, I pay taxes on it for 2008, and if I want to take a distribution today I dont have to pay taxes on it again. But it is in no way a shelter where i get to keep it tax free.

Also, if I abuse it, and try to expense my dish bill to the account i can get busted by the IRS. I know a dish installer who tried to expense his tv to his business as “research”. He got caught and it did not work out well for him.

[quote]koffea wrote:

[quote]Gambit_Lost wrote:

[quote]koffea wrote:

warren buffett has been saying this for years, its really nothing new. yet he has failed to ever lead the charge and actually start forking over his money voluntarily.

buffett does give a ton of money to charity which is good. but if he really wanted to help he could start an angel fund, investing in risky longterm development projects like solar (ie start building new industry in america through innovation), or giving grants to small business owners.
[/quote]

Mate, you might want to wiki Buffett and the Bill and Melinda Gates Foundation.
[/quote]

i was specifically talking about things that would develop jobs within the United States. None of the gates foundation economic development is done within the US. its all done in places like africa (not that its bad to help them out too). Most of their US stuff centers around high school development and has been an utter failure which is really disappointing.
[/quote]

Fair enough. I guess I see him as one of the most philanthropic (the most?) person living now. It surprised me that someone would complain because he’s not giving the way that that person thinks he should. But perhaps I:m misreading your tone.

[quote]Sloth wrote:
Why? Raising taxes isn’t going to solve a thing. Why shouldn’t the american people and the government make a show of good faith, and actually cut spending, first? No, not the silly “cut government waste” bull-puckey. Long term solvency isn’t going to materialize through tax increases alone, sorry. Real cuts to actual benefits are required. Why do we keep trying to kick it down the road? IF, IF, taxes are to be raised without spending cuts, then they should be raised across the bord, including lower and middle class. We should demand that our government squeeze the last non-essential penny out of us, and pay for our spending habits, together.[/quote]
I agree with you that they shouldn’t raise taxes if they are not going to cut spending, but I think in the next 2 years you will see some major (at least, significant) austerity measures that may bode well for the Obama administration, or set it up for another democratic 4 years.

What they should do to solve the budget deficit… tax consumption more, less on income. Also, more importantly, 25% of the budget reduction should come from increased taxes, and 75% should come from spending cuts (mainly pensions, Medicaid/Medicare).

Right now being that I am in school I make the lowest tax bracket, If they want to raise the taxes on the rich raise my taxes too. Enough with this class warfare nonsense.

I would prefer the Fair tax, lets see how many social programs show up under that.

[quote]swoleupinya wrote:

[quote]ZEB wrote:
swoleupinya:

You are very wrong my friend.

“An S corporation is a regular corporation that has between 1 and 100 shareholders and that pases-through net income or losses to shareholders as individual income in accordance with Internal revenue code, Chapter 1, subchapter S. Corporations must meet specific eligibility criteria, and they must notify the IRS of their choice to be taxed as an S-Corporation within a certain time period.”

As for an LLC:

“An LLC is not a separate tax entity like a C corporation; it is what the IRS calls a pass through entity, like a partnership. All of the profits and losses of the LLC pass through the business to the LLC owners, who report this information on their personal tax returns.”

I have owned one of each and have thus filed taxes under said structure. Obama’s tax hike would indeed hurt the very people that move the economy. Over 60% of all new hires are from small business. That means they are either a sole proprietorship, S Corp, or LLC. It matters not tax wise.

I’d post a link, but all you have to do is google any of the three entities and you will see that I am correct.

[/quote]

Interesting… I don’t know about your lawyer and/or accountant, but our business started out as an LLC filing as an S-corp under form 8832. We eventually re-filed as an S-corp for the sake of simplicity. In either instance, we had a number of ways of sheltering ourselves from pass-through profits or losses. We put a lot of the profits back into the company every year, and we did not pay taxes on this. A sole proprietor (though, I’ve never had the experience) as I understand it is treated very much like someone on a payroll… Any money that comes in, they get taxed on… regardless of whether or not it goes back into the company or against losses. Granted, they get taxed at a much lower rate… it only seems to make sense in certain purely transactional businesses.

The important term, BTW, is “net.” A sole proprietor is responsible for “gross” profits and losses. It’s an entirely different ball game.

Having seen how much money it is possible to shelter and avoid paying taxes on in a small business, if the owner of an LLC or S-corp ends up with $250K + at the end of the year, then they are no more immune to a higher tax bracket than a person on payroll making those numbers, in my opinion.

[/quote]

The point is they are not taxed as a standard C corporation. And thus Obama’s tax hike on “the rich” will negatively effect them and consequently harm the potential to bring this economy back.

One more interesting point. I have a few good friends who are bankers and their banks seem to be very aggressive when it comes to trying to make small business loans. The problem is that the typical small business man/woman is afraid to take a risk on a loan right now because of all the democrats and Obama’s threat to raise taxes. If the republicans have their way and the Bush tax cuts are extended to everyone I think we’ll see this economy actually take off. This of course will help the ivory towerist and chief in his reelection bid.

I really wonder why it’s so important to punish those who have succeeded? Class warfare, launched by the democrats, is a very poor strategy to actually govern with.

[quote]PAINTRAINDave wrote:

[quote]DoubleDuce wrote:
He has the opportunity to donate any money he wishes to the federal government and does not. That just makes him a hypocrite. I’m willing to bet he has a slew of lawyers and tax experts trying to get his taxes as low as possible.

Any person in favor of higher taxes that isn’t currently volunteering their own money is a piece of shit.[/quote]

He`s one of the most philanthropic people of all time…? [/quote]

Donating to private charities does not equal donating to the government. Equating the 2 is one of the biggest mistakes liberals make. He is in favor of the government taking more money from people like him, he should go ahead and give THE GOVERNMENT that money he doesn’t need. The fact that he feels that money can be put to better use through voluntary private donations to private organizations actually proves my point. When he says he’s for higher taxes, he’s a hypocrite and full of shit.

[quote]John S. wrote:
Right now being that I am in school I make the lowest tax bracket, If they want to raise the taxes on the rich raise my taxes too. Enough with this class warfare nonsense.

I would prefer the Fair tax, lets see how many social programs show up under that.[/quote]

BRAVO!

[quote]ZEB wrote:

[quote]swoleupinya wrote:

[quote]ZEB wrote:
swoleupinya:

You are very wrong my friend.

“An S corporation is a regular corporation that has between 1 and 100 shareholders and that pases-through net income or losses to shareholders as individual income in accordance with Internal revenue code, Chapter 1, subchapter S. Corporations must meet specific eligibility criteria, and they must notify the IRS of their choice to be taxed as an S-Corporation within a certain time period.”

As for an LLC:

“An LLC is not a separate tax entity like a C corporation; it is what the IRS calls a pass through entity, like a partnership. All of the profits and losses of the LLC pass through the business to the LLC owners, who report this information on their personal tax returns.”

I have owned one of each and have thus filed taxes under said structure. Obama’s tax hike would indeed hurt the very people that move the economy. Over 60% of all new hires are from small business. That means they are either a sole proprietorship, S Corp, or LLC. It matters not tax wise.

I’d post a link, but all you have to do is google any of the three entities and you will see that I am correct.

[/quote]

Interesting… I don’t know about your lawyer and/or accountant, but our business started out as an LLC filing as an S-corp under form 8832. We eventually re-filed as an S-corp for the sake of simplicity. In either instance, we had a number of ways of sheltering ourselves from pass-through profits or losses. We put a lot of the profits back into the company every year, and we did not pay taxes on this. A sole proprietor (though, I’ve never had the experience) as I understand it is treated very much like someone on a payroll… Any money that comes in, they get taxed on… regardless of whether or not it goes back into the company or against losses. Granted, they get taxed at a much lower rate… it only seems to make sense in certain purely transactional businesses.

The important term, BTW, is “net.” A sole proprietor is responsible for “gross” profits and losses. It’s an entirely different ball game.

Having seen how much money it is possible to shelter and avoid paying taxes on in a small business, if the owner of an LLC or S-corp ends up with $250K + at the end of the year, then they are no more immune to a higher tax bracket than a person on payroll making those numbers, in my opinion.

[/quote]

The point is they are not taxed as a standard C corporation. And thus Obama’s tax hike on “the rich” will negatively effect them and consequently harm the potential to bring this economy back.

One more interesting point. I have a few good friends who are bankers and their banks seem to be very aggressive when it comes to trying to make small business loans. The problem is that the typical small business man/woman is afraid to take a risk on a loan right now because of all the democrats and Obama’s threat to raise taxes. If the republicans have their way and the Bush tax cuts are extended to everyone I think we’ll see this economy actually take off. This of course will help the ivory towerist and chief in his reelection bid.

I really wonder why it’s so important to punish those who have succeeded? Class warfare, launched by the democrats, is a very poor strategy to actually govern with.
[/quote]

You’re making a pretty damn big claim here… in reference to what your “friends” are telling you. Do you have anything to back this claim up with, other than us being expected to believe what you have written?

Second. In regards to this statement;

What exactly is going to change in the tax code, if the Republicans have their way?

[quote]PAINTRAINDave wrote:

[quote]DoubleDuce wrote:
He has the opportunity to donate any money he wishes to the federal government and does not. That just makes him a hypocrite. I’m willing to bet he has a slew of lawyers and tax experts trying to get his taxes as low as possible.

Any person in favor of higher taxes that isn’t currently volunteering their own money is a piece of shit.[/quote]

He`s one of the most philanthropic people of all time…? [/quote]

He waited till he was over 70 and decided he doesn’t want his kids to get the money so he has just started promising his money. Most of his pledged money doesn’t come through until he dies.

Don’t read too much into his so called charity.

[quote]swoleupinya wrote:

[quote]ZEB wrote:
swoleupinya:

You are very wrong my friend.

“An S corporation is a regular corporation that has between 1 and 100 shareholders and that pases-through net income or losses to shareholders as individual income in accordance with Internal revenue code, Chapter 1, subchapter S. Corporations must meet specific eligibility criteria, and they must notify the IRS of their choice to be taxed as an S-Corporation within a certain time period.”

As for an LLC:

“An LLC is not a separate tax entity like a C corporation; it is what the IRS calls a pass through entity, like a partnership. All of the profits and losses of the LLC pass through the business to the LLC owners, who report this information on their personal tax returns.”

I have owned one of each and have thus filed taxes under said structure. Obama’s tax hike would indeed hurt the very people that move the economy. Over 60% of all new hires are from small business. That means they are either a sole proprietorship, S Corp, or LLC. It matters not tax wise.

I’d post a link, but all you have to do is google any of the three entities and you will see that I am correct.

[/quote]

Interesting… I don’t know about your lawyer and/or accountant, but our business started out as an LLC filing as an S-corp under form 8832. We eventually re-filed as an S-corp for the sake of simplicity. In either instance, we had a number of ways of sheltering ourselves from pass-through profits or losses. We put a lot of the profits back into the company every year, and we did not pay taxes on this. A sole proprietor (though, I’ve never had the experience) as I understand it is treated very much like someone on a payroll… Any money that comes in, they get taxed on… regardless of whether or not it goes back into the company or against losses. Granted, they get taxed at a much lower rate… it only seems to make sense in certain purely transactional businesses.

The important term, BTW, is “net.” A sole proprietor is responsible for “gross” profits and losses. It’s an entirely different ball game.

Having seen how much money it is possible to shelter and avoid paying taxes on in a small business, if the owner of an LLC or S-corp ends up with $250K + at the end of the year, then they are no more immune to a higher tax bracket than a person on payroll making those numbers, in my opinion.

[/quote]

no a sole proprieter can expense anything that goes back into the business, as well as depreciables. meaning they are taxed on their net income.

I work in the pharma industry, and just started a grass fed beef farm on the side as an LLC. The income from the farm is passed through the LLC and is reported on my individual taxes, all deducaitons from purchases, repairs, upkeep, gas, depreciation, etc… are deductable from my total income, and then that is my taxable income. Which if you don’t mind putting some more effort into your taxes I highly recommend an agribusiness on the side.
The tax code can really help you out.

[quote]swoleupinya wrote:

You’re making a pretty damn big claim here… in reference to what your “friends” are telling you. Do you have anything to back this claim up with, other than us being expected to believe what you have written?[/quote]

I think it’s pretty obvious if banks are trying to lend, and they are. One only need listen to Obama’s economic team to know this. And in fact the republicans are saying it too. It only makes sense that someone with a small business (me) will not borrow until they know that they’re taxes are not going to go through the roof. That doesn’t make sense to you?

[quote]What exactly is going to change in the tax code, if the Republicans have their way?

[/quote]

The Bush tax cuts will be extended to all Americans.

[quote]ZEB wrote:

[quote]swoleupinya wrote:

You’re making a pretty damn big claim here… in reference to what your “friends” are telling you. Do you have anything to back this claim up with, other than us being expected to believe what you have written?[/quote]

I think it’s pretty obvious if banks are trying to lend, and they are. One only need listen to Obama’s economic team to know this. And in fact the republicans are saying it too. It only makes sense that someone with a small business (me) will not borrow until they know that they’re taxes are not going to go through the roof. That doesn’t make sense to you? [/quote]

It would make sense… if that were actually what is happening. The restrictions on the lending environment right now are currently on the bank side, not on the consumer side. Fiscal policy since the last year of the Bush presidency to now has been all about providing liquidity and incentive for the BANKS to lend money.

Of course, I would be happy to see something other than your opinion to prove your point that the opposite is happening.

[quote]What exactly is going to change in the tax code, if the Republicans have their way?

[/quote]

The Bush tax cuts will be extended to all Americans.
[/quote]

I think you need to check your facts, Zeb. What the republicans are advocating for is that the Bush tax cuts should not expire. This means there will be effectively no change to the tax code… I mean, it sure has worked so fucking well up to this point… it should be obvious that if we keep going the same way the economy will just miraculously turn around… right?

Obama and the democratic leadership are advocating for additional tax cuts to those earning under $250k and an expiration of the Bush tax cuts… although, they seem to have caved early to pressure from the republicans last year and their fallback position was to extend (allow to continue) the Bush tax cuts to those earning under $250k and allow all of the other elements of the Bush tax cuts to expire.

[quote]swoleupinya wrote:

I think you need to check your facts, Zeb. What the republicans are advocating for is that the Bush tax cuts should not expire. This means there will be effectively no change to the tax code… I mean, it sure has worked so fucking well up to this point… it should be obvious that if we keep going the same way the economy will just miraculously turn around… right?

Obama and the democratic leadership are advocating for additional tax cuts to those earning under $250k and an expiration of the Bush tax cuts… although, they seem to have caved early to pressure from the republicans last year and their fallback position was to extend (allow to continue) the Bush tax cuts to those earning under $250k and allow all of the other elements of the Bush tax cuts to expire.

[/quote]

Which will do nothing. The bush tax cuts didn’t help because the governemnt still spends and creates serfs through entitlement programs. Cut the entitlement programs and allnot infrastucture spending and I bet we can have even more tax cuts.

Entitlement programs = The government stealing to buy votes.

[quote]Jewbacca wrote:
Buffet made his first million selling whole life insurance policies to people on their death bed, so they could dodge estate taxes (i.e., sell $1,000,000 policy for $1,000,500, grandpa dies, and since there is no tax on insurance proceeds, the estate comes out ahead).

Expensive tax dodges (but cheaper than federal taxes) remain a primary source of income for his companies.

So, keep that in mind as Buffet acts to noble.

A flat tax or similar fair, non-dodgeable, tax would put him out of business.

(It would suck for me, too, but I can find other things to do.)[/quote]

Interestingly enough, if you read between the lines, buffet has been admitting for years that a flat tax would be in the best interest of the country. He’d never admit it, precisely for the reasons you stated above. It’s really nothing more than a power grab by him. He can maintain his everyman philanthropic image, while expanding his business opportunities through an increasingly complex tax code.

If one were to get an honest take home lesson from buffet it would be:

  1. Make sound investments (duh)
  2. Live conservatively
  3. Milk the tax code for every legal benefit you can possibly get.
  4. Have enough money to kick your wife out, live with your mistress/maid, and give them enough money to keep both happy.

[quote]Gambit_Lost wrote:

[quote]koffea wrote:

[quote]Gambit_Lost wrote:

[quote]koffea wrote:

warren buffett has been saying this for years, its really nothing new. yet he has failed to ever lead the charge and actually start forking over his money voluntarily.

buffett does give a ton of money to charity which is good. but if he really wanted to help he could start an angel fund, investing in risky longterm development projects like solar (ie start building new industry in america through innovation), or giving grants to small business owners.
[/quote]

Mate, you might want to wiki Buffett and the Bill and Melinda Gates Foundation.
[/quote]

i was specifically talking about things that would develop jobs within the United States. None of the gates foundation economic development is done within the US. its all done in places like africa (not that its bad to help them out too). Most of their US stuff centers around high school development and has been an utter failure which is really disappointing.
[/quote]

Fair enough. I guess I see him as one of the most philanthropic (the most?) person living now. It surprised me that someone would complain because he’s not giving the way that that person thinks he should. But perhaps I:m misreading your tone. [/quote]

I don’t know if I would consider him the most charitable person, but definitely does a lot.

A few quick points:

  1. Buffett is not the smartest guy in the room. He is a great value investor and he smartly doesn’t go down investment rabbit trails, but he isn’t our beacon of intellect on political economy.

  2. “Where is Buffett’s stacks and stacks of proof???”. There, had to get the pro forma objection out of the way.

  3. Continuing to overweight taxes at the highest level (with reductions at lower levels) i s bad policy. This kind of policy will (has) create a “bread and circuses” problem - on one hand, an entire class of people who get all kinds of benefits and goodies given to them that they don’t pay anything for (and thus, they have no skin in the game and no incentive to limit their demands) and a productive class that will increasingly be hampered by the insatiable appetite for these benefits. It’s irreconcilable, and this mechanism has already had its hand in the demise of previous civilizations.

  4. Raising taxes won’t help the problem. It would only help “pay for everything” and “balance the budget” if politicians were willing to hold the line on spending and increase taxes to merely cover the shortfall in revenue. But there is no reason to think this would happen. If we increase taxes, we just invite the argument from the Big Spenders to spend more - they see a dollar in new revenue, they’ll spend $1.17 - same as the credit card abuser who happens to get a pay raise. So, a tax raise doesn’t solve the problem, and will likely make it worse, since it sends the message of “hey, if I keep coming up with new things to spend money on, we can always raise taxes to cover it, so let’s keep it going.”

“Progressives” - strangely uninterested in sustainability all of a sudden, but when were they ever really, except to fetishize the environment (that they have next to zero relationship with really) - have big, big dreams about spending ever more. Raising taxes would only encourage their fiscal profligacy, because it is easy to spend other people’s money, especially when you think you have unlimited access to it (and a tax raise would be another concession that they do).

[quote]swoleupinya wrote:

Obama and the democratic leadership are advocating for additional tax cuts to those earning under $250k and an expiration of the Bush tax cuts… although, they seem to have caved early to pressure from the republicans last year and their fallback position was to extend (allow to continue) the Bush tax cuts to those earning under $250k and allow all of the other elements of the Bush tax cuts to expire.

[/quote]

Yes by all means let’s cut taxes for those who contribute least to the economy and take more from those who contribute most. If the democrats ever tried to run a business that way they’d be bankrupt quickly and only partially because they’d have to pay their own heinous tax rates.

All politics aside how does it ever help to punish those who are responsible for creating jobs. I just wish that question could be answered clearly ONE TIME by someone advocating higher taxes on small business people.

[quote]ZEB wrote:

[quote]swoleupinya wrote:

Obama and the democratic leadership are advocating for additional tax cuts to those earning under $250k and an expiration of the Bush tax cuts… although, they seem to have caved early to pressure from the republicans last year and their fallback position was to extend (allow to continue) the Bush tax cuts to those earning under $250k and allow all of the other elements of the Bush tax cuts to expire.

[/quote]

Yes by all means let’s cut taxes for those who contribute least to the economy and take more from those who contribute most. If the democrats ever tried to run a business that way they’d be bankrupt quickly and only partially because they’d have to pay their own heinous tax rates.

All politics aside how does it ever help to punish those who are responsible for creating jobs. I just wish that question could be answered clearly ONE TIME by someone advocating higher taxes on small business people.

[/quote]

Zeb,

According to the IRS, 2% to 3% of businesses who file as an S-corp or an LLC declare over $250,000 in taxable income. Considering that small businesses account for somewhere between 75% and 85% of jobs in the US, I think you’re argument here is baseless.

I’m getting ready for a long drive for a family Thanksgiving trip, so I don’t have a ton of time to research… I do remember a recent report/survey/research piece that came out showing that the percent of spending predicted (via past trends) out of a tax break rises as income declines… with a sharp drop off above $300,000 in earnings… what this means is that when you give tax break to people with lots of money, they are a lot less likely to spend it than if you gave the break to someone with less money.

Imagine that.

Also, you should consider the possibility that as someone’s capital holdings increase, the value of each dollar they hold increases. For example, if I have ten dollars, and someone else has 200 dollars, each 10 dollars that they have is worth more in the aggregate… capital leverage. Not only that, but as someone’s capital holdings increase so does their dependency on the common wealth (roads, postal, military, etc…). This is one of the founding principles of the progressive tax.

If you introduce a flat tax, you are essentially multiplying the leveraged value of dollars as capital holdings increase, in a manner that does not reflect fairly on reliance on the common wealth.