Guest Post: Exploring The Not-So-Altruistic Aspects Of The "Buffett Rule"

Tyler Durden's picture

Submitted by Robert Ross of Casey Research

Exploring The Not-So-Altruistic Aspects Of The "Buffett Rule"

This week, President Obama released his $3.8-trillion budget for fiscal year 2013. The plan calls for new taxes on the wealthy, a restructuring of the tax code, and short-term infrastructure spending aimed at boosting the economy (albeit artificially).

Also included in the budget are limitations on subsidies for oil and gas companies, an end to the Bush tax cuts, and a proposal to raise taxes on dividends, which could be as high as 39.6% for households making over $250,000 per year.

Although Senate Minority Leader Mitch McConnell (R-KY) dismissed the proposal as "a campaign document," the White House claims the measure would generate $206 billion in revenue over 10 years.

One of the most interesting aspects of the plan is the inclusion of the Buffett Rule as a replacement for the alternative-minimum tax (AMT).

The AMT was originally implemented to ensure that high-income Americans paid their taxes. But, alas, the geniuses in Washington "forgot" to index the AMT for inflation, rendering it useless and unintentionally ensnaring an increasing number of middle-class taxpayers into a system meant for the wealthiest of Americans.

Unintended consequences abound, but I digress…

The "Buffett Rule," named after famed investor Warren Buffett, would require those who earn more than $1 million per year to pay a tax rate of at least 30% and prevent them from claiming deductions to push down their tax rates.

Buffett, who penned a New York Times op-ed in August of last year espousing the need for an overhaul of the tax code for America's top earners, appears to have caught the ear of President Obama.

(Click on image to enlarge)

The message of the op-ed was clear: Mr. Buffett, who paid nearly $7 million in income tax last year, wants to pay more.

But will he actually sacrifice anything? It's hard to say, as some of these new taxes will directly benefit Buffett.

Additional tax dollars in the government's coffers could help Buffett even more. Who can forget the Oracle of Omaha's opportunistic investment in Goldman Sachs (NYSE: GS) in the wake of the Lehman Brothers collapse (where he made nearly $1 billion on the assumption that the government would bail it out)? Buffett has indicated that his next acquisition could be Exelon (NYSE: EXC), General Dynamics Corp (NYSE: GD), or Archer Daniels Midland (NYSE: ADM), all of which are heavily connected to government contracts and would benefit from increased government spending.

Exelon is directly tied to the Obama administration: Rahm Emanuel and David Axelrod act as consultants, two top Exelon advisors are Obama fundraisers, and the company lobbies heavily for more greenhouse-gas restraints to drive demand for its nuclear power.

General Dynamics, the world's fifth-largest defense company, generated 72% of revenue from the Department of Defense in 2011, and was the number-four government contractor for fiscal year 2011.

Last but certainly not least, ADM, one of the world's largest processor of agricultural commodities, profits not only from ethanol subsidies but from corn syrup and export subsidies as well.

Although no one can be sure of Buffett's motives, it would be naïve to believe that someone as intelligent as Buffett has not considered the benefits of pushing through this tax structure. Higher taxes are always problems for entrepreneurs and regular people in the economy. However, they're often beneficial to the well-connected, who receive government bailouts and favors. And with Buffett even on the president's lips, he is becoming more connected to the power mechanism in D.C. every day. With many of Berkshire's companies, your loss as a taxpayer will be their gains.

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Conrad Murray's picture

"Although no one can be sure of Buffett's motives"

To be an old rich white guy, and the worst sort of parasitic scum this Statist system of old white cronies allows to exist.

OT: On that CNBS forex show, someone asked MCC if she heard the rumors "out of the UK" that there was a secret plan in place for Greece to collapse and banks to be closed on March 23. Thought that was interesting. Thanks to whoever brought up the "Debkaesque" link(even if it's total BS) -

The Alarmist's picture

Buffet and Berkshire are first rate bottom feeders: their insurance businesses profit immensely selling estate planning products to business owners and entrepreneurs who want to pass along some of their hard earned wealth to their survivors, and their business brokerage and real estate ventures clean up big time buying the businesses and farms that need to be liquidated (by those who didn't buy enough of the estate planning products) so that death taxes can be paid. If buffet is behind this, it is to make money.

A Nanny Moose's picture

Warren is a true robber baron, and the most adept at following government money.

palmereldritch's picture

He’s a sales rep for Obama’s policy of ‘tax the rich’ which translates into financially raping anyone making more than a $100,000 while the stratospherically wealthy parasite billionaires like Warren park their cash in an interest bearing trust protected from the acidic corrosion of the toxic taxes engineered by his Bankster client overlords.

The Banks are the government.  An occupying force since 1913 and "creditors"/scamsters in possession since 1933.

AldousHuxley's picture

"the banks are the government"

and warren buffet is the bank since he has all the money. he is the JP Morgan of Great Recession. Even CEO of Goldman Sachs had to go beg the old wise guy in podunk omaha for money.


Taxes used be A LOT higher for all corporate, income, capital gains. It forces the rich responsible for government becuase thats where so much of their money goes. It also forces long term income instead of windfall profits.

Main reason is though to raise funding for Iran war. The drone thing didn't work so well, so they've got to come up with something else. You will see more government funding for DARPA and STEM. US is so uncompetitive in real technology (not facebook bullshit) that Iranians also have drones now.

jekyll island's picture

The reason for this tax is to push more people into using 401k and IRAs.  The gubmint can keep a close watch on your money and force you to buy US Treasurys when the Fed can no longer be the "lender of last resort."  This is definitely a trap, gubmit will get your money either through higher taxes or confiscating your retirement plan.  

smlbizman's picture

i remember years ago, years....buffet {pronounced..bu fay} said the best investment was fannie and freddie cause a a monopoly was best and a duopoly was second best......

AldousHuxley's picture

buffett bought a laguna beach beach house in 1996 for $1M then sold it in 2005 for $5M to some sucker.


2005 was when Buffett realized fannie and freddie are in deep shit. He just doesn't tell the public when he changes his mind until after the fact.




TruthInSunshine's picture
Buffett is a true leech. He's a predator of the worst kind, who grins and pretends to be benign; even beneficial.


Warren Buffett: Baptist and Bootlegger
  • How America’s favorite billionaire plays politics to make money
Warren Buffett - America's Ultimate Crony Capitalist
jekyll island's picture

He's an insurance salesman.  What do you expect?  

GMadScientist's picture

As opposed to "doing God's work"?

trav7777's picture

those high marginal tax rates also had TONS of deductions packed in.  You used to be able to deduct even credit card interest

nmewn's picture

Tax Reform Act of 1986...for the

halflink123's picture

another token black racist has to weigh in.


as if old rich black people are so great. give me a break.  


go ask chris rock for twenty dollars, see where that gets you.


yes I am tired of the hyprocrisy. go peddle your bullshit elsewhere I have to hear it 20x a day.

Conrad Murray's picture

20x a day?! Do you have protesters outside your Klan meetings or something?

Jeez pal, lighten up. Do you have any daughters? I'll take her out for a swell time in my big shiny Cadillac. I got $800 saved up on my EBT card. No expense spared for the sweet white chocolate honey bunny. Prove to you we're not all bad.

Atomizer's picture

Actually, we’re addressing your race card failure


Chappelle's Show: Clayton Bigsby

Benjamin Simon's picture

Remember Conrad, you cant buy cooked foods on the EBT car. You must buy the food then prepare it at home. May I suggest chicken tarragon. (it is the other white meat).    Besides the one your dating I mean.

The Alarmist's picture

They already have a pilot plan that allows EBT cards and SNAP cards to be used at fast food restaurants.

Conrad Murray's picture

There's 100s of places that accept EBT for hot meals. Burger King, KFC, Subway, arab corner stores with Jo-Jos and fried chicken, the fried fish place, all the wing joints, etc. Then there's also the farmer's markets and liquor stores.

It's not hard to use an EBT card to buy anything one's heart desires. Take a look at all the signs in the windows next time you drive through the ghetto. Or, better yet, take a trip to the arab stores on the 1st of the month. You'll be amazed at how many people simply sell their SNAP credits to the arabs(or whoever has the corner stores locked up in your area) for 50 cents on the dollar in exchange for cash.

Chimerican's picture

Bros got nuttin' on Chinese. We love fried chicken bitchez.

4realmoney's picture

Let's not forget this gem: Warren Buffett plays the Ukelele for the Chinese New Year

newstreet's picture

"Old rich white guy" "Old white cronies"  New age racist.

Quinvarius's picture

40% tax rate on dividends is going to slaughter the DOW.

Zero Govt's picture

the Dows going to get slaughtered anyway ..choose your butchers knife fattened calf

blunderdog's picture

I don't really care what happens with tax policy, but I do wonder: what's the problematic part about requiring households earning more than a million a year to pay a rate comparable to the rest of the folks who earn so much less?

It seems like a step in the direction of the flat-tax idea that's been popular amongst the quasi-libertarian Republicans for a long time.

(Reminder: I don't advocate or support anything at all.  I recommend if you haven't quit paying your taxes yet, please do so now.)

nmewn's picture

"...but I do wonder: what's the problematic part about requiring households earning more than a million a year to pay a rate comparable to the rest of the folks who earn so much less?"

Well, as far as I can tell, it doesn't start at the million dollar level.

It starts at 200k for singles and 250k for couples.

And...Buffet's secretary could very well be part of the "evil" 1% everyone is freaking out about...but the real target will always remain the & the

Here's an interesting article on that whole kerfuffle...

"We can get an approximate answer by consulting IRS data on tax rates by adjusted gross income, which would approximate her salary, assuming she does not have significant dividend, interest or capital-gains income (like her boss). I assume Buffett keeps her too busy for her to hold a second job. I also do not know if she is married and filing jointly. If so, it is deceptive for Obama to use her as an example. The higher rate may be due to her husband’s income.  So I assume the tax rate referred to is from her own earnings."

Buffet himself declares that he pays a 17.4 percent rate on taxable income. His staff, like Bosanek,  pay an average of 34 percent. The IRS publishes detailed tax tables by income level. The 2009 results  show that the average taxpayer paying Buffet’s 17.4 rate earns an adjusted gross income between $100,000 and $200,000. But an average taxpayer in Bosaneck’s rate (after downward adjustment for payroll taxes) earns an adjusted gross income  of $200,000 to $500,000. Therefore Buffett must pay Debbie Bosanke a salary well above two hundred thousand.

"We must wait for further details to learn how much more than $200,000 she earns. The tax tables tell us about average ranges. For all we know she earns closer to a half million each year, but that is pure speculation."

Now really, in truth, I don't care how much she makes. But I do know where the tax burden always falls...and it won't be on the Buffet's of the world.

DoChenRollingBearing's picture

+ 1  

Good work unearthing that one.

nmewn's picture

It almost got down the Google/Bing memory hole.

It took me awhile to find it, but I remembered it ;-)

The Alarmist's picture

She is married. She and hubby just bought a vacation home in AZ with a swimming pool and a PGA -grade practice putting green, so they seem to be doing just fine.

nmewn's picture

So her depiction by O'Barry and Warren as being a poor and oppressed secretary (by the governments own tax system), ummm, disingenuous.

Why, what could they possibly be up to with this ploy? ;-)

They keep coming back to this 200-250k income level for a reason.

With the government now spending/borrowing at least four billion a day, it would vaporize poor ole Warren's entire "life savings" in around 12 days, if they just targeted him. 

So, per usual, they try to invoke some sense of injustice, guilt, envy, fairness or even rage among the masses for things they have done and are doing through the tax code, which they, in their infinite wisdom, constructed for themselves.

Same as it ever was...let the venal thing crash & burn.

sun tzu's picture

It's the old bait and switch. They claim to be targeting the super wealthy then they pass a tax increase on the professionals and small business owners. As inflation ramps up, the majority of the middle class will be making $250K/yr by 2020 and will be pushed into that 40% tax bracket. Add that to the state and local taxes and 75% of our earnings will go to feed the beast of corrupt bureaucrats, politicians, and bankers. 

nmewn's picture

It's a fine line they're walking here sun tzu. Most of them forget what it took personally to become what they are.

Now, having got there and no longer rubbing elbows with the hoi polloi, they wish to conserve their earnings to dole out at their leisure, to maintain their own status in society and stick those still striving below with the bill.

I ain't buying Warren's dinner for him and I just told O'Barry/Geithner/Bernanke (the management) it ain't gonna happen ;-)

Papasmurf's picture

Buffet won't pay taxes if it's changed.  He will re-jigger things so his income is "return of capital". 

GMadScientist's picture

Nice pea under the shell attempt. Let's talk about his salary while ignoring that the 17.4% effective is due to differential taxation of carried interest.

Sophistry: no substitute for facts.

blunderdog's picture

I thought I was asking a decent question, but no one seems to have any answers.

boattrash's picture

Short reply, as I am currently going through ass-raping by IRS as we speak. No, a flat tax would be a FLAT tax. See comments above about "the needy" selling their Govt money for 50 cents on the dollar. I dump 40-50K a year into these "tax/vote-buying ploys" that the f%$kwads in DC are running. The big difference between Liberals and Libertarians (who both believe in personal freedoms) is that the Liberals just want someone else to pick up the tab! Maybe I can find some of those pricks and buy some of my hard-earned money back at 1/2 price.

blunderdog's picture

I dump 40-50K a year into these "tax/vote-buying ploys" that the f%$kwads in DC are running.

Maybe you shouldn't squander it like that.  You should know by now you'll never get a square deal from a politician.

boattrash's picture

Agreed, but it seems that there is some annoying little Fed Code that requires my employer to take out Govt's slice first.

nmewn's picture

"I thought I was asking a decent question, but no one seems to have any answers."

You did BD and it wasn't my intent to give it short shrift.

IMHO the only way is a flat tax on consumption coinciding with a repeal of taxes on income.

One of the virtues I think is we get the pols out of screwin around with the tax code every election year and during downturns they are forced to do with less just like everyone else...fed printing aside, a big aside to be sure.

blunderdog's picture

I like the idea of the "government being forced to do with less," but I think the big difficulty is that we've already passed the point of no return on entitlement spending.  Even if *all* waste in government overhead was eliminated, it's just a matter of time before current benefit programs swamp revenue.

That recent post from Bruce is a good look at the future.  Cuts to benefits are going to attract mainstream attention pretty quickly, I think.

dhengineer's picture

I think he and Munger pay themselves a nominal $100k per year.

machineh's picture

'Loopholes' have always been the lib-dem modus operandi.

Remember when the combined federal/NY/NYC marginal rate was a stunning 96% in the bad old days of Nelson Rockefeller?

Nobody actually paid that rate, thanks to write-offs for politically-favored tax shelters. Cattle partnerships, film ventures, double-declining balance depreciation ... WHATEVAH!

Pious commitment to 'progressivity,' coupled with exemptions for the uber-wealthy with elite tax attorneys, is how the Liberal Plantation keeps its middle-class serfs straining at their yokes.

Do you personally own an insurance company? Didn't think so, chump.