Warren Buffett's Challenge

I admire Warren Buffett. The "Oracle of Omaha" had always seemed to show good sense and restraint when it came to what he said, and what he did. Then...

...he wrote this op-ed piece for the New York Times about the rich being coddled by legislators. The problem there is of course that if he honestly believes he pays too little in taxes, he should simply choose to pay more. Congress even made that decision easy by quickly and in bipartisan fashion passing a bill that changes the tax code to make such donations easy - as easy as a check box on your tax forms. Of course, this move pretty easily called Mr. Buffett's bluff because in spite of his claims that he should be paying more taxes, he did nothing of the sort.

I should add here that there have been some distortions of what he said in that article published since; distortions of the type that I have found to be common in the media. The oft repeated claim is that he said he paid less in taxes than his secretary. Mr. Buffett in his letter actually made the statement that he effectively paid - as a percentage of his income - less taxes than others in his office. In terms of actual cash he of course pays thousands of times MORE money, but that doesn't make for quite as sensational a headline.

There's a reason for that percentage difference too. Most of his income is derived from dividends and capital gains, money that in most cases has already had taxes paid from it to the government by the corporations that earned it. Because this money has already been taxed, it was decided years ago that the tax rates on money earned this way on the individual should be lower to reduce the effective "double-taxing" of the same money, and to provide an incentive to invest in American industries.

Think of it this way; you work for a company, and then you and I both buy a partial ownership of your company by buying stock and becoming shareholders. When you get paid a salary, the company subtracts that money out of it's gross returns under the heading of expenses and therefore it doesn't pay taxes on your salary. YOU do, in the form of an income tax and that money is only taxed once. After all of the company salaries and other expenses are accounted for, the money that remains is the profit. If our company makes a profit, before any of those profits are divided out to the shareholder/owners, the government taxes that money at the corporate rate. Then you and I get our share of the profits from what remains after the government taxed it; THEN the government taxes us AGAIN individually, effectively double-taxing the corporate income.

So because the money that Mr. Buffett receives has already had taxes paid by the corporation that earned it, the amount he actually gets has already been effectively reduced by being taxed before he gets it. Unlike his secretary's salary which was deducted as an expense and not taxed until AFTER it was paid, he then pays a lower individual tax rate on his investment income because it has ALREADY BEEN TAXED ONCE...in theory.

I say "in theory" because currently Mr. Buffett's company is significantly in debt to the government in terms of back taxes owed. Just how much is in dispute, but the IRS says it has reached the 10-figure mark. That's BILLIONS, not just millions. So in reality - in Mr. Buffett's particular case - he is getting far more money in corporate profit sharing than he should be getting because the corporation hasn't paid a billion dollars to the federal government that's owed. Instead that money has been given to the individual shareholders like Mr. Buffett, who pay lower taxes because supposedly that money has already been taxes once...but in his case much of it hasn't. So yes, Mr. Buffett is certainly NOT paying his fair share of taxes. In his article he claims that he personally wouldn't mind at all being effectively double-taxed on his investment income, and needs no such incentives to continue investing, but apparently he won't do what he appears to WANT to do until he is forced by law to do so. I don't really get that part. Why does he need a law to force him to do something he thinks he should be doing, and why should what HE wants to do be forced on others who have no such wishes?

All of which makes his claim that "I don't pay enough taxes" a little bit hypocritical, since it's HIS company that is refusing to pay the government and instead gives the money to him and others like him. It seems to also support the truism that people who become super-rich eventually get very liberal in their later years. I have to wonder if that isn't some form of guilt.

That would be an interesting end to the story, but there's more. Mr. Buffett, after having his first bluff called, has effectively doubled down recently and issued a challenge to match on a dollar for dollar basis any contribution by any Republican congressman to lower the national debt. Of course, he has left his Democratic buddies out of this so we know right away where his sympathies lie; either than or he doesn't think their money is worth very much. This to me is very interesting though - the challenge, not the sympathies.

Since he chose to couch his initial claim to not be paying enough taxes in the framework of percentage of income, I think that the Congressmen he has challenged should respond in kind with a challenge of their own on those same terms. To wit; offer to put 10% of their annual income (income; not pay or salary) into a voluntary contribution to push down the national debt if Mr. Buffett will do the same. This is still fair because a sacrifice of $15,000 by someone who makes $150,000 a year means a lot more than a sacrifice of $5 million means to someone who makes $50 million a year.

In fact, I think they should push the challenge a bit further; they should extend it to all of congress by making it a Republican vs Democrat thing. In other words, they should have a side bet with Mr. Buffett (maybe something concerning campaign contributions?) that a higher percentage of Republicans than Democrats will be willing to make that contribution to reduce the national debt, and that they will be willing to continue it until the deficit is reduced to within 3% of the budget. That would put pressure on Congress - both sides of the aisle - to do their jobs. By the way, that 3% number is Mr. Buffett's own suggestion.

Lastly, they should suggest that if he wasn't willing to match their challenge on a percent of income basis they would still be willing to make the contribution for one year on one additional condition - that he would permanently shut up about taxes and get back to investing. Berkshire Hathaway hasn't done very well in the last few years, in my view due to Mr. Buffett concerning himself with other things.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently." - Warren Buffett.

Mr. Buffett, please take your own advice.

It's Not Easy, Being Green...

About 18 months ago I put energy saving lights over my desk. I didn't go whole hog solartube or anything like that; it's just a couple of lights that use less energy than the standard (cheap) incandescent bulbs we are used to.

Originally the two recessed lighting cans over my desk had held 75 watt incandescent floodlight bulbs, and they lit that corner of the room VERY well. Since it wasn't the original location of my desk they weren't used very much at first, and they lasted for years being turned on only once a week or so. But finally, after over a decade one of them burned out. That happened some time after my desk had been moved into the well-lighted corner, and wanting to be more energy-conscious (at my wife's urging) I changed BOTH bulbs, putting a 50-watt halogen bulb in one of the cans and a 19-watt fluorescent bulb in the other. I hadn't originally intended to compare the bulbs; my purpose was to have sufficient light from the halogen bulb while waiting for the fluorescent one to reach full brightness - let's face it; they may be called "instant on" bulbs, but we all know they are NOT!

I could stand the comparative dimness of the sole halogen bulb while waiting the 2 minutes it took for the output of the fluorescent to reach it's maximum, and once it had done so the lighting over my desk was every bit as satisfactory as the 150 watts of incandescent lighting had been - at a cost of only 69 watts to the environment. Of course, the cost of the bulbs was a different story entirely. The incandescent bulbs were a very cheap at around $3 each, while the halogen bulb price was $11

and the fluorescent was even higher at $12!

Still, the halogen advertized a life of 2500 hours of use, and the fluorescent was much higher at "up to 10,000 hours", making it seem a bargain overall. The manufacturer even posted a lifetime price comparison over incandescent bulbs showing how you'd need 5 incandescent bulbs to last that same 10,000 hours and how they would use so much less electricity and at $.10 a kilowatt hour you would save $35-$50 over the life of the fluorescent bulb even though the initial cost was higher. So not only were you being green and saving the planet, you were saving less money while doing it as well! Who could resist a deal like that?!

Well, after 10 years of changing fluorescent bulbs in my (vaulted) kitchen ceiling, I was pretty sure that the much ballyhooed life of fluorescent bulbs was a myth - and now I have proof. The fluorescent bulb over my desk failed to light yesterday afternoon when I flipped the switch, and several switch cycles later I was convinced it had died for good. It's halogen partner, which had matched it's vaunted lifespan second for second - being on the same circuit - was still going strong with full output instantly and consistently upon demand. And no, this is not a dimmer controlled circuit, and yes, it was mounted base-up as specified in the instructions.

Now I know that a single bulb failing before it's cheaper partner doesn't constitute actual proof that fluorescent bulbs don't outlast other bulbs on average, but I was pretty much past believing that anyway before this happened. The fluorescent bulbs on the vanity mirror in the bathrooms of my home were the first to fail as well; the difference being that they were installed at slightly different times in different bathrooms. I couldn't very well put the fluorescent bulbs in a room with a dimmer circuit when the labels clearly specify not to, could I? I don't know if a dimmer circuit makes incandescent bulbs last longer, but of the original 8 fluorescent bulbs, only 2 are still functioning, while only one of the original incandescent bulbs has burned out.

So, while Kermit the Frog was right about fact that "It's not easy, being green", he left out the part about it not being cheap either.