Buffett Mocks Norquist Idea on Taxes Thwarting Investment

Bloomberg News has the article Buffett Mocks Norquist Idea on Taxes Thwarting Investment.

“Let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased,” Buffett wrote. “Only in Grover Norquist’s imagination does such a response exist.”

Well, actually, the rich and ultrarich are already stuffing their ample funds in their mattresses even in the current low tax rate environment because they cannot find better investments in the current recessionary environment.  Swiss Bank accounts and financial derivatives that make money when the economy falters are the equivalent of a mattress for the ultrarich and for corporations that are sitting on trillions of dollars of “cash” with nowhere to invest.  HP had $11 billion to “invest” to buy a British company that they now claim is worthless.  Just think of the years of tax write-offs they get for this.

Be that as it may, what would Warren Buffet know about investing?

Buffett managed funds for investors from 1956 to 1969 through partnerships. Taxes never led any of his clients to forgo an investment during that period, he wrote today, even though the capital gains rate was as high as 27.5 percent and the top marginal rate was at least 70 percent.

“Under those burdensome rates, moreover, both employment and the gross domestic product increased at a rapid clip,” Buffett wrote. “The middle class and the rich alike gained ground.”

Buffett continued to make investments under Berkshire, a textile maker he took control of in 1965 through a partnership. Since then, he has built the firm into a business with operations in insurance, retail, energy, freight and manufacturing. Its market value as of Nov. 23 was $220 billion. Buffett is the company’s largest shareholder.

In an environment with lots of good investment opportunities, people are going to invest almost no matter what the tax environment is.  (Notice, I said “almost”. High taxes might put somewhat of a damper on investment at the very time when such a damper is needed.)

The next time the Speaker of the House tries to convince you it is a bad idea to raise taxes on “the job creators”, think about what Warren Buffet has said.  Perhaps he knows a thing or two about business that the Speaker has no clue about.

Warren Buffet’s piece is an OpEd in the New York Times headlined A Minimum Tax for the Wealthy.  What Buffet wrote is actually:

 SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

I like the original better than the Bloomberg excerpt.

For the debt obsessed, here is another quote from the article:

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

Something to think about.  Can you figure out why Buffet would take this position on the debt?

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