Buffett and Taxes

Good for Warren Buffett for stirring up the debate on tax policy and it's effects on our economy.

Do higher tax rates affect the behavior of the wealthiest Americans?  First, we have to determine who is wealthy.  Comparing those making $200,000 with Warren Buffett is a stretch, but for arguments sake, let's stick with the Buffett billionaire universe.  

I believe him when he states that imposing higher taxes on him, would not change his behavior.  He would still take risks with his capital to create more wealth, and this would accrue to the economy.  But is he in the majority of his small universe?  If he is in the minority, then his universe's behavior would change to the detriment of the economy.  If we broaden the scope to those making $200,000, what would be that ratio?  In a perfect world, we could determine the most effective marginal tax rate.  It would be a rate that generates the maximum amount of tax revenues without siphoning away incentives to work hard, save, and take risks.

Mr. Buffet ( Berkshire Hathaway) recently invested $5 billion in Bank of America.  Because of who he is, he was able to make a unique investment not available to you or me.  He purchased preferred stock that yields 6%, and that 6% is 70% tax free.  That makes a sweet 11% taxable equivalent.  INTERESTING!

Wouldn't you think that instead of campaigning for Obama, he should be an advocate for tax reform?  It seems to me that leveling the tax code field is one great "job creating" idea.

Obama's Thursday address

When we think of Ponzi Schemes, we probably think of Bernie Madoff, or how about our Social Security System.  What amazes me about Social Security is that future recipients, our kids, know and accept the fact that they are being ripped off ( shame on the past two generations).
But the mother of all Ponzi Schemes is Keynesian Economics.

When I studied and then taught Keynesian Theory, it reminded me of Hans Christian Andersen's  "The Emperor Has No Clothes".  (that individually it defied common sense but
collectively it is rationalized as being factual).

Let me try to explain current Keynesian thought.  They claim that our unemployment problem is due to a lack of demand.  (Wow! Now there's a scoop) They want the government to begin a new stimulus to create aggregate demand, which will encourage the huge amount of corporate money presently sitting on the sidelines to be invested, and therefore create jobs. How do they plan to accomplish this? Simple!  We will borrow from the Chinese and everyone else, and solicit the Federal Reserve to print another trillion or so.  And most importantly stick our kids with the bill. (again shame on us).  They contend that this will kick in the magical Keynesian multiplier, and our national income (GDP) will exponentially increase and so will employment.
It is interesting to note the lack of the multiplier effect with the last $800 billion stimulus.  I guess they're taking a "mulligan".  Probably the same people who believe in this nonsense also believe in the "tooth fairy", or that enhanced interrogation does not work.

Unfortunately, the President will offer Keynesian solutions in his Thursday night speech because he worships at the altar of big government, and his passion is the redistribution of wealth, not it's creation.  His ideology overwhelms his intellect.

If he really wants another term, he has to start by restoring the confidence that has been lost because of his antipathy for the business community, and because of the unknown cost of the barriers to business he has created.  He needs to advocate long term structural reform.  He should begin with the tax code, and also call for a regulation holiday.  Better yet, Sarbanes Oxley, Dodd-Frank, and  Obamacare should be repealed.  He could start by being a cheer-LEADER for the private side, especially entrepreneurial startups.  That is where the jobs are!  These reforms would be a good beginning in the battle to reverse our present malaise.

Winston Churchill once said, "America will always do the right thing after it has tried everything else".  Well, he never met Barak Obama.