The past few days have been occuppied with an email debate with a dear friend of mine, who is a certified liberal/progressive, who is convinced that the Bush tax cuts are the source of all evil. He has bought into the leftist dogma that paying more taxes is honorable and essential and was inspired by Warren Buffet’s exhortations on Sunday:

Billionaire Warren Buffett rebutted claims that the Obama administration is unjustly hurting business orders with high taxes by saying that in fact, the wealthy have never had it so good.

“I think that people at the high end, people like myself, should be paying a lot more in taxes. We have it better than we’ve ever had it,” he told ABC’s Christiane Amanpour in a clip played on “This Week” on Sunday.

When Amanpour pointed to critics’ claims that the very wealthy need tax cuts to spur business and capitalism, Buffett replied, “The rich are always going to say that, you know, ‘Just give us more money, and we’ll go out and spend more, and then it will all trickle down to the rest of you.’ But that has not worked the last 10 years, and I hope the American public is catching on.”

Let me tell you why Warren is so completely full of shit. Ever heard of tax free bonds?

A bond is:

A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities.

A tax free bond means that any interest you earn on the bond is not subject to taxation. So, let’s imagine that there is a wealthy guy like Warren Buffet or Bill Gates and that wealthy bloke buys up $100 million in tax free bonds. Let’s also assume that the interest rate on that bond is 5%. Can you live on $5 million tax free for a year? I bet you can. That in a nutshell is why the very wealthy are so cavalier about paying “higher taxes.” They have so much money that they can afford the tax advisors that find them shelters like the tax free municipal bond.

So what did Buffet do last year with respect to tax free bonds?

Warren Buffett’s Berkshire Hathaway Inc. doubled its municipal-bond holdings in nine months amid record swings in the value of the securities that the billionaire investor labeled “unthinkable.”

Berkshire increased its investment in debt issued by state and local governments to $4.05 billion as of March 31 from $2.05 billion on June 30, 2008, the Omaha, Nebraska-based company said in regulatory filings. Berkshire added $1.09 billion to the bet in last year’s third quarter and $985 million in the first three months of 2009.

Buffett’s firm bought municipal bonds while scaling back stock purchases and as its cash position fell to the lowest level in five years. As Berkshire was adding to the stake, hedge funds, mutual funds and other institutions that use borrowed money to boost returns were forced to sell holdings to meet margin calls and investor withdrawals, especially after Lehman Brothers Holdings Inc. collapsed in September.

Here is what Buffet does not tell you. The so-called “wealthy,” i.e., those who make more than $250,000 are carrying the load of society. If they make less than $4 million they are likely a small business owner and employ other people. Folks in the range of $1 million to $4 million tend to be the small business gurus that provide a critical element in driving economic growth.

Warren Buffet can wipe his ass with $50 million and pay such a tax bill and won’t suffer one damn bit in terms of lifestyle. Not so for the guy and gal who own a Pizza Parlor, who bring in $3 million a year and employ ten people. Whe the Bush tax cuts go away such a couple is facing at least $50,000 in new expenses between paying higher taxes and providing health benefits for employees. What do they do? They start by hoarding cash. Why? Because come January 15 they have to make an estimated tax payment to the Federal Government. If their net income in 2010 was $1.5 million they will have to pay at lest $500,000 in taxes. You may fell wealthy with $1.5 million but after you kiss one third of it good bye you don’t feel so flush. And if you live in New Jersey, New York or Maryland you can say so long to at least another $100,000 that goes to pay the state income tax.

I realize if you have never made more than $50,000 a year in your life you have no sympathy for someone in this position but it is real.

The idea of society is to create a system where those in power cannot arbitrarily take what you have worked to produce. Remember the movie Braveheart? There was a time in England and Scotland that a wealthy landowner could fuck your bride if you lived on his land. It was a form of taxation. Ultimately we got to the point of imposing limits on the power of the state and, through our consent, agreeing to pay taxes that serve a public good. I am all in favor of the public good, but what is going on in Washington these days is not good. It is spending for spending sake.

I would encourage Warren Buffett, if he really means what he says, to first divest himself of all tax free investments and shelters. Live like the rest of America. Then turn over half of your wealth to the state. If you think it is such a great idea then lead the way hotshot. But you know what? Buffet is all talk. He can advocate the “rich” pay more taxes because he is in a tax bracket that is so wealthy he is sheltered from paying his fair share.

Previous articleMonday Open Thread
Next articleRemember Velma Hart?
Larry C. Johnson is a former analyst at the U.S. Central Intelligence Agency, who moved subsequently in 1989 to the U.S. Department of State, where he served four years as the deputy director for transportation security, antiterrorism assistance training, and special operations in the State Department's Office of Counterterrorism. He left government service in October 1993 and set up a consulting business. He currently is the co-owner and CEO of BERG Associates, LLC (Business Exposure Reduction Group) and is an expert in the fields of terrorism, aviation security, and crisis and risk management, and money laundering investigations. Johnson is the founder and main author of No Quarter, a weblog that addresses issues of terrorism and intelligence and politics. NoQuarterUSA was nominated as Best Political Blog of 2008.
  • armymom

    Sorry lady, not “DOCTORS” who are coming to us, but patients. I’m sure that there are some doctors who have come from Canada to practice here, but what I see are patients who come down here for care. Hell even my own cousin comes down here for his care. He was just here for a month, got what he needed done and back to Vancouver.

  • EllenD

    we have people from Canada EVERYDAY in our group of doctors

    Yes, I’ve run into them too, Armymom. Doctors from Canada move to the US because they can make a lot more money here. That’s the only reason.

  • TeakWoodKite

    Depends on your time frame as to it being active, but no Shasta’s two volcanic peaks are dormant according to the USGS…

    It is a wonder to behold…. I hear you about  Mt. Ranier.

    I was hitchhiking from Anchorage to Mt. Denali State Park, and got a ride from a trucker…after a spell I asked him where he was headed and what was his load. He said “Prudhoe Bay and Dynamite…I have some caps in the glove box to keep the bears away want a few?”…..

    Mt Denali is only visible 1 out of 40 days…..I looked out his his windows and there it was. Clear as a bell.

  • seattlegonz

    Right…Buffet and all the others who aren’t paying their fair share should just make billion dollar donations to the federal government. It would be greatly appreciated I’m sure. All those that don’t want to contribute to this fiasco can continue to look for work and pray that the sun shines in 2012.

  • armymom

    Hey punk, I work with this everyday of the week and twice on Sunday and have so for over the last 15 years. I think I know damn well what I’m talking about. So they are NOT isolated incidents but you would’t know it since you live in lala land. Tell me what kind of insurance your “friend” had. I’m the office manager for a group of doctors ranging from oncology to orthopedic surgery. Even in orthopedic surgeries, where it “isn’t an immdeiate care” you can get scheduled in less than two weeks if need be. Now I will tell you this, we have to jump through more hoops with the government insurance albeit medicare or medicaid than we have to with other insurance. So if you’re talking about that nice government run insurance, I have quite a bit of experience with it as well and short of someone not being able to take off from work, there is no 6 month wait in this country for surgery,…..yet.

  • armymom

    I’ve seen your post, I know all I need to know about you. You think you’re an authority on everything and when someone tells you that things are different where they are, you can’t handle it. And I do happen to write post withot resorting to name calling and personal attacks, but the difference is, I like those people. 😀

  • donjo

    I think I would faint if you could ever write a post without resorting to name calling and personal attacks.  Make your argument and then politely STFU. And don’t assume you know even the slightest thing about me.  You don’t. 

  • CentralMass

    Some random facts.  
    The unfunded Bush tax cut,  cut revenue by $3 trllion over 8 years. Their purpose was to stimulate the economy and create jobs. Only 3 million jobs were created. Job loss is an entirely different issue, we lost an average of 80,000/month during Bush’s tenure. Compare that to the 23 million created under Clinton. Two thirds of all income gains for 2002 to 2007 went to the top one percent income earners.  
    Extending the cuts will cost $4trillion over the next ten years.

  • CentralMass

    Some random facts.

    The unfunded Bush tax cut,  cut revenue by $3 trllion over 8 years. Their purpose was to stimulate the economy and create jobs. Only 3 million jobs were created. Job loss is an entirely different issue, we lost an average of 80,000/month during Bush’s tenure. Compare that to the 23 million created under Clinton. Two thirds of all income gains for 2020 to 2007 went to the top one percent income earners.

    Extending the cuts will cost $4trillion over the next ten years..

  • donjo

    Calling me a liar?  The person that had to wait is sitting right next to me. It depends on what kind of surgery and the need for immediate care. But see, since I don’t agree with you, I must be fibbing. You have the habit of taking relatively isolated incidents and extrapolating them into the whole system.

    i.e. “Joe, on Medicare, had a broken toe and it got infected because he couldn’t get in right away to see his doctor who was out of town.  Therefore everyone knows the entire Medicare system is worthless and should be abandoned.”

  • CentralMass

    My opinion is my opinion.  The view never change for the middle class. We have stagnant wages that are not keeping pace with the cost of living. Most of us have almost no expendable income after paying our expenses. We even get taxed on a portion of that when we spend it. What we get out of these deficit producing tax cuts is a disproportate share of the debt that they produce.

    The country owes 94% of the GDP.  This is the biggest security risk the country is facing  Our solvency is being increasingly put into the hands of foreign lendors. What ever I and my wife are getting from the Bushs tax cut is not worth the price. If the cuts were funded, my opinion would be different.  We need to let them expire.

  • HC123

    I think you lost him at “think”.

  • CentralMass

    At my income level and lack of sophistication on how I can shelter things, I feel that my tax load never really changes. What piddly federal cut I maybe getting is taken back at the state and local level as my state and local community struggle with their budgets from the loss of federal dollars. If these tax cut were funded, I would be all for it. Since they are not, I’d rather forgo my cut to allow the cuts to expire. I’ve got one daugher heading to college next year and another two not far behind. I’d rather not morgtage their future.

  • Pingback: Tweets that mention Liberal Lunacy, Taxes = Investment : NO QUARTER --