The ‘Buffett Rule’ is bad news for tech start-ups

Washington Post ^ | 09/22/2011 | Eric M. Jackson

[SeekAndFind]

NOTE: Jackson is the CEO of CapLinked, an online platform for private investing. He previously ran the marketing team at PayPal, and is the author of the award-winning book The PayPal Wars.

President Obama announced a new tax proposal that sets a minimum tax rate for households with annual income above $1 million on Sept. 19. The proposal is called the “Buffett Rule” for billionaire investor Warren Buffet, who in an editorial in August bemoaned that he pays a lower federal tax rate than his middle-class employees. While time will tell if this new tax proposal makes for good politics, it is bad news for technology start-ups.

First, we need to be clear when we describe what Buffett is talking about. Income for the rich generally doesn’t come from a paycheck but from capital gains, namely dividends -- or profit made from the sale of an asset, such as stock. The federal, long-term capital gains tax rate was lowered from 28 percent to 20 percent by then-president Bill Clinton, and then again to 15 percent by then-president George W. Bush.

Buffett’s argument is that it’s unfair that a rich businessman with $1 million in capital gains would pay a 15 percent federal tax on those gains while a secretary earning $50,000 a year would be in the 25 percent income tax bracket. However, income tax rates are marginal, and there are many credits and deductions that lower the effective rate, so it’s not precisely apples-to-apples.

There are multiple reasons why capital gains tax rates are different than income tax rates. For one thing, corporate income is already taxed before shareholders can recognize capital gains, and the combined federal and state tax on corporate income of 40 percent is the highest in the world.

[EyeGuy]

“Buffett’s argument is that it’s unfair that a rich businessman with $1 million in capital gains would pay a 15 percent federal tax on those gains while a secretary earning $50,000 a year would be in the 25 percent income tax bracket.”

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What is “unfair” about it?

What has one’s income or accumulated wealth got to do with one’s “share” of supporting the government?

Do the “rich” use more government?

[Kansas58]

Buffett is in the tax shelter business.

Life insurance is the best estate tax shelter available. Set up an Irrevocable Trust. Have that Trust buy an insurance policy on your life, fund that policy by taking an immediate annuity with no refund at death, from your pension or 401K.

No Estate Tax at death.
No income tax on the death benefit.

Life insurance, if used properly, can also be a GREAT income tax shelter, while you are alive.

Buffett is in the Life Insurance Business.

Buffett is in the TAX SHELTER Business.

Buffett will make money if tax rates go up.

[griswold3]

No matter what facts you present to any ‘Progressive’, they are completely ignored. The response is constantly, ‘The rich must pay their fair share.’
Is there someone out there that will can do the simple math? The government, no matter what the effective tax rate is, never, ever loses revenue.
When marginal tax rates were lowered, there is ALWAYS an offset with a decrease in exemptions/deductions or other entities create ‘fees’!
Raising taxes is never a static operation!

[NavyCanDo]

Call Buffets Bluff.

Propose lowering the Income Tax Rate for those earning $383,350 and above from 39.6% down to the 25% paid by his Secretary. Then they would be paying their “fare share” in Income Taxes. But then if we do that then the rest of the brackets need to be leveled off as well.