http://news.moneycentral.msn.com/breaking/breakingnewsarticle.asp?feed=OBR&Date=20030505&ID=2518008 Buffett Agitates on CEOs and Tax May 05, 2003 06:59:00 AM ET By Bill Rigby OMAHA, Neb. (Reuters) - Warren Buffett, the billionaire investor, urged big shareholders on Sunday to get together to tackle bad chief executives and dismissed President Bush's dividend tax-cut plans as unfair. He also said he had named four potential successors to lead his Berkshire Hathaway Inc. insurance and investment company after him, and was looking at making more investments in Asia. Buffett, who has built up a devoted following for the success of his investing style and firm stance on ethics in business, was speaking at a press conference in Omaha, Nebraska, the day after Berkshire Hathaway's annual meeting attracted a record 15,000 shareholders. The 72-year-old Omaha native, the second-richest man in the world behind Bill Gates, said it was time for large shareholders to force change in U.S. boardrooms, as new rules and individual shareholders alone could not. Companies saw large shareholders as ``the 800-pound gorilla they don't want to have mad,'' Buffett said, suggesting institutions get together to present a set of principles to companies they invest in, threatening to withhold support if the companies do not comply. Buffett, a long-time critic in his widely read annual reports of corporate greed, played down his own role in the process, saying his efforts to rein in wayward chief executives would take place behind closed doors. ``I've said my piece basically. I'm not going to lead a revolution.'' BAD BEHAVIOR ON WALL STREET He singled out accountants and Wall Street bankers for their role in the decline in corporate ethics. ``You would be amazed how compliant auditors have been in the past decade, not only co-operating but suggesting techniques for making numbers less useful -- less truthful -- to investors.'' Buffett, who started his career as a broker and was once chief executive at Salomon Brothers, said the recent settlement by Wall Street firms over their misleading use of research was welcome. ``It's a step in the right direction,'' said Buffett. ``It tells them (Wall Street firms) that someone is watching them. It forced them to acknowledge certain behavior -- which they would have carried on doing -- was unacceptable.'' ASIA IN SIGHTS Buffett said he was interested in investing in Asian companies, following the recent increase of his stake in Chinese oil company PetroChina Ltd, but said bargains were hard to find. ``We've been looking at companies there,'' Buffett said of Asia. ``We are open to buying stocks in them, and where there is a possibility -- not in China -- we would buy entire businesses.'' There are restrictions in China on foreign ownership in many industries. Buffett, who said he owns several Asian equities in addition to PetroChina, said he monitors Japanese companies frequently, but hasn't seen many buying opportunities there, despite the slide in stock prices. ``The returns on equity are very low in Japan,'' he said. ``I would have thought I would find more bargains -- I would have thought there would be a plateful -- but we don't find lots.'' He conceded that acquisitions or stock purchases in Asia were more risky than in the United States: ``There's a little more chance of making a mistake. But we're willing to do it.'' ATTACKS TAX PLAN Asked about President Bush's plan to eliminate the tax on companies' dividends, Buffett said it would unfairly benefit rich people like himself, at the expense of ordinary workers. ``He (Bush) is not changing the amount the American public sends the government,'' Buffett said, ``just changing who does it.'' The only way to cut taxes is to cut government spending, Buffett added. Buffett, who plans to give away his more than $30 billion fortune after his death, campaigned several years ago against phasing out certain estate taxes, arguing that it would unfairly benefit rich families. Planning his own company's future, Buffett said he has named four potential successors to run Berkshire after he dies or is unable to run the company, but said those names could change. Buffett did not identify the candidates, but said he did not want someone in their 60s to succeed him. Buffett, who has run Berkshire for almost 40 years, has no plan to retire, unless forced to by physical or mental incapacity. © 2003 Reuters
buffett is a smart man...but can anyone else the problem with this statement? I actually agree very much with that statement. *Someone* has to pay for these government services. Cutting taxes will just rack up a debt that future taxpayers will then have to cover - the costs are still going to have to be paid either way. The only way to legitimately cut taxes is to cut the the revenues that government needs to operate, and no real attempt has been made by this administration (or previous ones, for the most part) to deal with that. The difference is that at least the Clinton and Bush Sr. administrations didn't try to dump all the costs on future generations.
Wouldn't supply siders say that cutting taxes will increase overall government revenues? Yes, but the volume of evidence supporting the theory is lacking, to say the least. If you simply look at the last Bush tax cut -- even his own OMB (which provides some of the rosiest outlooks) expects massive deficits for the next 5-8 years .. and that's assuming fairly robust expansionary numbers. The amounts vastly outweigh the costs of the war on terror and war on Iraq. These numbers were all flat or surpluses previous to the tax cut. Supply side economics is a fun theory, but its pretty hard to justify in terms of real results thus far. The two times it has been tried in recent memory have created the biggest deficits we've ever had (mid-to-late 80s and now).
Major, I won't even pretend to be as well versed in economics as you or TJ, but this is my recollection of this subject. There were two recent Presidents who embraced the Supply Side Theory- JFK and Reagan. While I don't know the full results of JFK's tax cuts, I do know that Reagan's tax cuts increased overall government revenues. Reagan's huge deficits occured because even though revenune was increased, government spending went through the roof. The two largest peacetime expansions of our economy were the 60s and the 90s, directly on the heels of Supply Side Presidents.
In listening to the analysts discuss the tax-cut, they always tell us how under Clinton, there was a budget surplus, as if that is a good thing. Why was the government taxing us, without a plan for that money? The government is not a business. A surplus is not good. If the government isn't spending all of my money, why are they taking it?
pgabriel -- they want it run efficiently like a business...but businesses frequently have retained earnings...governments don't need, and shouldn't have, retained earnings. the money is better, in my opinion, in the hands of the people. my problem with his statement...the american public..i think he's referring to personal income taxes. is that the only source of revenue for the federal government? that statement presumes it is, it seems to me. the supply side argument is another problem with his statement.
In listening to the analysts discuss the tax-cut, they always tell us how under Clinton, there was a budget surplus, as if that is a good thing. Why was the government taxing us, without a plan for that money? The government is not a business. A surplus is not good. If the government isn't spending all of my money, why are they taking it? They are spending the money - to pay back what the borrowed in previous years. A surplus by itself is not good. A surplus when you have outstanding debt of $4 trillion+ is very good. If you have a credit card bill, you have to pay it back or you're going to keep paying interest on it - that's what a surplus is for. That way when you actually NEED to borrow money, you have the flexibility to do so. Right now, we waste something like $200 billion a year of our taxes on interest payments. Pay down that debt and you can pay less taxes in the future for the same services. Major, I won't even pretend to be as well versed in economics as you or TJ, but this is my recollection of this subject. There were two recent Presidents who embraced the Supply Side Theory- JFK and Reagan. While I don't know the full results of JFK's tax cuts, I do know that Reagan's tax cuts increased overall government revenues. Reagan's huge deficits occured because even though revenune was increased, government spending went through the roof. The two largest peacetime expansions of our economy were the 60s and the 90s, directly on the heels of Supply Side Presidents. John -- I know very little about JFK's tax cuts as well, so I won't go there. For Reagan, the expansion of the 90s actually happened a decade after the tax cuts, and after subsequent tax increases so its hard to correlate that with the Reagan cuts. It also happened simultaneously with massive deficit reduction which has the immediate impact of freeing hundreds of billions of dollars in capital for investment. I'm not saying supply side doesn't work, but I think the link is sketchy. I'm also not opposed to tax cuts if you simultaneously find ways to cut government spending. However, I'm not a big believer in the theory that you can just cut taxes and expect that you'll eventually get caught up through growth. It's irresponsibile fiscal management, in my opinion, to leave future generations to deal with it if you don't get the growth you want -- and Bush is going down the same path that Reagan did by pushing the tax cuts but not fighting for the cuts in spending.
I don't see why everyone is so upset with the government having surpluses during times of economic expansion. What's so bad about saving for a rainy day. I'd rather have the government having surpluses, then not having social security when I want to retire. If you advocate deficit spending during recessions, why wouldn't you advocate surplusses during expansion.
I do know that Reagan's tax cuts increased overall government revenues. Reagan's huge deficits occured because even though revenune was increased, government spending went through the roof. Reagan did not cut taxes overall; he just re-arranged them. The high level tax brackets went away, but so did the tax shelters that those in the higher brackets used. All and all, it was a wash. The two largest peacetime expansions of our economy were the 60s and the 90s, directly on the heels of Supply Side Presidents. Leading into the 90s expansion, Bush Sr and Clinton both increased taxes. Using this frail logic, tax increases lead to economic expansion.
I believe Laffer was one of Ronald Reagan's cheif advisors, and this is his version of events- -____________________________________________ Soak the Rich Through Tax Cuts by Arthur Laffer & Stephen Moore The pro–tax lobby continues to skewer George W. Bush's risky tax scheme by insisting that it would help only the wealthiest 1 percent of Americans. Bush has tended to retreat when his tax plan comes under attack. He shouldn't. History is solidly on his side when he proposes to cut income tax rates to keep this economic expansion going. History also teaches us that tax rate cuts often raise overall tax collections and the tax share paid by the very rich. And with the stock market continuing to slide and the 80 million American investors getting fidgety about their disappearing savings, Bush should emphasize another tax cutting lesson from history: supply–side tax cuts tend to initiate bull market rallies and eruptions of new wealth. In the 20th century in the US there were three episodes of significant tax rate reductions. These reductions occurred in the 1920s under Presidents Warren Harding and Calvin Coolidge; in the 1960s under President John F. Kennedy, and in the 1980s under President Ronald Reagan. In each case, the tax cuts were predicted to reduce revenues and benefit the affluent (just as Gore charges today), but instead, federal revenues increased after the tax rates were cut — especially taxes paid by the top 1 percent of taxpayers. The Harding–Coolidge tax rate reductions brought the top income tax rate down in stages from the wartime high of 73 percent in 1921 to 25 percent in 1925. This was a very large and unprecedented reduction in rates on the wealthy. Coolidge confidently predicted that his plan "would actually yield more revenues to the government if the basis of taxation were revised downward." He was right. Between 1923 and 1928 real tax collections nearly doubled as the economy surged. The rest of the world languished as most other nations kept their World War I tax regime in place. As America's tax rates were chopped by almost two–thirds, the share of taxes paid by those earning over $50,000 (the rich back then), rose from 44 percent in 1921 when the rate was 73 percent to 78 percent in 1925 when their rate was 25 percent. No tax increase in world history ever pried that much tax out of the wealthy. John F. Kennedy's tax cuts had the same salutary effects. "It is a paradoxical truth," Kennedy proclaimed in the 1962 commencement address at Yale to try to sell his tax cut program, "that tax rates are too high today, and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates." JFK's tax plan cut the top tax rate from 91 to 70 percent. Here's what happened, as described in a 1966 article in the US News and World Report. "Tax collections are beginning to astonish even those who pushed hardest for tax cuts in the first place." Indeed, after the tax cuts took effect, income tax collections rose by more than 50 percent from 1963 to 1968. Even more shocking was the impact on the distribution of taxes paid. Americans earning over $50,000 per year (the equivalent of almost $200,000 today) increased their share of taxes paid from 12 percent of the total in 1963 to almost 15 percent in 1966. In 1981 Ronald Reagan proposed and signed into law a 30 percent across–the–board tax–rate reduction plan that was modelled after JFK's successful tax cut 20 years earlier. It produced the very same positive results. Tax revenues grew by $52 billion per year in the 1980s with tax cuts, versus just $35 billion per year after tax increases in the 1970s. And once again, despite lower tax rates, the rich paid a larger share of the total. In fact, the top 1 percent paid 17.6 percent of all taxes when the top rate was 70 percent in 1981, but 27.5 percent in 1988 when the rate hit its low of 28 percent. The super–rich, the top 0.1 percent of income earners saw their share of income taxes paid double from 7 percent to 14 percent. The Reagan tax cuts did not cause the budget deficits of the 1980s. Here's why from 1980 through 1990 federal tax receipts doubled from $517 to $1,035 billion. This was a 7 percent annual growth rate in tax revenues. As David Rosenbaum reported in the New York Times in 1992: "One popular misconception is that the Republican tax cuts caused the crippling federal budget deficit now approaching $300 billion a year. The fact is, the large deficit resulted because the government vastly expanded what it spent each year..." Now it is true that George Bush and Bill Clinton raised top marginal tax rates from 28 to 39.6 percent in the 1990s. It is also true that this would seem to contradict the notion that increasing tax rates is economically harmful. Income tax revenues have increased enormously in recent years. We ourselves were strong critics of Clinton's tax hike and predicted that it would hurt the economy more than the temporary economic slowdown that it caused in 1993 and 1994. But the adverse impact of the tax hikes was more than neutralized by the positive effects of declining inflation rates, the passage of huge tax cuts on trade (NAFTA and GATT), and a supply–side capital gains tax cut. Economist Larry Kudlow of ING Barings has found that thanks to the retreat in inflation, real tax rates were not much higher at all. The most vivid example of the Laffer curve in action is the story with capital gains taxes. In 1997, the capital gains tax rate was slashed from 28 to 20 percent. Since then, capital gains revenues have exploded. In 1996, the last year with the 28 percent rate, the government collected $62 billion in capital gains receipts. In 1999, the government took in an estimated $110 billion in receipts. Seldom in economics does real life so conveniently confirm economic theory as this example does the Laffer Curve. Lower tax rates change people's economic behaviour, stimulate economic growth, and thus often create more, not less tax revenue. What is striking is that all of the critics of the 1997 capital gains cut and the Reagan tax cuts in 1981 — the very same crowd of sceptics who have been proven wrong twice now — continue to crusade with their discredited class warfare rhetoric against the Bush tax cut plan. Al Gore's charge that the top 1 percent get 50 percent of the tax cut comes from the union–funded Citizens for Tax Justice. Guess what? That outfit predicted that the 1997 capital gains cut would lose billions of dollars to the federal treasury when, in fact, it will have gained $100 billion in collections since 1997. The Bush tax plan would probably not have these dramatic effects on increased tax collections. The supply side effects of cutting income tax rates when they are in the 70 to 90 percent range is much more pronounced than when they are in the 40 percent range, as they are today. But the case for lowering tax rates today is that we now live in an era of instantly mobile global capital markets. The major economic impact of eliminating our death tax and lowering our income tax rates will be to inspire a continued surge in foreign capital investment in the US. This capital infusion translates directly into more jobs and higher productivity for US workers and not just for the richest 1 percent. Al Gore may not understand this modern economic reality, but the leaders of other nations do. In recent months, Japan, Germany, and France have all cut their tax rates to gain ground on the US. History proves that tax cuts are an effective antidote to economic slowdowns. The opponents of tax cuts are simply waging a war of greed and envy. That's no way to run US economic policy.
Laffer's theory -- that cutting taxes can raise revenues is absolutely correct at the extremes. If you have a 100% tax rate, no one is going to bother working, so you're going to have revenues of $0. Notice in the 3 examples he gives, top tax rates were in the 70-90% range. I have no doubt that lowering tax rates at those kinds of levels will make a difference. However, it also works the other way. It's quite obvious that tax rates of 1% will generate higher revenues than tax rates of 0% (also bringing in revenues of $0). I disagree entirely that lowering taxes from 38% to 36% will definitely have any net gain. It may or it may not - we don't know what the theoretical "optimal rate" is. What we do know is that it will make the deficit go nuts. His 4th example, the Capital Gains cut, is a little spurrious too. He ignores the fact that other factors are the cause of the massive collection of taxes in the late 1990s -- that is, a ridiculous runaway stock market from the tech boom. His connection of the increase in capital gains tax revenues to the rising proceeds is flimsy, at best. I think most of us also agree that the stock market was out of control during that period and that's NOT something we'd want to repeat anyway.
The irony of much of Buffet's comments is that many times he says what sounds good, and acted differently. He has always been hard on executive compensation and corrupt CEO's that is nothing new, but I think his comments are focusing more on the governments spending patterns rather than its taxation policy. Keynesian economics versus that of classical economics proposes that the government 'should' create a deficit by spending during times of economic weakness to stimulate the economy. Then it is the responsibility to pay off that deficit during times of robust economic growth. Even Buffet now has his high and mighty "i don't incur debt", but he had huge amounts during his partnership days before he had access to the capital he does now. I think some tax cuts and govt. spending is currently in order to propel growth by supply and demand side econ. I think that it was more the responsibilities of past administrations to have paid back the deficits created by the govt. during recessions. I think much of the huge tax revenues created during the 1990's was wasted on government programs that have really amounted to little. I do think though it is integral to pay down that defecit as soon as the economy stabilizes. Greenspan and others have pointed at US consumers lack of savings percentage and their huge amounts of debt forcing consumers to spend a higher percentage towards interest which does little for the economy.
I hate to break it to you pgagabriel, but SS won't be there for anyone under the age of about 35. It's welfare for old people, so when the old people outnumber the young uns ( and the only work in this country is servicing the rich and being a celebrity, since we'll be noncompetitive on price on anything else globally), that'll be the end of it. We're spending the SS surplus on non-SS items in the budget thanks to Gramm/Reagan.
Buffet, a democrat, didn't 'slam' the tax cut. He admitted that action was needed, he just didn't 'think' Bush's cut was the way to go. Whether he based that weak assertion on economics and/or political ideology is unclear.
