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Works and Days

Reflections On An Ailing Society

November 24th, 2010 - 8:47 am

Buffettism

Warren Buffett is once more calling for higher tax rates, in advising the Congress to revoke the Bush-era tax rates and apparently to return to those of the Clinton administration — reminiscent of the elder Gates touring the country stumping for a reinstatement of a substantial inheritance tax. Aside from the fact that the deficit is not due to falling revenues, but almost entirely a result of astronomical federal spending increases since 2000, this bromide is quite pathological, this peddling of elixirs that the sellers do not drink.

a) Buffett, a nice enough and civic-minded philanthropist, in the past has lamented that he paid taxes on his profits at the capital gains rate rather than the income tax rate, and so paid less, percentage wise, of his real income in actual annual taxes than did the working classes. But he was never under any obligation to do so. So why did he?

Why not, given his enormous prestige and influence, start a national campaign for fellow hyper-rich, in the spirit of public service, to subject their profits to income tax rates, not capital gains rates on their multi-million dollar trading income? That seems a far more noble cause than advocating higher income taxes on the food market owner or general contractor, with twenty employees, who manages to make $280,000, much of which he will plough back into his business — if he can.

b) If Buffett is worried about the deficits and has confidence in government to use our money wisely (hence his desire for greater tax revenue), then why in heaven did he pledge so much of his money to the Gates Foundation and other tax-exempt private philanthropies? The world’s two richest men have in essence taken billions of dollars in future revenue away from the United States Treasury, inasmuch as such private foundations will allow the Buffett/Gates fortunes to be exempt from substantial inheritance taxes on their estates. This is the message: “all of you lesser folk pay higher taxes to a wise government that knows how to spend it. But me? I trust my favorite private foundations to do a better job and so will divert my taxes to them.” And when a Bill Gates Sr. speaks on the wisdom of greater inheritance taxes — given his billionaire son’s financial status, and the multibillion dollars in inheritance taxes that won’t be paid on the future transference of the family’s fortunes — should we laugh or cry?

c) Why did Buffett not become an advocate of higher taxes on those who make over $250,000 when he was in his twenties and thirties and desperately trying to pile up his first five or so million? Did he really pay astronomical income taxes at those astronomical tax rates in the 1950s and 1960s or seek to avoid them through capital gains lower taxes and write-offs? Why do so many of these zillionaires chase the dollar almost to the exclusion of all else, and then only when wildly successful in a manner that the other 99% were not, suddenly in the twilight years want to make it tougher on others? Is that the price of penance?

Korea as the Proverbial Deranged Neighbor

I’ve mentioned that I once had a deranged neighbor in the general vicinity out here in rural California. His pit bulls threatened us when we irrigated near the property line. His compound of various itinerant crashed trailers was an eyesore. His kids were near criminals. His message: “I am crazy with nothing left to lose; pay me obeisance or watch havoc ensue” (e.g., your good life will not be too good if you screw with me and my perennially bad life). This was the logic of a frenzied Hitler circa 1936-9: “You smug and now prosperous law-abiding Britain and France shudder at the memory of Verdun and the Somme; well, I claim that I welcome them again. So keep silent, or I will bring you down to my rung of the Inferno.” I imagine that every once in a while the professional upscale suburbanite at a stop light gets the middle finger from the punk, as if to say, “I doubt you’ll ram me with that Lexus and MBA, so screw you.” And he’s North-Korean right most of the time.

North Korea preens because it has two thuggish former or present patrons nearby, and a number of success stories — Japan, South Korea, Taiwan — in missile range. That’s not a bad formula for perpetual shake-downs.

The age-old antidote for a North Korea is too unimaginable for most of us: we who have most to lose should appear crazier and far more likely to inflict harm than those who have nothing to lose to ensure deterrence. But that tact could not guarantee calm, and so we logically opt for the higher percentage diplomatic route of paying the mordida.

Insanity is a force-multiplier in nuclear poker. North Korea is playing the Huns of the 5th-century AD to us, the tottering late Romans, who paid to avoid for a while the misery that was second nature to the barbarians. We are lectured, quite rightly, that Korea is grandstanding at a time of succession, that it is broke and wants a crisis to bring in some more bribe money (as if being unhinged were as good an asset as oil exports), that it shows off a new nuclear plant to garner more cash, and that it is close to implosion and has few choices. I hope so, but I am afraid also that 2011 will be our 1979, inasmuch as 2009-2010 bowing, apologizing, and treating enemies as friends and friends as neutrals is all so reminiscent of 1977-8. In short, North Korea may think 20011-12 is about the last chance it is going to get with a Carteresque president, and it wants to make the most of it, pronto.

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