Friday, November 30, 2012

Advice that is Hard to Ignore

If Warren Buffett gave you financial advice, you would be wise to listen. After all he is one of the most successful investors ever, a self-made man who is now one of the wealthiest people on the planet. I certainly think Mr. Buffett has some useful financial advice.

This is not the first time I've mentioned Warren Buffett in my blog, and I'm sure it won't be the last. After all, what's not to like about an incredibly rich man, who has the sense to realize that higher taxes on people like him will do no damage to the economy, and will actually help close the deficit. I don't know whether this qualifies as altruism, but it certainly counts as intelligence.

In his most recent plea for the government to raise his taxes, Buffett debunks the myth that higher tax rates will deter investment. As Buffet points out, if you have chance to make a significant profit by investing, are you really going to say no and leave your cash in a saving account earning 1% interest because the tax rate is 39% instead of 35%? And of course, tax rates on capital are only 15%, not nearly as high as the income tax rate.

Rather than spurring more investment, these absurdly low rates have instead led to a gross disparity in income inequality that is not only morally unjust, but it bad for our nation's future. We have chosen to neglect a significant percentage of the population and instead succumb to the myth that by giving more to those with the most, that somehow some of it will find its way to those at the bottom. If this doesn't happen, and it hasn't, we suppose that the problem is that we haven't given the wealthy enough and that therefore the solution must be to give the wealthy more. Surely cutting taxes on the rich will lead to economic growth and prosperity for all, right? Right? Right...

We've passed that point. Tax rates are already so low that lowering them further does nothing but line the pockets of those whose pockets are already very nicely lined. It does nothing to spur job creation, it does nothing to reduce income inequality that is a further drag on the economy because consumers don't have the means to consume. Lowering taxes further obviously does nothing to reduce the deficit since it leads to reduced revenue. In short, we have reached a point where talking about lower taxes as an economic solution is a fairy tale unworthy of our time and attention.

The world's savviest and most successful investor has been trying to tell us this for quite some time. A self-made billionaire whose fortune is wrapped up in exactly the kind of business endeavors that would supposedly crumble if we raise taxes is pleading for his taxes to be higher. It is advice that is hard to ignore, and if we have any sense, we will start paying closer attention.

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