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Monday, August 15, 2011

The Difference Between Warren Buffett and the Rest of US

You'll no doubt continue to see Warren Buffett call for higher taxes on the wealthy. You know why? Because Buffett doesn't care about money. He's already made his money, and at 80 years old, he's admirably given most of it to charity, and today he's just living off an estimated $2 Billion in savings, generating dividend and interest income which is taxed at 17.4%.

I have a big problem with what Buffett advocates - increasing taxes on those who make $1 million/year. Here's why:

ONE EXAMPLE: Say you're 35 years old, and this year, you killed it. You worked very hard in sales over the past 15 years, and this year you've had your first great year, and you are paid $1 million. Now say you are taxed at 75%, instead of 35% top rate. You'd be left with $250,000 at the end of they year - actually - let's call it $165,000 after state and other local taxes, which is reasonable. Now a person with a couple of kids, and a mortgage, might be able to save $100,000 if he's doing well on this income. And if you have 10 incredible years in a row, you might be lucky enough to say you have $1 million in the bank. A nice sum. Probably enough to be able to afford a decent house, and you might even be able to send both of your kids to private universities if they stop inflating at 8%/year.

BUFFETT EXAMPLE: Now let's say you're Warren Buffett, and you have $2 billion in the bank. Let's say he makes a 2% dividend/interest income off his savings, thus generating $40 million of income. If he's taxed at 75%, he will still be making $10 million/year. Moreeven, he'll still have $2 billion in the bank. Even if Obama implemented a 99% tax on all financial ASSETS for Billionaires, Buffett would still be worth $20 million dollars, and at his age, I would think that would be enough savings.

So are these two people really comparable?

When you hear the President talking about "millionaires and billionaires" you wonder if he knows how to add.