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Understanding the Buffett Affect

Posted by on November 23, 2012
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The looming economic debate that’s taking over the headlines has to do with Republicans seeking spending cuts while at the same time Obama wants to raise taxes on the wealthy.  The ever popular battle cry of the Left is that we should be demanding the wealthy pay their “fair share”.  In reality the first thing that we should be doing is forcing the Left to officially declare once and for all exactly what they believe constitutes a fair share.  It is an act which they will never do knowing that it would destroy the very demon their rhetoric relies upon.  However, I have an even bigger question for Obama and his cohorts on the Left.  Why do they keep insisting on aiding wealthy people while crushing the hopes and dreams of the poor?  Yes, you read that correctly. Billionaire Warren Buffett recently stated that he wouldn’t mind paying more in taxes and everyone on the Left immediately saw Mr. Buffett as some sort of a hero based on his statement.  Personally, I see him as a villain.  First of all, if Warren truly believed what he was saying he wouldn’t still owe over $1 Billion in back taxes based on existing tax rates.  Plus, there is nothing to have ever prevented him from overpaying his taxes in the first place if he was in fact a true believer in what he espoused.  But I digress.  The real reason for Buffett’s statement and Obama’s actions is far more self indulgent.  The Left itself is merely playing the role of the mindless minions to this sinister plot through their shear ignorance. There is an economic concept that Buffett and others like him understand that the Left simply doesn’t get.  The Left is so caught up in the falsity of their own rhetoric that they never bother to think things through far enough to understand reality. The truth is that Warren already has far more wealth than he could ever spend in a lifetime and he has also acquired all the material toys he could ever dream of from that wealth.  What he seeks is power.  What wealthy people like him understand is that the power derived from wealth doesn’t come from how much someone has.  It comes from the difference between how much they have versus everyone else.  For example, anyone can become a millionaire in Zimbabwe.  However, a million in Zimbabwe’s currency might only buy you a loaf of bread, so big deal.  Again, it’s not the numbers that matter.  It’s the difference in the numbers that counts.  What Buffett also understands is that we don’t tax based on wealth in this country.  We tax based on the acquisition of wealth.  In other words we tax income.  The easiest way for wealthy people like Buffett to maintain the power of their wealth isn’t by adding yet another $ Billion to their pile.  It’s by preventing everyone else from being able to “catch up”.  The best method to accomplish this is through punitive tax rates. Here’s a simple explanation.  Even if Warren Buffett shows a net worth of $50 Billion and you show a net worth of only $50K, on January 1st of each year, as far as the IRS is concerned, you and Buffett are considered equal with neither having yet earned any income for the new year.  At this point the fortune he has already amassed is irrelevant as far as future taxes are concerned.  Again, we don’t tax wealth.  We tax the acquisition of wealth.  So basically, if Warren decided to bury his $Billions in the dirt and didn’t bother to earn anything for next year he would still be a Billionaire, yet his tax bill at the end of that year would be $0.  Therefore, if you and Warren both happen to earn the same amount for this year you would both pay the same in taxes regardless of whatever that tax rate might happen to be.  To Warren that extra cash is irrelevant since his bank account already has more digits than he knows what to do with.  However, to you that extra cash could mean the difference between moving up a bit more on the economic ladder or remaining stuck on a lower rung. To illustrate this concept in a slightly different manner think of the act of achieving wealth as being similar to climbing the stairs of a tall building.  The Left claims that they want to see everyone have the opportunity to climb up as many floors as possible.  Yet raising tax rates actually prevents this from happening because with higher tax rates the faster you climb, the faster you get shoved back down.  The Buffett’s of the world are already living in the penthouse as it is, so they don’t need to concern themselves with climbing faster.  However, if you are at the lower levels and fighting hard to advance yourself it is far easier to climb when you get to take 10 steps forward in income for every 1 step backward in taxes compared to being forced to take the 5 steps backward in taxes that you experience from higher rates.  The Left is constantly pointing out the ever widening divide between the wealthy and the poor while at the same time they naively espousing the very tax rules that allow such a widening to occur.  If the Left were truly as compassionate about the poor as they claim they would be demanding lower tax rates at all levels to enable opportunity for advancement instead of stagnation.
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