So here's a question- if you follow Buffett's logic, then a guy who builds a company for 40 years, most likely goes with barely any income in some years, and sells it for $10M when he retires, that guy gets slapped with a 100% tax increase.
Buffett doesn't differentiate the Walton kids who inherited billions and assuredly live off capital gains their entire lives from the entrepreneur who makes $10M that ONE year of his life that he sells his company.
Buffett claims that the tax rate in fact was of no consequence to his behavior. Well, I guess if you're in the business of speculation, that's true... you must invest/speculate because that IS your job.
But the same is not true for entrepreneurs who build stuff. What's the entrepreneur's incentive to build his company and to wait to reap his gain if his gain is taxed like ordinary income? Why not just pull income out of his company instead of reinvesting it? On the margin (that's the key), this tax policy will affect entrepreneurs decisions.
I've read Snowball, Buffett's biography, and it's pretty clear Warren has never built a company that serves customers. He's always been a speculator.
Bottom line, Buffett's proposal would have punishing consequences on entrepreneurs who earn big windfalls a handful of few times in their lives. That absolutely WILL have consequences on entrepreneurs decisions and risk/reward tradeoff.
Unless a policy to tax the super rich is proposed that doesn't somehow have that pernicious side effect of treating entrepreneurs' gains as earned income who see precious few windfall gains in their lives, I'd never support it.
There's a reason why society created lower tax rates for capital gains. Perhaps we should go back and study them.
First, we're talking about the difference between ~20% and ~30%, so for your case, the business owner will only walk away with 7 million dollars to retire on. Is this entrepreneur undergoing undue hardship?
What's barely any income for someone who builds a $10M company? 60k? 50k? It's certainly not $10,890 (the federal poverty level). Even if we're talking about a business owner who takes no income, it's because they're living off of the money they've already earned, not because they're taking welfare checks while running their business.
I would alo like to remind you that your typical employee, who's paying the higher tax rate, will be laid off in years of recession, may have to take a lower salary because of outsourcing, etc. I'm not going to classify one hardship versus the other, but I do want to point out that the business owner usually has a higher mean salary, even if the variance is larger.
You ask what the entrepreneur's incentive is if his gains are taxed like ordinary income? That's simple: money, and lots of it. Business ownership is a risk, and it comes with a reward.
Do you really think that a higher tax rate will stop an entrepreneur from creating a company? I dare you to head down to Startup Camp, and ask anyone there if they are planning to start a company because they expect to receive a lower tax rate. I can save you some time: they won't. There's a passion and a drive that accompanies entrepreneurs, and they will start companies because that's what they want to do, what they need to do.
If entrepreneurs choose to take a higher salary during the course of the business, that's fine, it's just tax planning. Anyone with sizable income does it.
You say there is a reason why society created a lower tax rate for capital gains, and that's true, but the economic situations of those times were different than now. I would suggest to you there was also a reason why there were bloody revolutions against the aristocratic class.
The rules of our society must continually adapt to the situation at hand. We are currently in the middle of the two extremes mentioned above, I just hope we realize it and don't get too far to one side or the other.
"Do you really think that a higher tax rate will stop an entrepreneur from creating a company"
No, but more likely to sell early, give up more easily when the going gets tough, not invest as much in growth (and pocket the profits)... Yes. This is all about decisions "on the margin." It's truly a canard to suggest, as you do, that incentives don't matter.
"there was also a reason why there were bloody revolutions against the aristocratic class"
Please. Would you rather make $70k/yr today or $70k in 1900. Let's not pretend the pie is smaller today for those in middle or even bottom.
Buffett doesn't differentiate the Walton kids who inherited billions and assuredly live off capital gains their entire lives from the entrepreneur who makes $10M that ONE year of his life that he sells his company.
Buffett claims that the tax rate in fact was of no consequence to his behavior. Well, I guess if you're in the business of speculation, that's true... you must invest/speculate because that IS your job.
But the same is not true for entrepreneurs who build stuff. What's the entrepreneur's incentive to build his company and to wait to reap his gain if his gain is taxed like ordinary income? Why not just pull income out of his company instead of reinvesting it? On the margin (that's the key), this tax policy will affect entrepreneurs decisions.
I've read Snowball, Buffett's biography, and it's pretty clear Warren has never built a company that serves customers. He's always been a speculator.
Bottom line, Buffett's proposal would have punishing consequences on entrepreneurs who earn big windfalls a handful of few times in their lives. That absolutely WILL have consequences on entrepreneurs decisions and risk/reward tradeoff.
Unless a policy to tax the super rich is proposed that doesn't somehow have that pernicious side effect of treating entrepreneurs' gains as earned income who see precious few windfall gains in their lives, I'd never support it.
There's a reason why society created lower tax rates for capital gains. Perhaps we should go back and study them.