In the New York Time of August 15, 2011, Warren Buffet has an Op-Ed piece called "Stop Coddling the Super-Rich." Some will grab onto this and with a great deal of handwringing blame everyone in Washington for their own circumstances.
I went back over this piece several times. Buffett in numerous places points out that the wealthy are adept at avoiding payroll taxes. He says that his own total tax for 2010 was but 17.4% of his taxable income while the other 20 in his office, presumably all W-2 folks, were taxed from 33% to 41% and averaged 36%. As someone commented recently "When Warren Buffett says that his secretary pays more tax than he does you'd better believe him."
Could it be that Buffet's Op-Ed is actually a piece to encourage people to start their own business?
If so it would not just be any form of business.
I know someone who operates as a sole proprietor. She gets 1099s and is taxed as an individual. She is a member of a union so that she can have a pension. She is limited in the plan to a certain percentage of her contribution. That will of course affect her pension amount as will her lack of ability to control investments and fees. What is worse is that she is indirectly paying an added percentage of her income to the union as dues. Her client employers must pay the union and consequently they must pay her less for the value she creates.
How secure is the pension? Her union, like so many other entities with pension plans, has ceased making contributions. The expectation is that the Federal Government will bail out their plan at some point. Meanwhile this union has a new headquarters building with no mortgage. The union paid cash for the building in a costly downtown area and then paid cash for extensive rehab and remodeling. How many businesses would or could do that?
Wouldn't she be better off to have a business like Warren Buffett has with minimal payroll tax and the ability to create long term capital gains? She could make just about any kind of pension plan and have control over it. Why will she not listen to the logic of doing so? She, like many employees, view that they have a duty to pay taxes and that a C-corp would somehow be dishonest. At the same time she jumps through the hoops to get the spurious office at home deduction. Many entrepreneurs these days with C corporations legally deduct their entire housing costs plus get many other benefits. At the same time they do pay ever-increasing taxes as their profits grow in unfettered ways. So it could be said that their tax is a tax on chosen productivity. In effect it is a variable cost of doing business. They can expand or contract the business as they like to achieve desired balance. An employee is committed full-time and taxes not only are higher but are a fixed cost.
For the United States to get back on track and have real growth there should be new emphasis on capitalism.
People should be encouraged and taught how to have a business and how to run it as a business. There are increasing opportunities to start a business. One of the characteristics of the new economy is outsourcing to minimize fixed costs. Mu8ch of that outsourcing is insourcing to small business. In many cases, an employee leaves, starts a business and the first client is the prior employer.
The four Bric economies work that way and their growth in the next decade is projected to be twice that of the United States and the Eurozone combined. Other developing nations are growing as well. South Africa is one of the countries that has become friendly to business and to having real growth. When even a senior housing project and a farm is more doable in a stable developing nation than in the United States guess where investment capital will go.
David Sneed
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