Buffett (not Jimmy) slams dividend tax cut

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LunarRay

Diamond Member
Mar 2, 2003
9,993
1
76
Originally posted by: Michael
I can't open an IRA.

I have a 401(K) at work and I'm maxed out.

I make too much for Roth IRAs.

Reinvested dividends are eventually taxed as ordinary income when I pull them from the IRA (or 401K for that matter). I prefer to get them tax free now.

Michael

Feels like you sorta got a windfall that not everyone had foreknowledge of. ERRISA limit is what, 25% of earned income? Probably more like 23%. There is no other vehicle you could fund for deferred tax or tax free collection of dividends? If that is true, then that is wrong as well. A person should be able to defer as much as they wish. It provides prudent use of disposable income. There should be broader withdrawing scenerios as well. For a car, or other major purchase.
 

SuperTool

Lifer
Jan 25, 2000
14,000
2
0
Originally posted by: Michael
I can't open an IRA.

I have a 401(K) at work and I'm maxed out.

I make too much for Roth IRAs.

Reinvested dividends are eventually taxed as ordinary income when I pull them from the IRA (or 401K for that matter). I prefer to get them tax free now.

Michael
I max out my 401K and my ROTH IRA.
I preffer everything be tax free, but we gotta pay for our government.
 

Shantanu

Banned
Feb 6, 2001
2,197
1
0
how does swapping debt for equity increase risk? Debt gets you into bankruptcies not equity.
That's why it increases risk you dumbass. hehe.

No, Buffett has maintained for many years that he doesn't believe in either dividends or stock splits. And if dividend paying stocks will be worth more, BRK has a lot to gain. BRK has over $20 billion invested up in AXP, G, KO and WFC. All pay dividends.
Taxation rules for corporations are different than individuals :p If I'm not mistaken, companies already enjoy a 70% tax exclusion on any dividend income they receive.

All while paying precisely zero dividend. THat's right, big dividend supporter Michael Dell never paid a dividend himself (at least as of a couple months ago). Would you rather Dell paid a dividend all those years back instead of creating jobs in Texas?
You don't know WTF you're talking about. COMPANIES AREN'T REQUIRED TO PAY DIVIDENDS. The management is charged with maximizing return to shareholders. If the return from reinvestment is greater than the market return (which is what folks would get with their dividends), then the shareholders will obviously prefer reinvestment to dividends.

 

CPA

Elite Member
Nov 19, 2001
30,322
4
0
Originally posted by: SuperTool
Originally posted by: CPA
Originally posted by: Michael
SuperTool - I make my investment decisions based on total return. Taht means dividends + stock price appreciation.

If you do not grow the company long term, you have no way of increasing dividend payments.

Paying out your earnings to shareholders can be good for capital managment within the company. There are tons and tons of examples of companies that generate a ton of cash during whatever business cycle they're in. Since they can't grow their core business any faster, they do M&A deals outside of their space. In most cases, this turns out poorly.

It would be better for them to give me the money (in the form of a dividend) and let me make the capital allocation decision.

Michael
My company has awesome cash flow, about $1B a year, but we only pay an annual dividend of $.01 per share (over 600 million shares outstanding), sometimes. Bush's plan would NOT change my companies dividend payout. And since a company can not pick and choose who it pays out, it would not benefit the company to change the method in which in compensates it's highly paid employees.
You don't own your company, the investors do. And if the investors demand that your company pay more dividents because they want some tax free income, your company will either pay a divident, or the investors will sell your stock and buy some divident paying one, bringing down the value of your company.
Supply and demand. If there is demand for divident paying companies over growth companies, companies will be pay more dividents and grow less.

I know who owes the company, maybe I should have stated "the company I work for". sheesh, some of you are too literal.

Using your logic, why hasn't this occured already? Dividend tax rates are pretty low, and doesn't cost the investor anything, per say. And if you flood the market with dividend paying companies, how will any company pay out a future dividend if they have no growth. I think those expecting the worse are just looking for an excuse not to end something that is totally wrong.
 

burnedout

Diamond Member
Oct 12, 1999
6,249
2
0
Taxation rules for corporations are different than individuals If I'm not mistaken, companies already enjoy a 70% tax exclusion on any dividend income they receive.
70% if in a non-related industry, 80% if related. However, this wasn't my point. BRK nets $5.1 billion per year and could easily pay out a 1% dividend. However, again, that isn't Buffett's game.
 

Michael

Elite member
Nov 19, 1999
5,435
234
106
BRK doesn't pay a dividend because it is an investment vehicle. BRK investors trust Buffett to make smarter investment decisions than they could. He keeps the earnings/cash flows and then reinvests them. It is hard to argue with his track record.

HJD1 - I didn't get a special windfall last year. I am "rich" by most IRS-based definitions and I max out the pre-tax savings amount for the 401K every year. Whatever is left over from my regular monthly expenses is saved. I have zero car debt (now driving a 10 year old car) and no other debt except for my mortgage. If things go right, the mortgage could go away over the next 5 years or so.

I wnat more companies to pay out dividends and my dividend income increases every year as I continue my DRIP investing. This tax change benefits me.

Michael
 

SuperTool

Lifer
Jan 25, 2000
14,000
2
0
Originally posted by: CPA
Originally posted by: SuperTool
Originally posted by: CPA
Originally posted by: Michael
SuperTool - I make my investment decisions based on total return. Taht means dividends + stock price appreciation.

If you do not grow the company long term, you have no way of increasing dividend payments.

Paying out your earnings to shareholders can be good for capital managment within the company. There are tons and tons of examples of companies that generate a ton of cash during whatever business cycle they're in. Since they can't grow their core business any faster, they do M&A deals outside of their space. In most cases, this turns out poorly.

It would be better for them to give me the money (in the form of a dividend) and let me make the capital allocation decision.

Michael
My company has awesome cash flow, about $1B a year, but we only pay an annual dividend of $.01 per share (over 600 million shares outstanding), sometimes. Bush's plan would NOT change my companies dividend payout. And since a company can not pick and choose who it pays out, it would not benefit the company to change the method in which in compensates it's highly paid employees.
You don't own your company, the investors do. And if the investors demand that your company pay more dividents because they want some tax free income, your company will either pay a divident, or the investors will sell your stock and buy some divident paying one, bringing down the value of your company.
Supply and demand. If there is demand for divident paying companies over growth companies, companies will be pay more dividents and grow less.

I know who owes the company, maybe I should have stated "the company I work for". sheesh, some of you are too literal.

Using your logic, why hasn't this occured already? Dividend tax rates are pretty low, and doesn't cost the investor anything, per say. And if you flood the market with dividend paying companies, how will any company pay out a future dividend if they have no growth. I think those expecting the worse are just looking for an excuse not to end something that is totally wrong.
Because right now the government is not giving paying dividends tax advantage over capital gains, so there is less reason for investors to pick dividends over stock price growth, since they'll have to pay tax on both. But if we say, no tax on dividends, but tax on capital gains, then we encouraging paying dividends over growth.
 

Michael

Elite member
Nov 19, 1999
5,435
234
106
Supertool - Think about the math for a second - the return is pretty much the same for the shareholder. Let us assume that more dividends = less growth. The tax laws would then weight the valuation to more dividends. You could then argue - "aha! Less jobs created!". However, the people recieving the dividends are going to do something with it. Either spend it or invest it. Spending drives growth. Investing increases the capital available to fund growth.

I don't have an issue with the dividend tax cut (and support it because of the current double tax). My issue is that the government debt has to be paid back at some point. There is much less evidence that reducing dividend tax income has the same revenue increasing effect of reducing personal income taxes (based on salary). I'm more concerned that the cut spending part of cut taxes is not kicking in.

Michael

 

burnedout

Diamond Member
Oct 12, 1999
6,249
2
0
Originally posted by: Michael

BRK doesn't pay a dividend because it is an investment vehicle. BRK investors trust Buffett to make smarter investment decisions than they could. He keeps the earnings/cash flows and then reinvests them. It is hard to argue with his track record.

HJD1 - I didn't get a special windfall last year. I am "rich" by most IRS-based definitions and I max out the pre-tax savings amount for the 401K every year. Whatever is left over from my regular monthly expenses is saved. I have zero car debt (now driving a 10 year old car) and no other debt except for my mortgage. If things go right, the mortgage could go away over the next 5 years or so.

I wnat more companies to pay out dividends and my dividend income increases every year as I continue my DRIP investing. This tax change benefits me.

Michael
Michael: I've been in DRIPs for over 20 years now. Yes, they are really wonderful. In fact, as a group of investments, they have consistently outperformed the best mutual funds out there. They should be recommended to any long-term investor. All it takes is patience and reinvestment.

Back on topic: BRK 'could' be considered an investment vehicle depending upon your perspective. Yet they have their hands in so many things. GEICO (Insurance), Dairy Queen, Fruit of the Loom, Shaw Industries (Carpets), Johns Manville, World Book..... you name it. Over 59 companies. Check out their annual report sometime. Most interesting. Kinda like a 1990's ITT on steroids - without the technology.
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Michael
BRK doesn't pay a dividend because it is an investment vehicle. BRK investors trust Buffett to make smarter investment decisions than they could. He keeps the earnings/cash flows and then reinvests them. It is hard to argue with his track record.

HJD1 - I didn't get a special windfall last year. I am "rich" by most IRS-based definitions and I max out the pre-tax savings amount for the 401K every year. Whatever is left over from my regular monthly expenses is saved. I have zero car debt (now driving a 10 year old car) and no other debt except for my mortgage. If things go right, the mortgage could go away over the next 5 years or so.

I wnat more companies to pay out dividends and my dividend income increases every year as I continue my DRIP investing. This tax change benefits me.

Michael

If you have to go to work you're not wealthy by my definition. Sure we all know 89K+- puts one in the top 5% but those numbers are calculated off income and short term capital gains which are treated as income by the IRS. Wealthy people we are talking about don't even register income and if they do it's extremly low relative to what they are worth like Buffets 350K or Gates 400K. They make all thier money from long term capital gains which now can be taxed as low as 8%.


Charlie Munger,who is a Republican and tends to despise those liberals who are prone to "self pity", gives an example of a taxi driver who works 80 hours a week and pays 40% tax and a Proctor & Gamble heir who pays zero tax on his dividends income. He thinks that just is stupid as a social policy not nessesarly as economic policy. And I agree.
I would like to see a comprimise plan with some sort of progression like the first 100K is tax free to stimulate the economy without this percieved unfairness and increasing the debt more.


Another "fair" way I think would be making dividends deductible to corporations and taxed at the individual rate.
 

Michael

Elite member
Nov 19, 1999
5,435
234
106
I would prefer the tax benefit be at the individual level, not the corporate level.

I'm not sure how that taxi driver hit 40% taxes (I guess if you add in all the social security taxes, state and federal I could see it). The one rich guy example is a little silly to me. There really are not that many hiers to fortunes running around and they already have expert tax advice and beneficial structures to begin with.

I think the biggest benefit might be to retirees. It takes a while before dividends add up to much.

Michael
 

Alistar7

Lifer
May 13, 2002
11,983
0
0
Originally posted by: Michael
BRK doesn't pay a dividend because it is an investment vehicle. BRK investors trust Buffett to make smarter investment decisions than they could. He keeps the earnings/cash flows and then reinvests them. It is hard to argue with his track record.

HJD1 - I didn't get a special windfall last year. I am "rich" by most IRS-based definitions and I max out the pre-tax savings amount for the 401K every year. Whatever is left over from my regular monthly expenses is saved. I have zero car debt (now driving a 10 year old car) and no other debt except for my mortgage. If things go right, the mortgage could go away over the next 5 years or so.

I wnat more companies to pay out dividends and my dividend income increases every year as I continue my DRIP investing. This tax change benefits me .

Michael
Bush will be very happy to hear you are pleased...
 

SuperTool

Lifer
Jan 25, 2000
14,000
2
0
Originally posted by: Michael
Supertool - Think about the math for a second - the return is pretty much the same for the shareholder. Let us assume that more dividends = less growth. The tax laws would then weight the valuation to more dividends. You could then argue - "aha! Less jobs created!". However, the people recieving the dividends are going to do something with it. Either spend it or invest it. Spending drives growth. Investing increases the capital available to fund growth.
But if DIvidents are tax free, they will invest it in established dividend paying companies that aren't growing that much but instead are paying out more dividends
We need to encourage enrepreneurship and risktaking, which will ultimately result in industries that will create new jobs. I have nothing against well established companies that pay dividend, but the job growth is going to come from innovation and new industries. If we make established dividend paying companies more attractive investments from tax standpoint, people are less likely to take a chance on something new. Say what you want about the tech bubble and startups, but that's where the jobs growth will come from. It sure as hell won't come from manufacturing.
I don't have an issue with the dividend tax cut (and support it because of the current double tax). My issue is that the government debt has to be paid back at some point. There is much less evidence that reducing dividend tax income has the same revenue increasing effect of reducing personal income taxes (based on salary). I'm more concerned that the cut spending part of cut taxes is not kicking in.
Michael
I think companies should be able to deduct dividends from their corporate taxes, but individuals should pay taxes on them as all income. As far as cutting spending, GOP isn't really proposing any major spending cuts to speak of. They are busy growing the government from what I am seeing. I guess big government is only a problem when you aren't the one running it.
 

Michael

Elite member
Nov 19, 1999
5,435
234
106
SuperTool - there are planety of companies that grow at a good pace and pay dividends. They are not mutually exclusive.

Michael
 

zephyrprime

Diamond Member
Feb 18, 2001
7,510
2
81
If double taxation of dividends is cut, it should be cut at the corporate level not the individual level.

Buffett is dead on with his take on this issue.
 

LunarRay

Diamond Member
Mar 2, 2003
9,993
1
76
Originally posted by: Michael
BRK doesn't pay a dividend because it is an investment vehicle. BRK investors trust Buffett to make smarter investment decisions than they could. He keeps the earnings/cash flows and then reinvests them. It is hard to argue with his track record.

HJD1 - I didn't get a special windfall last year. I am "rich" by most IRS-based definitions and I max out the pre-tax savings amount for the 401K every year. Whatever is left over from my regular monthly expenses is saved. I have zero car debt (now driving a 10 year old car) and no other debt except for my mortgage. If things go right, the mortgage could go away over the next 5 years or so.

I wnat more companies to pay out dividends and my dividend income increases every year as I continue my DRIP investing. This tax change benefits me.

Michael
Well.. I can see your wanting to get the tax break now and all. I'd be a hypocrite if I said you the person should not want to for go the advantage because I wish the same for me. I waited till 2003 to finalize the adoption of my grandson to get the tax credit of 10k vs what was available if I did it in 2002. I had no control over that though really, but, I'm tickled for the credit.
I worked hard trying to maximize the wealth of the companies I worked for and I was paid to do it. Today I'm lazy and reap those benefits. I've never, however, stopped wondering how some of each administration's people could look citizens in the face and say "this plan benefits all Americans". Perhaps they are that smart or they just believe it. Either way, I can't see it benefiting everyone, it never did and I doubt it ever will.

 

SuperTool

Lifer
Jan 25, 2000
14,000
2
0
Originally posted by: Michael
SuperTool - there are planety of companies that grow at a good pace and pay dividends. They are not mutually exclusive.
Michael
It is not an all or nothing, but it is mutually exclusive in a sense that every dollar that is paid as dividend is a dollar not invested by the company in growth or saving for rainy day.
 

LunarRay

Diamond Member
Mar 2, 2003
9,993
1
76
Originally posted by: SuperTool
Originally posted by: Michael
SuperTool - there are planety of companies that grow at a good pace and pay dividends. They are not mutually exclusive.
Michael
It is not an all or nothing, but it is mutually exclusive in a sense that every dollar that is paid as dividend is a dollar not invested by the company in growth or saving for rainy day.
Not to throw a wrench into the mix... and it has been awhile since I was buried in the tax code.. but, I do remember a requirement to pay dividends. That is, retained earnings is looked at in conjunction with available cash and a look see at the operational aspects and if IRS views the non payment of dividends is to avoid disbursment (and thus the tax collectable) they can force payment or impute tax on the stockholder. Again, it has been awhile since I did tax work.

 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
In related news Many companies are simply expatrioting to Burmuda to aviod taxes all together.

Here politicalish rehtoric I can't stand but the message is clear if you get rich vechiles exist where you can pay no tax

In one case, the same company whose jackhammers carved Mount Rushmore paid $28,000 to rent a mailbox in Bermuda in order to avoid a $40 million tax bill from Uncle Sam. The board of directors of that company voted less than a month after the tragic attacks of September 11th to renounce their U.S. citizenship.
 

SuperTool

Lifer
Jan 25, 2000
14,000
2
0
Originally posted by: Carbonyl
In related news Many companies are simply expatrioting to Burmuda to aviod taxes all together.

Here politicalish rehtoric I can't stand but the message is clear if you get rich vechiles exist where you can pay no tax

In one case, the same company whose jackhammers carved Mount Rushmore paid $28,000 to rent a mailbox in Bermuda in order to avoid a $40 million tax bill from Uncle Sam. The board of directors of that company voted less than a month after the tragic attacks of September 11th to renounce their U.S. citizenship.
That would be Stanley tools. I believe that's the brand sold by Home Depot.
 

charrison

Lifer
Oct 13, 1999
17,033
1
81
Originally posted by: SuperTool
Originally posted by: Carbonyl
In related news Many companies are simply expatrioting to Burmuda to aviod taxes all together.

Here politicalish rehtoric I can't stand but the message is clear if you get rich vechiles exist where you can pay no tax

In one case, the same company whose jackhammers carved Mount Rushmore paid $28,000 to rent a mailbox in Bermuda in order to avoid a $40 million tax bill from Uncle Sam. The board of directors of that company voted less than a month after the tragic attacks of September 11th to renounce their U.S. citizenship.
That would be Stanley tools. I believe that's the brand sold by Home Depot.
They along with many others have "moved offshore" to avoid corperate taxes. Taxes need to be a very least made more simple and probably cut on top of that to encourage corperate investment.

 

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