Victor Horvitz: “My Berkshire experience is even more harrowing than yours. For many years starting in the Seventies, I read Richard Russell’s “Dow Theory Letters.” He admired Buffett and recommended Berkshire: I bought 10 shares at $186. Soon after, Berkshire doubled and Richard sold his shares because “pigs get slaughtered” and besides, Berkshire did not pay a dividend. Richard’s mantra was to compound dividends over time. I, also, sold my shares. Previously, I had had experience with Berkshire when I was a kid growing up in New Bedford, MA. My school, Roosevelt Jr High, was just a mile up the road from the Berkshire- Hathaway shirt factory on the Acushnet River. It was 1955, and Buffet had just purchased Berkshire which was going bankrupt because the clothing industry in New Bedford was dying. Driving me to school one day, my dad declared “what kind of idiot would buy Berkshire Hathaway?”
→ What kind of idiot, indeed.
But this reminds me to address the tax hikes being proposed to try to pay for the infrastructure plans being proposed.
Republicans widely support core infrastructure proposals . . . so long as no taxes are levied to pay for them. This follows the Republican theory that there is a free lunch — that the more you cut taxes the more revenue you will raise.
That the economy did better under Clinton and Obama, who raised taxes on the best off, than under Reagan, Bush, and Trump, who slashed them, would seem to argue otherwise.
And that it was only Clinton and Obama, by the end of their terms, who were able to get the Debt shrinking relative to the economy, is worth noting, too.
As long-time readers will recall, the National Debt had grown to 122% of GDP by the end of World War II — but shrunk to just 30% by the time Reagan took the reins and started it back up again. Bush and Trump sent it through the roof.
Sadly, they were not borrowing to invest in our future, as the Biden infrastructure bills will do; they were borrowing to blow things up in Iraq and to lower taxes on the rich.
I like some of the tax proposals better than others.
I love the proposal to fund the IRS adequately, to collect more of the taxes that are due. Studies suggest something like a ten-to-one return on that investment.
I love the Tax Excessive Pay Act, and that it would be voluntary: to avoid it, companies could simply pay their workers more or their highest-paid employee less. If they decided it was in the shareholders’ interest to pay the tax — that’s okay, too. We need the revenue.
I love putting the corporate tax rate halfway back to where it was before Trump slashed it . . . or close to halfway back . . . and I love Treasury Secretary Yellen’s efforts to end the global race to the bottom, as cash-starved governments cut corporate tax rates to attract more jobs.
I love getting rid of the “carried interest” outrage.
I love that we might get rid of “1031 exchanges,” by which real estate investors never pay any capital gains taxes.
I love treating death as a “taxable event” so that appreciated assets do not escape capital gains taxes.
Which leads me to why I worry about raising the capital gains rate too high: all investors would have to do to avoid it is “not sell.” Studies have shown that, after a point, the higher the rate, the less revenue you’ll collect, as people just “buy and hold” and collect dividends. (Which isn’t a bad strategy even at the current capital gains tax rate.)
I hate the proposed solution to that problem: taxing unrealized gains each year along with realized gains. It would be an accounting nightmare and lead to massive distortions and unintended consequences.
But . . .
I love the idea of raising the estate tax on billionheirs. Not on the bottom 99% . . . not on family farmers or bodega owners. But on estates of $50 million? And $500 million? And $20 billion? That kind of estate? You can spend all you want to while alive; you can avoid income and estate taxes by giving your money to build hospitals and endow food banks; you can leave each of your grandkids millions. But on that extra $200 million, say? Or that extra $2 billion or $20 billion? Be honest: how much pain will the estate tax cause you when you’re dead? Hasn’t this country been good to you? Why not throw your chips back into the pot to help keep her strong for future generations?
As part of the estate-tax reform, I love closing, or narrowing, most of the loopholes. They apply only to the very rich — and some of them agree. Others are outraged that the government would want to take a chunk of their wealth at death. What right does the United States of America have to a chunk of their fortune? They earned it, Uncle Sam didn’t!
But could they have made the same fortune if they had been born in — and had to stay in — a low-tax country like South Sudan?
If living here doesn’t improve one’s chances of success, why would so many ambitious people have moved here in the Fifties and Sixties and Seventies when U.S. tax rates were far higher?
We raised taxes on the rich to help pay to win World War II. Why not raise them now to help revitalize our crumbling infrastructure and regain our competitive edge?
Be honest: if you are currently taking home $9 million a year, could you not make do on $7 million?
If you were expecting to inherit $200 million, net of estate tax, could you not find a way to deal with inheriting only $80 million?
Perhaps as good a way as any to end these meanderings:
And speaking of potential capital gains:
Eric S.: “The market valued PRKR @ $1.83 believing trial was imminent. That seems to be the market’s pricing of PRKR’s odds re: Qualcomm. The trial was delayed, so price has inevitably pulled back. Isn’t it likely we’ll return to very roughly $1.83 before the trial? That would be a 70% increase. So if we buy fresh shares now, maybe we can sell in the pre-trial run-up for a 70% gain with relatively low risk. It’s a whole separate play, and I’m having trouble seeing a downside. Am I right?”
→ Makes sense to me. I’m sure something terrible could happen; but if and as the trial approaches, I sure don’t see the stock falling in anticipation.
Meanwhile, PRKR yesterday issued its quarterly report.
Quote of the Day
Anyone who drives faster than I do is a MANIAC. Anyone who drives slower than I do is an IDIOT.~George Carlin
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