Mr. Buffett Goes To Washington

Warren Buffett wrote a pretty eye opening OP-ED piece in the NY Times yesterday. Mr. Buffett was amazingly transparent, frank, and candid about the financial issues facing the US of A. He even used his own unique position as an illustration:

Last year my federal tax bill, the income tax I paid, as well as payroll taxes paid by me and on my behalf, was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income (edit: using these numbers, you can back out that his taxable income was roughly $39.878 Million) and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

Edit: using these numbers, you can back out that his taxable income was roughly $39.878 Million

He then illustrated how wealth has shifted so dramatically over the past 20 years:

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion, a staggering $227.4 million on average, but the rate paid had fallen to 21.5 percent.

Meaning, in 1992, the top 400 earners in the USA had, on average, $42 Million per household, and a federal tax rate of 29.2% – while in 2008, those numbers were $227 Million per household and a federal tax rate of 21.2%. So that’s a 537% increase in per household income and a 36% relative decrease in taxes paid/tax rate (Obviously, the absolute tax dollars has increased with the absolute increase in earnings). Doing some basic thumbnail math, if the tax rate had remained constant at the same 29.2% from 1992, that would be an extra $7 Billion in tax revenue for the USA from this segment of the population.

He then proposed a policy approach to address the top earners in the USA (and I was pretty surprised by how really really small the absolute numbers were):

But for those making more than $1 million, there were 236,883 such households in 2009, I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more, there were 8,274 in 2009, I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

So to put that in perspective, backing out the 8,274 who made $10 Million+, that leaves 228,609 who earned between $1 Million and $10 Million. Again with some thumbnail math since I don’t have the specifics, lets say 50% of those 228K folks earned $1MM, 35% earned $5MM, and 15% earned $9MM. That’s roughly $822 Billion in taxable income. Using the same tax rates noted above, the 2008 taxes at 21.5% of income, represents $177 Billion in tax revenue. Using the 1992 tax rate of 29.2% equates to $240 Billion in tax revenue. Meaning in 2008, the US had $63 Billion less annual tax revenue compared to if the 1992 tax rate was left unchanged.

So if we add up the estimated $7 Billion from the top 400 earners and the estimated $63 Billion from the $1MM – $10MM earners by keeping the tax rates at 1992 levels (29.2%), that’s a grand total of $70 Billion dollars in annual tax revenue we are not accounting for today because of tax rate reductions. Factor in the taxable income for those 7,874 folks who earn between $10MM and $227MM (the latter number is the avg. of the top 400 earners in 2008), and we have a pretty decent chunk of change annually to at least put a dent in our fiscal issues (in addition to the spending cuts).


No Balls And Two Strikes

How can two marquee franchises in the two biggest markets in the country be in such disarray? And why are they being handled so differently by MLB? It’s because of the Major League Baseball “Buddy” system.

Bud Selig’s golf buddy Fred Wilpon got taken to the financial cleaners by Bernie Madoff, is now getting sued by the trustee of Madoff’s victims, the Wilpon’s are begging for loans and trying to sell up to 49% of the Mets (so they can still be in control…if only by the skin of their teeth) and the Mets are in an epic state of disarray. But a discussion about MLB taking over the Mets is not on the table.

The LA Dodgers owner Frank McCourt has been dragged through the tabloids because of an ugly divorce, he has run this storied franchise into financial disarray through his real estate dealings (and the hangover from the housing crisis that just won’t go away), and he’s scoring rouge loans from Fox TV (MLB’s broadcast partner) to meet payroll.

So how is it that MLB made a shotgun decision to take over operations of the Dodgers yesterday yet are letting the NY Madoffs Mets continue to beg for funding? I admit not to knowing the gory details, but you can’t tell me that the Mets are in any better a financial or operational situation than the Dodgers. The Madoff – Wilpon situation underscored a question I always had about the Wilpon’s financial “fortune” – how exactly did they do it? Smoke and mirrors come to mind. The McCourt situation is just as big an epic #fail. To me, Selig’s taking over of the Dodgers, and not doing the same with the Mets, reeks of cronyism – a “Buddy” system.

But hey, lets go ahead and keep a painfully long 162 game schedule AND expand the playoffs so we can sit in 28 degree weather off of Lake Erie (or in Fenway or in Yankee Stadium) for the first ever 5 hour long prime time baseball game in December.