Tags: warren | Buffett | Cut | Taxes | Rich | bush | obama

Buffett Urges Tax Cuts for All but the Rich, Warns Bonds Are a Bubble

By Dan Weil   |   Tuesday, 05 Oct 2010 02:19 PM

Investment legend Warren Buffett supports President Barack Obama’s idea to maintain Bush-era tax cuts for the middle class and poor but end them for the rich.

At a conference in Washington, he said it’s not fair that he pays the lowest tax rate of all the workers in the Omaha office of his company Berkshire Hathaway.

Buffett also says bonds are in a bubble.

As for taxes, the tax code "has gotten distorted to a huge extent," by placing a higher tax rate on secretaries and janitors than on CEOs and private-equity titans, Buffett said.

Private-equity managers avoid high tax rates because much of their income is classified as carried interest and is thus taxed as a capital gain (15 percent) rather than as ordinary income (up to 35 percent).

Taxes have to be raised on the rich to finance the exploding budget deficit – estimated at about $1.3 trillion this year, Buffett says.

"We are not taking in enough money at the federal government level," Buffett said. Tax collection should go back to 18 percent to 20 percent of income from about 15 percent today, he says.

And the rich are the ones who can provide that money, he says. "We're going to need to get more money," said Buffett. "Why not get it from me instead of the guys who will serve us lunch?"

As for bonds, investors buying them now are “making a mistake,” Buffett said.

"It’s quite clear stocks are cheaper than bonds, (so) I can't imagine why anyone would want to purchase them (bonds) now.”

Investors will gradually regain confidence in stocks, Buffett says.

And the Federal Reserve’s aggressive easing policy will eventually hurt bonds by triggering inflation, he says. Many experts expect the Fed to broaden its quantitative easing, buying government securities to inject liquidity into the banking system.

"We are following policies that unless changed will eventually lead to lots of inflation," said Buffett. "We have started down a path you don't want to go down."

U.S. Treasuries have been the investment of the year so far, with the 30-year bond returning 15.7 percent through Sept. 24, including reinvested interest. Meanwhile, the Standard & Poor’s 500 stock index rose only 2.3 percent during that period.

Goldman Sachs analysts agree with Buffett that it’s time to switch to stocks from bonds.

"Equity offers much better return opportunity than bonds going forward," Francesco Garzarelli, chief interest-rate strategist at Goldman in London, told The Wall Street Journal.

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Investment legend Warren Buffett supports President Barack Obama s idea to maintain Bush-era tax cuts for the middle class and poor but end them for the rich. At a conference in Washington, he said it s not fair that he pays the lowest tax rate of all the workers in the...
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2010-19-05
 

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