Warren Buffett, a Kiwi central banker, and a Vietnamese ex-minister need to talk.
Taxes too low, billionaire says; raise them on land, central banker says.
| We excerpt three 2007 articles: “Billionaire Buffett still complaining his taxes are too low” in The Raw Story (motto: “If you don’t stand for something you might fall for anything”) by David Edwards and Muriel Kane (Oct 30); and because the best way to tax billionaires and anyone is by charging people for the values they take, two more: Central Banker “Grimes floats tax regime” in The Dominion Post (Nov 2) by James Weir; and “Tax reforms needed to keep land prices in check” by Tuyet Nhung in Vietnamese Edition (Oct 18). |
by Jeffery J. Smith
November, 2007
Multi-billionaire Warren Buffett did an informal survey of federal taxes paid by his office staff, and the average was 32.9%; while his secretary paid 30% of her $60,000, he was taxed at 17.7% last year on his $46 million income. The nation's third richest man claims to not use tax shelters. He has challenged his fellow members of the Forbes 400 to do the same survey, saying he'll bet a million dollars their average rate will be less than that of their receptionists.
JJS: Even if Buffett doesn’t own prime real estate directly, he holds billions of dollars worth of stock in companies that do own prime locations and natural resources directly. Because pricey land in all its guises is the asset whose ownership is most concentrated in the hands of the rich, levying land tends by far to be the most progressive tax, doing a better job than taxing income or sales or buildings of charging the wealthy their dues. To not overly offend the rich may be why the central banker below kept his proposed rate so low.
New Zealand Reserve Bank chairman and economist Arthur Grimes proposed a 1% a year land tax to raise more than $12 billion and raising the Goods & Services Tax to 15% and cutting the income tax to just 20%, with income under $9500 paying no tax. Grimes raised the idea at the Business Budget summit attended by 80 senior executives and observers. He says the idea is "a personal one".
Westpac chief economist Brendan O'Donovan said anything that flattens the tax system is going to motivate people. Finance Minister Michael Cullen questioned how people would pay the land tax if they owned property that was not earning an income but did not question how people manage to pay other taxes.
Former Reserve Bank governor Don Brash, the former National Party leader, said if people were "asset-rich and cash-poor" they could sell some of their assets or borrow against them to pay the tax and commended the tax shift. "It doesn't surprise me, because Arthur Grimes is a very smart economist."
JJS: While the GST is counterproductive, re-taxing land coupled with de-taxing income would encourage investment in human capital, new plant and equipment, and research and development. It would also encourage high-value activities to locate in New Zealand.
Elsewhere on the Pacific Rim, another highly-placed official called for taxing land.
Professor Dang Hung Vo, former deputy minister of natural resources and environment and now the dean of the Hanoi National University’s Land Survey Department, said land prices in the country, among the highest in the world, can only be reined in by making speculators pay much higher land taxes.
Some economists attribute the rise to the country’s young population, rapid urbanization, strong and steady economic growth, increased foreign investment, and rising incomes. Yet the country’s per capita annual income is only $835. The economists also said a cooling stock market could also drive capital into real estate.
Vo, who won public popularity during his tenure, says it was speculators who pushed up prices. Since land is nationalized in Vietnam, individuals and businesses that collude with officials have access to enormous land resources. Official prices had always been lower than market rates, Vo said, and “some state officials and rich people want to keep the price difference as much and for as long as possible.”
Vo said a quick and effective way to bring down land prices was to apply a graduated tax scheme. That is, levy a progressively heavier tax on area that is left unused or excessively owned.
A 1,400 square meter area in downtown Ho Chi Minh City was recently priced at US$24.5 million. A downtown lot worth about $3.7 million would annually be taxed around $74,000 in the Australian state of Victoria and $40,000 in Taiwan.
JJS: However, because land values are so steep at prime locations, a graduated rate is not necessary to motivate owners to quit speculating; the same high flat tax rate on all sites will spur well-placed development.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Monopolies Falsely Collect Taxes and Keep Them
I Respect Your Private Property
Environmental Tax Reform Meetings |
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