The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

Wednesday, January 25, AD 2012

For last night’s State of the Union Address, President Obama invited Warren Buffet’s secretary, Debbie Bosanek, to sit in the First Lady’s box during the speech and specifically promised in that speech to support tax changes in order to mend the injustice Buffet claims occurs allowing him to pay the lowest tax rate of anyone in his office, including his secretary. This line of attack is doubtless partly designed to pave the way millionaire Barrack Obama to make populist attacks on multi-millionaire Mitt Romney during the upcoming presidential campaign. Romney is, after all, very, very rich, and his income comes primarily from investments.

David Leonhardt at the NY Times asks both right-leaning economist Greg Mankiw and the left leaning Center on Budget and Policy Priorities to comment on this alleged tax injustice. Mankiw makes a fairly reasonable case that the reason capital gains are lower is that investment income is based on corporate profits and corporate profits have already been taxed. Companies would have more profits to pass on to investors (either as dividends or in the form of being worth more) if they didn’t pay corporate taxes, and so the tax on investment income is set lower to avoid this “double taxation”. Chuck Marr of the Center on Budget and Policy Priorities must know the facts aren’t on his side, because instead of answering the question he provides a canned response about income inequality and how tax rates are lower than in the ’70s. The column is worth a read.

However, there’s another issue here which I think is worth pointing out. Progressives writing on this issue usually act as if billionaire investors such as Warren Buffet are all paying right around 15% (the capital gains rate) in taxes — Buffet claims that he pays 17.4% — and that “middle class Americans” are paying the top marginal income tax rate of 35%.

Facebooktwittergoogle_plusredditpinterestlinkedinmail
Continue reading...

40 Responses to The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

  • I am tired of hearing about the rich paying “their fair share” when almost 50% of the country pays nothing in income taxes. I am all in favor of everyone doing their fair share and, in my mind, that obviously means setting a minimum tax. Even if it is just $100 a year, everyone should throw something in the pot. We should also stop administering welfare through the income tax system. It encourages people to accept benefits they would never dream of going to the welfare office to get.

  • Darwin,
    As a tax lawyer I must say your post is spot on correct. And I would add a few more points.

    * Capital gain rates should be lower in order to accomodate the fact that some gain is illusory inflation gain. A person buying shares of Company X in 1980 for $10,000 may well be able to sell those shares for $20,000 today, but much of the nominal $10,000 gain is just inflation and does not represent income in a true economic sense.

    * Capital gains are only taxed when they are recognized as a consequence of a sale. Selling investments is usually a matter of choice, and capital gains taxes act as a toll charge on a a voluntary sale. Accordingly high rates serve to encourage investors to stay “locked in” rather than liquidate their investments. In fact all tax scholars agree that high rates will result in reduced tax revenue for this very reason, but what they do not agree on is the tipping point. Personally, I think that there is some room to raise the rate without revenue loss, but I do not believe that one can remotely raise the rate to match with current ordinary rates without actually losing revenue. It would be a lose/lose — investors would be locked into unwanted investments while the government would get less tax revenue — all in the name of fairness.

    Buffett is a hypocrite. He can and should pay himself a high salary taxed at ordinary rates, but instead deliberately keeps his gains in his investments in order to benefit from lower capital gain rates.

  • Jenny,

    For a very long time I agreed with the point you make about everyone paying at least some taxes, but I think I’ve been gradually modifying my views on it.

    Part of my reason for change there is that (as the CBO numbers I linked to point out) basically everyone has some degree of federal tax liability, if they work at all, it’s just that they may have a negative income tax liability (a subsidy) which reimburses them for some of the payroll taxes that they pay for social security and medicare. Even for the bottom 20% of earners, they end up paying some positive amount of federal taxes. One could “solve” this weird appearance by scaling the payroll taxes instead of having them be a flat rate, but that’s comparatively hard to do, so instead we end up with this weird thing of charging some people payroll taxes while “giving back” money on their income taxes.

    Another element is that it seems to me that one of the things which conservatives have (rightly) won a lot of support for is lowering people’s taxes — and it seems to run totally counter to that to turn around and say that we should raise taxes on the half of people who pay no income taxes currently.

    Finally, and this is the thing I feel most mixed about, giving people subsidies through tax credits is a very “clean” way of trying to help out those who earn less. On the face of it, it seems like we shouldn’t throw money at people who don’t ask for it, and I find that argument persuasive in some ways. But on the flip side, the various forms of subsidy that people go down and apply for often end up reinforcing bad behavior and penalizing the hard working poor who don’t ask for help. They also lend themselves to all sorts of nanny state interference where bureaucrats say, “We’ll help you buy food, but only if you buy these things,” etc. In this sense, if we’re going to help people through financial subsidies, it seems to me that doing so through something like the earned income tax credit or the child tax credit in some expanded and more frequent form would actually be more conservative and less prone to government abuse than most of the other modes of assistance which are pushed.

  • I have heard that the idea behind the earned income tax credit was to reimburse lower income workers for their payroll tax contributions. It is a reasonable goal, but I do not believe we should completely erase a citizen’s entire tax obligation. I think it changes the relationship between the citizen and the government in an undesirable way.

    I also question if it is really true that most everyone actually has a tax liability. I know that my anecdote is not data, but for tax year 2010 I paid $0 income tax, ~$2900 payroll tax, and received ~$6200 in a “tax refund.” Now we have three children and one income, so that might change the math, but I do not consider us low income. We do not have a lot of budget leeway, but we are definitely not poor. If I make as much as I make and still get that kind of money from the government, how much more are other people getting?

    We also qualify for reduced lunch at school, but I do not take that government money. I can afford to feed my daughter lunch! The difference is to receive that benefit, I would have to fill out a form that basically declares I need the government’s help to feed my children. That declaration would be a falsehood so I do not fill out the form and no one requires me to do it. However I am required to file taxes, so, even though I do not *need* the money, I take all the deductions and credits I am allowed and get a fat check. It definitely feels like dirty money, and yet I take it anyway. I’m not sure what that says for my moral fortitude.

    I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    I understand your thought that the earned income tax credit helps the people who would not ask for help. I am a prime example of that logic. I would be more sympathetic to it if the country were not driving off the debt cliff. It is a moral hazard to set up government assistance through programs–be it from manipulative citizens or nanny state bureaucrats–but we cannot afford to allow 50% of the country to free ride anymore.

  • I hear what you say, Darwin, but don’t think I fully agree. Social security is basically a pay as you go defined benefit retirement plan. Folks receive retirement benefits imperfectly based on what they contributed to the pot during their working life. In truth the plan is a hybrid — part retirement plan and welfare plan since those who pay in the maximum get a bad deal while those who pay in smaller amounts (i.e., low and moderate income earners) get a good deal. I don’t think these taxes can fairly be characterized as contributions to the common good, which is a different pot altogether, except perhaps in part the taxes paid by those who consistently contribute the maximum since they are subsidizing others.

  • Mike,

    Fair point. I guess I tend to look on Social Security as being more of a welfare program conveniently masquerading as a defined benefit retirement plan — but I readily admit this is in part a result of my own crank-iness.

    In all honestly, I’m not sure I fully buy the “tax credit as reimbursement for payroll tax” argument, especially as there’s not a fixed relationship between the two. Few people end up getting more subsidy via income tax then they pay in payroll tax, but I’m sure that some do, and my support for the idea of using refundable tax credits in place of other forms of subsidy isn’t necessarily related to the amount of subsidy being less than one has paid in payroll taxes. On the other hand, I think one of the problems with this approach, though it appeals to me in other ways, is that offends people’s common sense. And that’s not something to be taken as lightly as many policy wonks seem to think.

    Jenny,

    Fair points. I don’t remember comparing how much I got back via income taxes to my payroll taxes, but I do definitely recall that 7-8 years ago when we had two kids and our family income was under 50k we got back about a thousand dollars on our tax return more than we’d paid in. And I think the child tax credits are higher now than they were then. Things were tight (given we lived in California and paid the sort of rents one can expect there) but I certainly didn’t consider us “poor” and would never have applied for government aid.

    This, actually, is my main source of self questioning as I’ve come to see the refundable tax credit as a better way of applying government subsidies than traditional welfare programs: it’s simple and fair, sure, but back when I actually qualified for that kind of thing it drove me up the wall and I was firmly in the camp of thinking that everyone should pay at least some taxes. I’m not really comfortable with the fact that this is something I’ve only come to like the idea of as my income has increased, though I’m not sure if this is the result of cause and effect or just that I’ve got into reading a lot of economic policy analysis over the last decade.

  • I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    Some numbers here. 47% of households have no “liability”– they can claim deductions sufficient to only be paying SS and Medicare tax; those who hit the black when you include their side of the payroll taxes is half that. (still depressing, but not as much)

    Things to keep in mind is that this is a matter of HOUSEHOLDS– from memory, being married and being a bit older are both things are associated with being conservative, and one of the major causes of poverty in children is being a single mother; it’s very believable that those calling in are paying taxes, contributing, etc, even if the “50%” statistic would imply otherwise.
    Oh, that reminds me– some of those “households” might be college kids of the sort that I went to high school with– they’re on every program possible, are supported by their parents and get part-time jobs while they’re in college basically so they can game the system. (I didn’t really realize this until one mentioned the free birth control program for Washington State was being “threatened.” Guess I should’ve known, almost everyone at the school was on reduced lunch, even though my family was one of the lower income ones!)

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain. 😛

    If our goal is to help those who would not normally ask for help, we could keep the credits if we dramatically cut the income requirements to get the credits. For tax year 2011 you can still get a credit with an AGI of $50,270. That’s adjusted income higher than the country’s gross median. This is pure insanity.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain.

    Thanks. 😉 I guess what makes me mildly suspicious of myself is that I’m pretty sure that my 25-year-old self would have thought my 33-year-old self is just out of touch. And while having five kids and large old house adds a lot of responsibility, compared to two kids and a tiny new house, I can’t help wondering if my 25-year-old self was right at a gut level.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

    There I think you get at the heart of the matter. Middle class voters turn out much more reliably, so I think both parties have been a party to buying off the middle class by cutting taxes very, very low for many of them, without actually helping those desperately in need all that much. To the extent this has resulted in virtually putting the middle class on welfare, that’s a big problem. That kind of help should be reserved for those who desperately need it. (Perhaps part of the problem is that a lot of these beltway types imagine that making 50k is “poor” when it fact it’s the median income out here in real America.)

  • Excellent comments, Darwin and Jenny.
    It seems to me that one persistent theme, even if perhaps somewhat subtextual, is the unwillingness of our elected officials to be truthful about the *character* of government benefits. It is true that social security is in part a welfare program. As long as its dominant characteristic, however, is that of a defined benefit retirement program, the welfare component remains disguised. Many Americans are comfortable with this, including those who don’t want to admit that they are receiving welfare (i.e., those whose payouts compare favorably to their contributions) as well as those who view welfare as social *justice* rather than taxpayer *charity* — the latter frankly bristle at the word.

    When we employ tax credits, especially refundable tax credits, all too often they are not properly understood as welfare when they may well be exactly that . This is particularly true of refundable credits to compensate for social security contributions that are conceptually and financially necessary to fund future retirement benefits. This is no accident. Politicians do not want to wound the pride of their voting base. Truth is the victim.

  • St. Warren’s secretary’s tax rate is huge but not because we evil rich S.O.B.’s don’t pay a high enough taxes.

    St. Warren’s virtuous, long-suffering secretary’s taxes are about to become even more onerous. And, he will not raise her salary to cover the harsh increases in food and fuel prices he (profiting for the keystone denial) and Obama (raising fuel costs to get green votes) are laying on working class Americans.

    At least he hasn’t laid her off, yet.

  • In my view, the “everyone should pay some taxes” idea leads inevitably to bigger government for two reasons:

    1) If everyone had to pay something in taxes, the poor would have to rely more on welfare programs like food stamps, Medicaid, etc.

    2) To be politically viable, marginal rate cuts have had to be coupled with rate cuts across the board. But if you aren’t allowed to cut anyone’s taxes to zero, then you very quickly end up with a situation where you can’t cut taxes for a large segment of the American population. So no more tax cuts.

  • Thank you Darwin Catholic!!

  • BA,

    I think it is wrong to tax away anyone’s necessities or ability to pay for necessities. To the extent what we call the “poor” includes this group then I think we should not tax them. If we accomplish this by taxing and then paying rebates, that is fine with me — such an approach arguably has the virtue of greater transparency — i.e., truthfulness.

    The idea that almost one-half of American households should not contribute to the common good is untenable. Aside from those whose necessities are at stake, all should contribute to the common good, even if in varying amounts computed at graduated rates.

  • Pingback: THURSDAY POLITICS EXTRA | ThePulp.it
  • Annual income = $27K
    Taxes (state + local) = 29%
    Single tax rate

  • St. Warren is correct! Among Obama aides, 36 owe $833,000 in back taxes.

    Taxes are for the little people.

    Salary of St. Warren’s secretary: $200,000 to $500,000.
    Her second home with pool in AZ: $144,000.
    Playing prop for Obama lies: Priceless!

  • Why not ditch the income tax all and all? One of the things I like about the flat tax is that it removes the gov’ts power to tinker on income, and– in theory– would cut down on the amount of work needed to keep track of all that information.

    Total pie-in-the-sky, since the entire setup is built around federal knowledge of exactly how much and where your money comes from, but I can dream….

  • Foxfier,

    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.

    Darwin,

    Here is the spot that your 33-year-old self has forgotten about your 25-year-old self:

    When you realize you are getting welfare from the government, it makes you feel poor. When you know you are not poor, but either someone else thinks you are poor or is trying to buy your vote, you get angry. When your finances are such that, even though you don’t really need it, it would be very foolish to turn down the money, you feel worthless.

    So you are now far enough away to see the wisdom in the overall policy without feeling the sting of having bribe money waved in your face.

    BA,

    You are probably right that making everyone pay taxes would make more people dependent on government programs. Perhaps the real problem is the qualifications for these programs. The income requirements need to be severely cut back. The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

  • Dulce taxatio inexpertis.

  • Worse yet. Consider Buffett’s motives for promoting a new tax on high income earners. He owns a significant stake in life insurance companies, which offer tax sheltering and avoidance strategies for the rich. The end result of his proposal? More clients, more revenue, more profits. And he’s since structured his assets that he wouldn’t even be effected. Just call him what he is: a corrupt crony capitalist lobbying for a law that he will substantially benefit from

  • Jenny-
    Maybe if you have a company where you just drop off your paperwork and they do it, but I just filled out our taxes this morning (With H&R Block! /advertisement) and blocks 2, 4 and 6 are really obvious– “Tax withheld.” When you look at the return before filing it, it lays it out: Federal withholding, EIC, additional child credit. The first one, natch, matches the “tax withheld” total.

    I’d be really, really hesitant to suggest that someone did not notice that they’re getting more back than they paid in; folks respond poorly to implications that they’re stupid.

    The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

    Not half of the country– half of the households that file taxes. If I’m reading this right, the average individual income is $45,559. (I know, average, not median– yell at them!)
    I know I keep beating that same drum, but given how many more single-adult households there are these days, it’s important….

  • Foxfier,
    I don’t know about stupid, but certainly ignorant and lazy. Many people, including the college educated, are completely flummoxed about income taxes. This is exactly why outfits like H&R Block are in business. The vast majority of the returns the prepare as so simple a cave man could do it — but we live in a nation of people who don’t know the difference between income and a bank account — and that is just a fact.
    Ask any VITA volunteer.
    This is not to say that our income tax rules could not be made easier, but the complications are not really related to low income earners.

  • Mike-
    I helped do taxes when I was in the Navy; NONE of those folks were unaware of the difference between the amounts of their withholding and refunds, whatever way it tilted. True, that’s a select group– but so is the “Low-Income, Elderly, Disabled and Limited English” population! I’d suggest that the average IQ person does sort of what I did– used H&R because they make it so incredibly painless to do your taxes, even making efiling a matter of clicking the “next” button twice. (/advertisement)

    No volunteers needed.

    Heck, even my moron, thug former-brother-in-law could figure this stuff out, although he was gloating about “free money.”

  • Foxfier,

    I did not imply that people are stupid. I flat out said they do not pay attention. Since we are exchanging work experiences, I worked at a bank in the era before direct deposit for tax refunds became widespread. The rapid refund loan checks outnumbered treasury checks probably four to one. It is not hard to imagine that those people had no idea how much money they had actually paid in taxes.

    I’m not sure what you are suggesting by pointing out the average employee income is $45,559. Are you saying that is poor or not poor?

  • Jenny-
    You keep talking about “half the country” when you’re talking about tax paying households instead of individuals. I didn’t say it was poor or not, since income divorced from all other factors is a pretty cruddy way to figure out “poor”– what’s poor in Coronado, CA is not poor in, oh, Reno NV. I did find it interesting that the average individual income was so close to the median household income, which may hint at the root problem.

    You said:
    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.

    I am not knowledgeable of the tax code, nor did I do my tax-math in my own hand, I just looked over the form as required and am not so dumb that I notice a thousand dollar difference. When you’re getting to that level of cash in your own pocket, it’s beyond “not paying attention.”
    As for treasury checks vs “rapid refund” ones, it’s hardly surprising that people are willing to pay to get money faster– especially with the well-known speed of government!
    I don’t know what the tax code was like for real households, but I remember when I first started working, I adjusted my deductions so that I didn’t get a check at the end of the year. If a dumb high school kid knew to do that, it probably wasn’t odd for adults who actually have to live on the money to do it.

  • Foxfier,

    I bring up the rapid refund checks not to point out that they wanted the money faster, but to say it is likely that these people indeed went to “a company where you just drop off your paperwork and they do it.” I understand that you are supposed to look over the return before signing, but a lot of people do not, which is why the ‘innocent spouse’ provision exists. We are also supposed to read the ‘terms and conditions’ on websites, but most people do not. It is in our nature to trust and accept what is presented to us at face value. And you do not give yourself enough credit for adjusting your withholdings in high school to avoid a refund. A lot of people prefer the check from Uncle Sam, not understanding it is a loan without interest.

    So, approaching half of tax filing households do not pay income tax and have been deemed ‘poor’ by the government. Is this a precise enough statement for you? Does it seem reasonable to you that half of tax filings are from poor households? I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households. It does tip the numbers in the wrong direction.

    My argument is that 40K is not poor in the majority of the country and should not be treated as if it were. If the average individual income is ~45K in the richest country on earth, it would seem that 45K is not poor and yet our current government policy is that it is.

  • It isn’t being treated as “poor”– the IRS site says that the EITC is supposed to encourage low to moderate income folks to work; the child tax credit is for households that have under 100k/year to defray child costs.

    Basically, they’re not charity type things, they’re just straight social engineering– we want people to have kids, buy houses and have jobs. (Possibly vote buying too, but that’s neither here nor there.) I vaguely remember the EITC was partly because they figured out people had stopped working because going over some amount would leave them with less in their pocket. Nobody wants to take away a tax break, so there are layers and layers of incentives… no wonder the “burn it all and build over” approach is getting so popular.

    Speaking of being deemed poor by the gov’t, I’m sure you’ve seen those surveys on what the average “poor” have… the government is simply not set up to effectively figure out what constitutes poor, even before you look at the whole twisted incentives thing!

    I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households.

    And a woman who is not married and gets either formal child support or under the counter support (what’s it called, the “gray” economy?) is going to have low on-paper income, and both parents in a divorce are going to have less chance to make money– it’s more likely to be something like an $80k household becoming two $35k households, or even less if it’s a nasty split and the non-custodial deliberately avoids making money to keep from being dinged for more.

  • I am very much in favor of burning it down and starting over, but I do not see much chance of that happening as long as the government promotes the idea that 45K is ‘low-income.’ It may be driven by social engineering goals, but we cannot afford these delusions any longer.

    http://www.usatoday.com/news/nation/story/2011-12-15/poor-census-low-income/51944034/1

  • Oh, goodie, yet another yard-stick– median income for a family of four. $67k for ’08.

    Assuming that the definition of “low income” is constant, http://www.acf.hhs.gov/programs/ocs/liheap/guidance/eligibility.html low income is 60% of the state median or 150% of poverty, whichever is higher. The bottom third is a defensible definition of “low income”….

    That said, the USAToday article looks like a re-heating of this sort of thing, with an amazing unwillingness to wonder why nobody is hiring when it became more expensive to do so and there’s the whole unknown upcoming regulations factor….

  • Darwin – Where is the exact quote that you are calling a lie? Did Warren Buffett state that he paid a lower tax rate than the average tax rate of the middle class? And did he also define middle class in terms of a dollar income range? It is not at all unbelievable that the secretary to the richest man in the world (she probably is a well paid secretary but still arguably in the middle class) would pay a tax rate higher than 17%. We don’t know what rate she paid so how can you say he is lying?

  • http://www.forbes.com/sites/paulroderickgregory/2012/01/25/warren-buffetts-secretary-likely-makes-between-200000-and-500000year/

    Buffet himself declares that he pays a 17.4 percent rate on taxable income. His staff, like Bosanek, pay an average of 34 percent. The IRS publishes detailed tax tables by income level. The 2009 results show that the average taxpayer paying Buffet’s 17.4 rate earns an adjusted gross income between $100,000 and $200,000. But an average taxpayer in Bosaneck’s rate (after downward adjustment for payroll taxes) earns an adjusted gross income of $200,000 to $500,000. Therefore Buffett must pay Debbie Bosanke a salary well above two hundred thousand.

  • Thanks for the article Foxfier. I don’t see a lie here. Even if the secretary does make between 200k and 500k it still speaks to the point Obama is making. Warren made AGI of $62 million and paid 17% tax rate and the secretary made up to 500k and paid a higher tax rate. Why can someone who lives off of his great-great-grand-daddy’s fortune pay a lower rate than someone who actually works? (I undertand Warren actually made his fortune but his kid didn’t and his great-great-great grand kids wont be able to say the same.)

  • Toll:

    Buffett’s secy paid a tax rate becuase unlike Buffett she could not elect to not pay herself and cash in long term capital gains.

    Buffett paid taxes on the long term capital gains rate, which is 15%. He elected to not be pay himself a salary of $6,000,000 because he knew he would pay 39% income tax on most of it. Buffett has control over his company pay. His secy does not.

    It’s the tax code and Buffett playing with it.

    In fact, Buffett’s companies are in tax court because he refuses to pay billions in federal taxes. Buffett’s LT cap gains are the chief profiteers in Obama’s ban of the Keystone oil pipeline.

    Pharaoh and Buffett are lying. And, you, Toll, are a pharaoh-worshiping ignoramus.

  • John Toll,

    What I’m calling a lie here is comparing two completely different tax rates: the top marginal rate and the effective tax rate.

    Buffet it talking about his effective tax rate, which given that he pays himself a salary well below market rates for a successful CEO and takes most of his income in the form of long term capital gains instead (a tax dodging tactic which certainly belies his claim to be concerned about the rich not paying their share). He’s probably also throwing in his payroll taxes, which don’t amount to much since they only apply to his salary and not to his millions in investment income. This is how he gets his effective tax rate of 17.4%. He is not, however, including the impact of corporate taxes on his investment income. Arguably, he should, because corporate taxes come out of corporate profits before profits are distributed to investors, and corporate taxes reduce the profitability of a company and thus reduce it’s market capitalization. If you looked at the effect of corporate taxes on his income, his effective tax rate is arguably more like 30-40%.

    Now comes what I very strongly believe is straight up deception: Obama claim’s that while Buffet pays 17.4% in taxes, his secretary pays 35.8% in taxes. Here’s the thing: the top income tax rate is 35%. There is absolutely no way that she can be paying an effective income tax rate of 35.8% percent, because no one pays that much in income tax.

    Now, the way I think they’re getting to this deceptive number is by taking her top marginal income tax rate which could be anywhere from 25% to 35% and adding to that some amount of her payroll taxes.

    However, her actual effective tax rate is doubless below Buffet’s. According to Congressional Budget Office data (linked to in the post) the top 5% of earners pay an average effective income tax rate of 17.9%. Those are people earning $326,100 to $457,400. So even if Buffet’s secretary is making 300k+, he effective tax rate is no higher than his. It is absolutely not 35.8% as is claimed, that’s pretty much impossible. Even if she had no mortgage, no kids and no charitable donations and made over a million a year, her effective tax rate (even including payroll taxes) could not total an effective rate of 35.8% of her gross income. It’s just not possible.

    And it’s because Obama (and Buffet) and choosing to be so blatantly deceptive in their claims that I’m calling it (accurately, I think) “a lie”.

  • It would not surprise me if the President was unaware of any deception. I doubt he is a detail man.

  • I agree the phAresident is not being deceptive. He is fabricating that which supports the agends.

  • Hit “enter” my accident.

    I meant, “For the pharaoh, The truth is that which advances the agenda.”

  • In for a penny, in for a pound. Planting seeds of confusion and mistrust in the minds of his people he swore a oath to serve, he tends the growth of evil.

  • Pingback: Obama’s Phony Tax Reform | Libertarios of America

Why Doesn’t Warren Buffet Pay Extra Taxes?

Monday, May 16, AD 2011

This WSJ editorial caught my eye, because it makes a seemingly valid point about wealthy people who call for higher taxes on the rich.

I wish I had a dollar for every time a wealthy liberal has declared he thinks he should pay more taxes. That list includes Warren Buffett, George Soros, Bill Gates Sr., Mark Zuckerberg and even Barack Obama, who now says that not only should rich people like him pay more taxes, they want to pay more. “I believe that most wealthy Americans would agree with me,” he said of his tax-hike plan. “They want to give back to the country that’s done so much for them.”

So why don’t they? There is a special fund at the Treasury Department for taxpayers who want to make “gift contributions to reduce debt held by the public.” But very few do. Last year that fund and others like it raised a grand total of $300 million. That’s a decimal place on Mr. Zuckerberg’s net worth and pays for less than two hours worth of federal borrowing.

I understand the basic satisfaction of saying, “Look, mister, if you really want to pay more taxes, no one is stopping you,” but I don’t think that it’s actually a very good argument. The reason why people like Bill Gates and Warren Buffet advocate for higher taxes but don’t voluntarily pay higher taxes than the law requires is pretty obvious:

Facebooktwittergoogle_plusredditpinterestlinkedinmail
Continue reading...

21 Responses to Why Doesn’t Warren Buffet Pay Extra Taxes?

  • As Walter Williams and others have noted, higher tax rates on the rich, even rates of 100%, will not eliminate annual budget deficits and do nothing to address the cumulative national debt. Reduced spending is the only feasible mechanism for addressing the national debt.

  • Total commie lib Dem idiot BS………….

    Is this the type of educational thought comming from Catholic schools?

    No wonder the brain washed Catholics tend to vote Democrat.

  • Miller,

    Agreed. Federal spending is currently above the norm in relation to GDP (a little of this is due to GDP shrinkage during the recession, but not all of it) and the US has no history of collecting vastly higher percentages of GDP in tax revenues, so spending has to go down. (Some European countries succeed in getting much more of the GDP in taxes, but they do this by taxing the heck out of the middle class as well as the rich, and we in the US middle class won’t put up with that.)

    My point here is pretty modest: That it’s not really shocking that Warren Buffet doesn’t voluntarily pay higher taxes even though he advocates that everyone have to pay higher taxes, so long as one makes the reasonable and obvious assumption that he’s basically a self interested party who doesn’t want to reduce his standing in society. Or in short, he’s selfish.

    The mistake that liberals make is in thinking that there’s anything selfless about Buffet’s high tax advocacy.

  • “Buffet is clearly willing to give money away, but when he makes a direct donation to a non-profit he has a pretty good say in how that money will be used. If he simply writes a check to the Feds, he has very little.”
    So Warren Buffet wants to direct his charitable gifts to organizations that will use the money as he wants it to be used but feels others should be taxed so that their monies will be used as the government decides and dictates.
    The Obama administration is considering reducing or eliminating deductions for charitable donations which will make his ‘what is good for me but not for thee’ reasoning obsolete.
    As a taxpayer and one who contributes to many charitable organization, both religious and secular, I want to control how my contributions are spent,just as mr. Buffett and not how and to whom the government supports which support or fund practice which I oppose on moral, ethical or religious grounds.

  • “They are, clearly, willing to pay more (thus the advocacy) but only if they can do so in a way which doesn’t reduce their standing versus other rich people (and the rest of the country).”

    Actually, they want to reduce their standing compared to the less wealthy but not compared to the equally wealthy. They’re worried about income inequality. Or so I’ve been told.

    I hate it when Warren Buffet says he’s taxed at a lower rate than his secretary. Bershire pays taxes on his income but not on his secretary’s.

  • Consider this instead of a gift contribution: a bonfire. Burn a million, cold hard cash.
    What gives a product, any product, value: supply. Reduce supply, value goes up. Burn up a million, take a million out of circulation, and its worth goes up.

  • RR,

    Actually, they want to reduce their standing compared to the less wealthy but not compared to the equally wealthy.

    I guess sort of yes, sort of no. There are a couple million people in the top income bracket, and Buffet sits at the very top of that stack. If he gave more in taxes voluntarily, he’d effectively cede that place a bit, and since he doesn’t do that one assumes that he wants all of those couple million people (who virtually all make much less than he does) to take the same relative hit in high taxes that he does. But it’s true that compared to the other 98% of us, he’d be less unequal than before.

    I hate it when Warren Buffet says he’s taxed at a lower rate than his secretary. Bershire pays taxes on his income but not on his secretary’s.

    Yeah, no kidding. I’m but a lowly amateur econ wonk, but it’s downright disgraceful for someone of his stature to be going around acting as if he didn’t know that capital gains rates are lower than income rates on the theory that corporate profits are already taxed. You’d think someone like Buffet would be in a good position to advocate abolishing the corporate tax and setting capital gains to the same rate as income taxes, but no…

  • Buffet and Gates of course merely gain cheap good publicity by these statements. They have set up their vast fortunes skillfully enough, using the most able attorneys and accountants that money can buy, that any tax increase on them would be de minimis. As partisan Democrats, Buffet and Gates can make these type of statements all the time realizing that the taxes would hit people other than themselves. If they were doing this out of simple patriotism I think they would write out huge voluntary checks to the Treasury, but the last thing they want is for the US government to get more of their money, as opposed to more of the money of other people.

  • I think the point here: Buffett and Gates are talking about the government taking more of other people’s money.

    Up in the Bronx, they would say, “Talk is cheap.”

  • FWIW, I find it very hard to imagine that Buffet imagines a tax increase on the rich could be crafted that truly only taxed “other people” and not him. So I suspect he would expect to pay more taxes in the scenario he’s advocating. He’s just unwilling to do it unless everyone else in his class takes the same hit.

  • “FWIW, I find it very hard to imagine that Buffet imagines a tax increase on the rich could be crafted that truly only taxed “other people” and not him.”

    I do not. The tax code is one of the more byzantine productions in the perverted annals of the ingenuity of the tax man, and an individual with Buffett’s vast holdings can find plenty of legal ways to reduce his income to avoid paying taxes. His estate planning certainly indicates that he does not intend for the Feds to get much from his estate in regard to estate tax even though he is supposedly a big fan of the estate tax. When it comes to his theoretical love of taxes, Buffett is a fraud.

  • so spending has to go down.

    I think expenditures on the military & foreign relations, the federal police and courts and regulatory inspectorate, unemployment compensation, and benefits to the elderly currently exceed 15% of domestic product. If we are optimistic, the ratio of federal debt held by the public to domestic product will reach a plateau at about 0.9, meaning we are looking at service charges in the range of 4-5% of domestic product when interest rates return to historically normal levels (provided we retain our AAA credit rating). Military expenditure &c. has external drivers, fewer police means more disorder, unemployment compensation has external drivers, and reduction in benefits to the elderly is properly undertaken on a slow cohort-by-cohort basis. If you welsh on servicing the federal debt, country go blooey.

    So, you have miscellanous federal services (currently about 1.5% of domestic product) and grants to state and local government (currently about 4% of domestic product if you factor out the portion of nursing home charges ultimately satisfied by federal expenditure) to play around with freely. Have a nice day.

  • Art,

    Unless I’m much mistaken, however, federal spending is only a couple percent of GDP above it’s norm, while taxes are running a percent or two below their norm. There’s not a need for some massive change here. Cutting federal spending by around 2% of GDP in the long term (if it’s actually done) would pretty much re-stabilize the budget, although it wouldn’t pay down the debt with any great speed.

    The issue is, of course, that as you point out it’s not like there’s huge amounts of spending that can be cut without anyone noticing, and far too many voters currently support not cutting any real spending, while also not increasing taxes. (Whether they also support the tooth fairy and the Easter Bunny remains unclear.)

  • Most voters really are not opposed to tax increases as long as they are increases on someone else, especially the “rich” which is what we now call high income earners — “high” being more than what they expect to earn anytime soon.

    Buffett could easily pay more taxes if he just paid himself a market salary which would be taxed at ordinary rates.

  • Since there is no law that allows the feds to collect an income tax and all ‘tax payers’ are engaging in ‘voluntary compliance’ under threat of property confiscation and imprisonment your argument holds no water. Buffet is free to ‘volunteer’ more to the Treasury if he likes. He won’t. Buffet and other uber-wealthy libtards like him are totally aware that the federal government operates by debt alone. It is debt acquired through the usurious alchemy of the Federal Reserve scheme that funds government. Our taxes merely service the debt and are also used as wealth transfers to other nations, often our enemies.

    The income tax scheme is designed to ensure that other ‘wealthy’ Americans can never acquire enough wealth to rival the uber-wealthy like Gates and Buffet. The income tax scheme is nothing more than social engineering and granting of monopoly privileges to the uber-wealthy, who tend to be America-hating progressives and Marxists. Like all Communists, they expect to live in ultra-luxury and command all the political and economic power while the rest of us proles live in controlled squalor. Of course, they don’t want us revolting, so we need to be medicated and entertained, so we will be happy with our servitude. Notice also that both Gates and Buffet and the rest of their ilk are always in favor of tax-subsidized ‘charitable’ giving to ‘population control’ tax-free NGOs and foundations. The whole thing is sick and frankly a discussion about why or why not they will volunteer more in taxes or not is a distraction from the fact that the actions of these men and men like them are sheer evil.

  • Whoa. I didn’t realize the shark looked so small as you sail by up here…

  • I’ll get your shark!

  • Now the shark, Gates and Buffett are playing Monopoly! (Or is that Class Struggle? I can’t quite make out the game board.) 🙂

  • I believe it is the tax code edition of Twister.

  • I prefer to play Marxopoly. It is a neat little game. I am the banker, no one else can be the banker. I print as much money as I want and I let some of the other players have some, of course, they owe me. I sit back and let them buy property, collect rent, etc. They have to make interest payments to me on the money I loaned them. I am always wealthier than all of them combined and every so often I will bankrupt one of them and take their property by crashing the market, of course I only take the choicest properties and I bail out some of the others so that they are even more indebted to me.

    They think they are engaged in a free market game and I just sit back and control everything through debt. if any of them catch on, I have the others wage war on the recalcitrant. Of course, they have to borrow more from me to wage the war and I make sure it lasts for a long time by funding both sides.

    We should play sometime. I always get to be the shark. 😉

  • I like the American Knight’s Marxopoly. I wonder if the lay staff at the USCCB (the ones with Obama stickers on their cars in the USCCB parking lot in Washington, DC) and the liberal Catholics who vote Democrat (do they ever in their partisanship vote for anything else?) realize that that’s the game they are playing. Probably not. Sheep can sometimes be so blind.