Tuesday, Sept. 20, 2011, 1:42 PM – Warren Buffett Misrepresents the Taxes of the Wealthy

Let me clear up the deception that the wealthy pay less in taxes than the rest of us, popularized by Warren Buffett’s claim that his secretary pays more in taxes than he does. Pres. Obama brought this up when he announced his $1.5 trillion tax increase as a so-called “Buffett Rule” that the rich ought to pay more tax than the average worker, as if that were not true already.

The Wall St. Journal Op-Ed page covered this yesterday. I suggest you read it http://online.wsj.com/article/SB10001424053111904194604576580800735800830.html?mod=WSJ_Opinion_LEADTop .

If you don’t read it, here’s the table from the article

The political selling point is that the president wants to raise taxes, but not on 95% of you because you can’t afford it. That is just simply not workable, nor is it fair. But, as George Bernard Shaw said, “A government which robs Peter to pay Paul can always depend on the support of Paul.”

Repeatedly, Pres. Obama said in his address that he wants rich Americans to “pay their fair share.” This is complete nonsense. The top 5% of earners make 23% of all income and pay nearly 70% of all federal personal income taxes while 51% of Americans pay no federal personal income tax at all. The rich already pay 3X their fair share while 51% of the country pays nothing in federal income tax. Nothing!

The WSJ article points out that, “Mr. Obama could tax every billionaire in America at a 100% rate and still wouldn’t make a dent in the federal deficit.” This whole solve things by taxing the rich is simply politicking by the president and his friend Warren Buffett because the president’s approval rating keeps shrinking only a year before the election.

So, what is Warren Buffett talking about? First of all, Buffett gets $100,000 in salary and says he had a tax rate of 17.4% in 2010. He didn’t break it down but I think that is a combined federal and state marginal rate. He claims the other 20 people in his office, presumably including his secretary, paid between 33% – 41% in taxes. Since the top average federal income tax rate is 23.3% those tax rates must be marginal rates. Even adding in 7% NE state tax doesn’t get close to 41%.

Mr. Buffett’s situation is extremely rare, even in comparison to his peers. That’s because his taxable income is extraordinarily low for his net worth. His ratio of salary to net worth is 0.0002%.

If he paid himself commensurate with other CEOs, prosperous business owners or celebrities his tax rate would most certainly exceed his secretary’s. So, using Warren Buffett’s tax rate as an argument for heavier taxation on “millionaires and billionaires” is a gross misrepresentation of the wealthy as a group. It is therefore deceptive.

Finally, don’t forget that Buffett’s company, Berkshire Hathaway, reported a 2010 corporate tax rate was 29%. That tax reduces the profits that drive the value of Mr. Buffet’s shares since that make up the vast majority of his net worth. Adding that tax rate makes for a total tax rate of 46% (17+29). That is double the highest average tax rate of 23%. Warren Buffet, it turns out, does pay more – it’s just that 29% of his tax bite hurts his net worth rather than his income.

Finally, note that Berkshire Hathaway has not paid an estimated $1 billion in taxes it owes from 2002-2008. If Mr. Buffett truly wants to help the deficit, paying that $1 billion is what he ought to do rather than misrepresenting the tax rates of the wealthy.