Wednesday, June 27, 2007

 

The Undertaxed Warren Buffet

This is strange: Buffett Slams Tax System Disparities

“ Warren E. Buffett was his usual folksy self Tuesday night at a fundraiser for Sen. Hillary Rodham Clinton (D-N.Y.) as he slammed a system that allows the very rich to pay taxes at a lower rate than the middle class.

“Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.”

I'm guessing that much of what he made is Capital Gains (15%) so the 17.7% is probably a blended, effective rate (vice marginal rate which would be the tax on his next dollar of income). I’m not sure if that includes his state taxes but since he’s ripping the federal tax system I’m going to guess not. What I’m trying to figure out is how a receptionist pays at a 30% tax rate.

Here’s a link to the 2006 tax rates: 2006 Federal Tax Rate Schedules. Not sure what the receptionist’s filing status is (married, single…) but as a single person you don’t hit 28% until your taxable income (after deductions and exemptions) hits $74,200. That’s not bad for a receptionist, especially one in Omaha. For that receptionist to have paid federal income taxes of 30% of his income (PC alert – notice how I didn’t automatically assume the receptionist was a woman), he would probably have to be making north of $100,000 and only use the standard deduction.

…unless Mr. Buffet is comparing apples and oranges – perhaps he is including the FICA tax (7.65%) as part of the 30%. Agreed - that is an onerous tax on workers. (Capital Gains and Dividends are not subject to that tax.) And perhaps he is including the receptionist’s state taxes (Nebraska ranges from 2.56% to 6.84%)…and/or property tax rates (Omaha 2+%), sales tax (Nebraska 5.5%)…Yep – we all pay a lot of taxes and so I guess it is not out of the realm of possibility that Mr. Buffet could cobble together enough of them to figure that his receptionist pays 30% but if he is just talking federal rates, I’m going to question his figures…or move to Omaha to work as a receptionist!

This tired liberal gripe about the wealthy not paying enough in taxes brings to mind an interesting proposal (and I wish I could take credit for it) to alter Form 1040 with a few additional lines. If you felt that you just weren’t paying enough in federal taxes, you would have the opportunity to lead by example and list what you thought a fairer percentage would be…and then pay to it. This would also have the wonderful side-benefit of quantifying exactly how under-taxed people consider themselves and possibly silence the arguments of tax-cutting conservatives.

In the meantime, if Mr. Buffet is unhappy with his CPA over the lack of taxes he is paying, I'd be happy to make him a client. I'd guarantee him as high a tax bill as he'd like.

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