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The Truth About Buffett and Taxes

For show-and-tell at the State of the Union Address on Tuesday night, President Obama had Warren Buffett’s secretary sitting next to the First Lady. Debbie Bosenek has become the poster child for the allegation that “the rich” don’t pay their fair share of federal taxes.

But Buffett’s secretary is not exactly poverty stricken. On “Fox and Friends” this morning, it was reported that she earns $200,000 a year. CEO’s secretaries, on average, earn $67,000, according to Michael Patrick Leahy. She has also apparently bought a second house, in Arizona.

According to Buffett’s article in the New York Times last August, he pays far less in taxes than the working stiffs in his office:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If Warren Buffett submitted a filing at the SEC this dishonest, he’d be in big trouble. But, since this fits the party line, the president took it as gospel, and the mainstream media has carefully refrained from asking any inconvenient questions. (h/t Powerline).

By conflating payroll (FICA) taxes and income taxes, Buffett is playing the intellectual equivalent of three-card monte. FICA taxes are collected only on wages, to a limited amount, in order to provide a limited income in retirement. Technically, they are not taxes at all, but “contributions,” (although I wouldn’t recommend deciding not to contribute). The fact that the federal government commingles these contributions with general revenues in order to make the federal deficit look better is a disgrace. Since Buffett’s income comes overwhelmingly from investment income and he is one of the richest people in the world, of course the people working for him in his office pay a higher percentage of their incomes in FICA taxes.

And, as I have discussed earlier, he ignores the fact that his investment income, from dividends and capital gains, has already been taxed–at 35 percent–at the corporate level. So the personal taxes he pays on it are double taxation. His actual effective tax rate is closer to 44 percent than 15 percent. He’s paying far more in taxes, as a percentage of income, than his secretary.

People sometimes have trouble grasping that corporate profits are the profits of the stockholders, especially as the corporate income tax has been in place for 100 years now. So let me see if I can make clear what is involved here.

Say a man owns a house he rents out. His income from the property, after expenses, is $25,000. He’s in the 30 percent bracket, so he pays $7,500 in taxes on the income and the $17,500 remaining is his.

Now, in an effort to make the rich pay their fair share (and, of course, anyone who owns rental property is rich, at least in liberal newspeak), the federal government decides to require that all rental properties must file their own tax returns and pay a 35 percent tax on income after expenses. That means that the house itself now pays an income tax of $8750. It then sends the rest, $16,250 on to the owner. But he’s in the 30 percent bracket himself, so he has to pay 30 percent on what he gets after the house has paid its taxes, $4875. So now he’s left with $11,375 to spend or save, not $17,500. Thus, the owner is now paying a tax of 45.5 percent on his rental income, not 30 percent.

For someone as good as Warren Buffett at numbers and financial analysis to call 45.5 percent 30 percent is to tell a bald-face lie. For President Obama and the mainstream media to call it truth is, well, typical.

 



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