Archive for September, 2011

Buffett’s Tax Rate – Irrelevant

September 28, 2011

I am getting very tired of hearing the completely irrelevant statement that Warren Buffett’s secretary pays a higher percentage of her taxable income in taxes than her boss. While the example below is not based on Mr. Buffett’s income, it is representative of what a nicely compensated executive and his assistant might earn, and pay in taxes.

Assistant Executive

Earned Income $50,000 $200,000
Capital Gains 0 300,000
TOTAL INCOME 50,000 500,000

Federal Tax – Single
25% (Asst.); 33% (Exec.) 8,681 51,116

Social Security and Medicare 3,825 9,521*

Capital Gains Tax – 15% 0 45,000

MD State Tax – Single
4.75% (Asst.); 5.5% (Exec.) 2,322 25,072

TOTAL TAX $14,828 $130,709

TOTAL TAX/TOTAL INCOME 29.65% 26.14%

*Social Security is paid up to a wage ceiling of $106,800.

The Executive pays a higher percentage tax rate in both Federal and Maryland State income taxes. Additionally, since this example assumes the Executive has a portion of his income derived from Capital Gains, those gains are taxed at 15%. Do not forget that these distributions have also been taxed at the corporate level.

The above example has the Executive paying $115,881 more than his Assistant. In this example, the Executive is “only” paying 26.14% of his taxable income in various taxes as compared to the Assistant paying 29.65%. How or why do these percentages mean anything substantive when one person pays $100,000+ more than the other person and one person has income that is subject to capital gains, and therefore double taxation (corporate and individual level). Using the percentages to try and prove a point is simply meaningless.

Stop referencing this meaningless percentage. Manipulating information to falsely get your point across is disingenuous and doesn’t help remedy the myriad economic problems we face; it merely makes for greater divisiveness.

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