Sunday, September 25, 2011

Does Warren Buffett's Secretary Pay Enough Taxes?

President Obama and Warren Buffet say it's not fair that Mr. Buffett pays a lower tax rate than does his secretary. As I recall, Buffett represents that he pays ~17% of his income in federal taxes.

That makes sense as probably almost all of his personal realized annual income is of a capital gains nature, and capital gains are taxed at a 15% federal tax rate for individual taxpayers. (Of course, he could eliminate the guesswork by making his individual tax return public for all to see, but he has chosen not to do that.)

But how much would his secretary's earnings likely be if the secretary's federal income taxes paid are more than the 17% paid by Mr. Buffett? Let's take a look.

The Buffett Alternative Tax lists the average federal tax rates paid for various categories of individual earners in 2008.

For those earning more than $1 million, the average earner paid 23.3%. (Buffett paid 17%.)

Those earning between $500 thousand and $1 million paid 24.1%.

Those between $200 thousand and $500 thousand paid 19.6%.

Those between $100 thousand and $200 thousand paid 12.7%. (At 17%, Buffet paid more than that.)

Those between $50 thousand and $100 thousand paid 8.9%.

Those between $30 thousand and $50 thousand paid 7.2%.

From the above, it would seem that Buffett's secretary earns somewhere between $200 thousand and $500 thousand.

Accordingly, Mr. Buffett's secretary is apparently one of those Obama designated underpaying "millionaires and billionaires" with respect to taxes paid. If so, Buffett must want his secretary to pay even more in taxes, even though the secretary already pays at a much higher rate than does Mr.Buffett.

Confused yet?

Rather than all this supposition, the real question is why Mr. Buffett and President Obama don't just give us the plain and simple facts, now that they've elected to make the "Buffett Rule" a political issue.

On the surface, it's not at all evident that the average secretary pays higher tax rates than the Obama targeted average "billionaires and millionaires" pay. Actually, the Obama and Buffett argument looks like nonsense.

Maybe the Obama and Buffett team will elect to clear this up for all of us soon. If they do, perhaps we'll then understand what they already know, and why what they want to do makes so much sense.

In the meantime, don't hold your breath while waiting for their enlightening and clarifying commentary.

Politics sure makes for strange bedfellows, doesn't it?

Thanks. Bob.

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