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Warren Buffett's real tax rate

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Warren Buffett wrote an editorial in The New York Times arguing that because he, a billionaire, is taxed at only 17%, the 35% top tax rate on millionaires should be increased.

But what is Buffett's real tax rate? Well, in the editorial, he says he paid taxes of just under $7 million last year. Let's suppose he's paid as much in every year since he was a baby - 80 years. That's $560 million in taxes.

Now, how much money has he made in that time? Various sources, including the wikipedia article on Warren Buffett, say his net worth is $50,000 million (50 billion). He wasn't born with much of that, so virtually all of it is income.

Divide $560 million by $50,000 million, and we have Buffett's real tax rate to date - not 17%, but just over 1%.

1%. That's roughly what Buffett pays in income taxes - with other estimates as low at 0.06%. Even if we raised the tax rate on all those other millionaires to 100%, the real tax rate on Buffett's increase in wealth would still be only about 3% at most. No wonder he likes this idea!

The truth is, if we want to figure out a way to raise taxes on the super rich like Buffett, we need to figure out a way to tax all that money that doesn't even show up on Buffett's tax return as income. It just sits there on his personal balance sheet as unrealized capital gains until he dies and it goes to some nonprofit, never ever getting taxed. That's what needs to get fixed, not the tax rates that Buffett largely isn't paying anyway.

In the meantime, Buffett's article should be seen for what it is - an attempt by him to raise taxes on people who have a lot less money than he does, so as to avoid such consequences for himself.

Economist Arthur Laffer estimates Buffett's 2010 income tax rate at 0.06%:
http://online.wsj.com/article/SB10001424052970203462304577138961587258988.html?mod=WSJ_Opinion_LEADTop
And Buffett's company owes 9 years of back taxes:
http://www.huffingtonpost.com/2011/08/29/warren-buffett-taxes-berkshire-hathaway_n_941099.html
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On August 17th, 2011 06:08 pm (UTC), izmirian commented:
The numerical analysis sounds reasonable and the point that there are other categories of money that aren't getting taxed at all is a good one. I would disagree with the final paragraph though about Warren Buffett's motivation. Of course only he knows for sure, but from what I've seen he is pretty altruistic and would happily pay plenty more in taxes beyond the 1 million and 10 million income tax rates that were mentioned. It's so hard these days to discuss any increased revenue, even for such reasonable things as getting rid of the ethanol subsidy, that I was proud of him for trying to get the discussion started.
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On August 17th, 2011 09:11 pm (UTC), psychohist replied:
The reason I believe Buffett's motivation is self serving is because he could very easily advocate for termination of the preferential treatment given to capital gains, which would increase his tax rates while not simultaneously increasing the tax rates of the people who actually do earn income on which they pay the top rate; it might not be a complete solution but it would do a lot to address the fairness issue. He's more than smart enough to realize that, so his failure to suggest the obvious solution indicates that he's being less than completely straightforward.

Edit - I found a Buffett quote which sheds light on this:

Mr. Buffett has also already sheltered the bulk of his fortune from federal taxes by putting them into a foundation that will give the money away. That's an act of generosity, but if the government's purposes are so vital, why doesn't he simply give the money to the IRS?

Rebecca Quick of CNBC put that question to Mr. Buffett in 2007. His answer: "Well, that's a choice and it's an option . . . If I had to give it to a single individual, or make some young Buffett a multibillionaire, or give it to the government, I'd absolutely give it to the government. I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government."

Giving to charity sounds nice until you realize that both prolife and prochoice organizations are charities, and the Gates foundation specializes in things like multibillion dollar gifts to India just when the Indian government starts plans to switch from Windows to Linux - one guess whether that plan survived after the gifts came in. Given Buffett's kids undoubtedly draw good salaries from their respective foundations, Buffett's position still boils down to, 'you should be taxed because the government makes better choices than you, but I should not be because I make better choices than the government.'

Oops: forgot the source for the quote -
http://online.wsj.com/article/SB10001424053111903918104576504650932556900.html

Edited at 2011-08-18 12:37 am (UTC)
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On August 18th, 2011 04:05 am (UTC), harrock replied:
According to my reading of the Op-ed, the main point is about the problems caused by preferential treatment for capital gains. Yes, he says at the end that both rates should go up for millionaires, but most of the verbiage was about capital gains rates. My read of the article is that he would prioritize raising capital gains taxes over raising income taxes.

I'd agree that his perspective is surely rose-colored by virtue of having stashed huge amounts of money out of the government's reach, but your original last paragraph looks a bit over the top to me. Are you sure that Buffett would object to weakening the tax protections of charities, and if so, do you know how strenuously he would fight it relative to other priorities? (Feel free to point out anything that would suggest an answer; I admit that I'm answering this without first doing hours of research on the subject.) Imputing a sinister motivation distracts me from the perfectly good points that you're making. Just sayin'.

Obviously his position frustrates you, and I can't argue against venting as a personal privilege, but as I think we both should know from tangling with each other, it's hard to persuade anyone who doesn't already agree with oneself while venting.

What would you advocate on the charity front? I'm guessing that you'd axe tax-exempt status entirely. (No value statement about that; I'm just curious.)
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On August 18th, 2011 04:48 am (UTC), psychohist replied:
"Imputing a sinister motivation distracts me from the perfectly good points that you're making."

If imputing a sinister motivation distracts you, you could always try simply not doing it.
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On August 22nd, 2011 10:21 pm (UTC), psychohist commented:
Here's a response from Harvey Golub - also rich by normal standards, but not nearly as much as Buffett:

http://online.wsj.com/article/SB10001424053111903639404576516724218259688.html?mod=WSJ_hp_mostpop_read

Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes. Isn't that enough?

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

Nice to see someone honest about the tax dodges used by the super rich - though perhaps Golub isn't rich enough to use them. Now maybe someone can see about removing those loopholes, even if Golub doesn't directly advocate that.
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On April 18th, 2012 01:32 am (UTC), psychohist commented:
More accurate figures from economist Arthur Laffer put Buffett's real tax rate not at 1%, but at 0.06%.

http://online.wsj.com/article/SB10001424052970203462304577138961587258988.html?mod=WSJ_Opinion_LEADTop

Edited at 2012-04-18 01:32 am (UTC)
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