Buffet is not talking about income tax. He's talking about capital gains taxes, since most wealthy people are making money from investments, not paychecks.
Except that the truly rich tend to get most of their income from capital gains rather than wages and salaries, and there's a much lower rate for capital gains than for earned income. The "Buffet pays a lower tax rate than his secretary" problem.
Buffet doesn't pay lower taxes because of fancy lawyers and accountants though. He pays lower taxes because capital gains are taxed at a lower rate than ordinary income.
We can certainly debate whether that is good policy or not, but it has absolutely nothing to do with any sort of fancy tricks.
The author either does not understand or chooses to ignore how taxes work.
Buffet's wealth has increased, but the vast majority of that is held assets increasing in value. If you have signed baseball card in your attic and something occurs to make the value of that card skyrocket, your personal wealth has increased but you don't owe any taxes on that increase. Eventually if you sell that item you'll owe taxes on the gains, but you are under no obligation to sell. Increase in value is not income, Buffett wasn't getting handed hundreds of millions in cash every month.
Buffet's wealth went up by 37% from 2014 to 2018. In the same time period the Dow Jones rose 49%. The difference is billions of dollars Buffett was giving away (had he kept the money instead of making donations his wealth would've risen 55% in that time period). Tax credits for philanthropic gifts are neither new nor malicious.
Do you mean that Warren "tax me harder" Buffet's much-publicized income tax of slightly less than $2M per year is not much relatively to his net worth of tens of billions, about half of which is taxpayers' money from bailouts? I guess you have a point. Still, I can't believe he completely evades the capital gains tax.
Anyway, I never looked very deeply into it, but I'm pretty sure that single-digit millionaires pay plenty of taxes, and I find it fair to call them "rich." I do agree that taxing income much more heavily than capital gains, property, etc. doesn't sound like a great idea.
One of the biggest issues is that the long term capital gains rate is only 15% (or perhaps 20% in some cases). It's likely that most of the taxed income of people with high net worth is from capital gains, and not from ordinary income. I'm not sure, but I think he's only talking about people with high ordinary income. He could be including capital gains too. Not sure. He's definitely ignoring high net worth.
The author does not directly address the low rate for capital gains.
Also, there are two ideas which are easily confused:
1) Do the rich pay more in taxes? Yes. The number of dollars Warren Buffet pays in taxes each year is more than his secratary.
2) Do the rich pay taxes at a higher percentage of their income? This article indicates the answer to this question is also yes. However because capital gains are taxed at such a low rate, and because of other loopholes, Warren Buffet's percentage tax rate is lower than his secretary's percentage tax rate.
Also, people with a high net worth do not have to sell stocks which have gained every single year. Maybe they sold some stocks a few years ago, and they are spending the cash. In the author's analysis, a high net worth individual with no ordinary income and no capital gains for this year would not be included in this analysis at all, because they had almost no income last year (probabaly a little interest and dividends, but nothing else).
Waren Buffet was talking a while back about how it's ridiculous that he pays 17% taxes when his secretary pays over 30%. He's not a big fan of the current capital gain tax.
Buffett pays a lower percentage of income by choice. Meaning, he derives his income from investments that get taxed at the capital gains rate. Everyone else is free to make the same decision, but they don't. They "invest" in houses, cars and other lifestyle purchases and then rely on their daily job to provide their income...hence their tax rate being so high.
Rather than punishing the rich for making smart decisions, let's instead educate the other people so they can make the same good decisions.
It gets boring to repeat this comment so often, but: Buffett's income is mostly in the form of capital gains and dividends. These are paid out of the taxable income of corporations. So he pays a direct 15% tax on something that's previously been taxed at 35%--a low rate, if you ignore the 35% part.
And the local 7-11's income is paid out of the taxable income of its customers, who have previously been taxed at their normal income tax rates. And those customers income is coming from an employer that takes its income from customers that have already been taxed at normal income tax rates.
There's nothing nefarious going on here, income tax has always been collected at every hop. The exception is that businesses can deduct expenses against earnings, so some B2B transactions are "immune" from income taxation.
Sure, I'd be all for a system that taxed held wealth each year instead of income, I think it would be a hell of a lot more fair (both the pain you feel by paying taxes and the benefits you receive from living in this country scale with wealth a lot more closely than income), but that's another matter. As things stand, every dollar that anyone sees has already been taxed many times before, and it will be taxed again every time it's used. I see no reason things should be any different because money is coming in from an investment as opposed to work.
In a 2007 interview, Buffett explained that he took a survey of his employees and compared their tax rates to his. All told, he found that while he paid a total tax rate of 17.7%, the average tax rate for people in his office was 32.9%.
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So why is it that Buffett himself doesn't pay more tax? It's because the bulk of his income comes from dividends and long-term capital gains, which are taxed at a much lower rate than ordinary income.
When the blog author argues that "Warren Buffet should write a check" he is not oblivious to the fact that asking everyone in your tax bracket to pay more taxes generates more revenue than making a voluntary contribution. Rather, he is arguing that Warren Buffet feeling guilty about not paying enough taxes is not a good basis for rasiing taxes on everyone in that category.
Rather, taxes should be placed where they will do the least harm to the economy. Check out http://en.wikipedia.org/wiki/Optimal_tax. Ideally, taxes should be placed where they will not distort people's behavior. So, the relevant question is whether increasing taxes on capital gains will have a change investors behavior making the economy less efficient. Buffet says "My rich friends will invest no matter what!" But, he provides no evidence to support this. On the margin, some investments will not be worth it with a higher tax (as described by lionhearted). How big of a problem this is up for debate. But we shouldn't make tax decisions based on Buffet's anecdotal experience with rich friends.
Warren Buffet's personal income tax rate is not a competitive sport. It only affects his take home pay. I could kind of see your analogy holding for the taxes his company pays because they have to compete with other companies. But I believe Buffet is arguing for a higher personal income/capital gains tax rate. See: http://www.nytimes.com/2012/11/26/opinion/buffett-a-minimum-...
Whether it's a good example, propagandistic, etc., is another story, but on the factual question of whether he said it, he did. The main reason isn't so much loopholes as source of income: employment income (what his secretary gets) is taxed at a higher rate than investment income (what Buffett gets).
This article ignores the fact that many wealthy individuals, via investments and other rentier activities, are able to obtain lower effective tax rates than people who work for a living.
The issue I have with framing it as spending vs investing is that the main issue with capital gains revolves around the super rich, not people making $200k a year.
Sure, a tax rate difference might influence Sally or Frank to spend or save, but Warren Buffet is not going to go on a billion dollar spending spree rather than invest his money if the capital gains rate goes up 5%.
I guess my question is what would the super rich do with their money other than invest it?
Please look in to the Warren Buffett Rule. Look into the tax rate on Capital Gains.
If after looking into those, you're still convinced we have Progressive Taxation, then I'll hear you out.
But convincing me that Warren Buffett pays a HIGHER portion of his income as federal taxes than his secretary is going to be pretty dang hard, frankly.
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