Vegas
06-29-2007, 09:29 PM
http://www.ibdeditorials.com/IBDArticles.aspx?id=268009772645806
Tax Policy: Whenever a billionaire starts talking about being undertaxed, better grab your wallet. That's especially true when the billionaire in question is speaking on behalf of a committed tax raiser.
Billionaire Warren Buffet, sage of Omaha, is a man we admire as an investor. He's done a brilliant job of ferreting out value from stocks that are out of favor. He's made many people rich, and that's a noble thing. But when he mounts a political dais at a $4,600-a-plate fundraiser for Sen. Hillary Clinton, and begins saying things that just can't be true, we start to wonder why.
Buffett told Clinton's supporters he makes $46 million a year in income, but is taxed only at 17.7%. Meanwhile, he claims, his secretary pays 30% in taxes, and the rates for others who work for him are as high as 39.7%.
Sounds unjust, if true. But we don't know what tax system Buffett is looking at. It certainly isn't the one we use here in the U.S. We went to the IRS' Web site and used its tax calculator. We put in various incomes, from $50,000 to $350,000 a year — the latter being quite a bit for a secretary to make in Omaha.
So there's no funny business, we gave this fictional person no deductions other than the personal one. That is, no IRAs, no 401(k)s, no children, no mortgage, no nothing. Virtually no one fits that profile, but at least we can't be accused of skewing the data.
Here's what we found: At $50,000, the IRS asks for 13.5% of your income. At $75,000, it's 17.3%. You can keep going all the way to about $350,000 before you're in spitting distance (28.4%) of what Buffett's secretary supposedly pays.
Only if you add in the 6.2% that employees pay for Social Security — which would be cheating, since if she started working before 2000 she'll get that money back — can you reasonably come close to 30%. And that kicks in at an income of just over $190,000.
If this is so, are we to feel sorry for a secretary making $190,000 a year in Omaha, where a dollar doesn't have to be stretched?
So we know that Buffett flunks the IRS calculator test. But what if you add in all federal taxes, even those we don't really pay?
As a starting point, let's note that those in the bottom half of the income distribution don't pay much at all in the way of taxes. In fact, some 45 million people zero out on their taxes entirely or actually end up getting paid by other taxpayers. Another 15 million don't even have to file.
But looking at "effective" tax rates — what people actually paid — in 2004, the fourth quintile of all taxpayers (with average income of $81,700) paid an effective tax rate of 17.2%. That includes individual income taxes, Social Security, sales taxes, corporate income taxes, everything. The highest 20%, with average income of $207,200, paid a 25.1% tax rate. That's still not more than 30%.
According to the Congressional Budget Office's most recent data (2004), just one group paid an effective tax rate of more than a 30% — the top 1% of all earners. And that begins at $1.26 million pre-tax. Not a lot of secretaries there.
So Buffett's math is either false or extremely misleading.
This is nothing new. A longtime Democrat, Buffett has advocated tax hikes in the past, using his party's class-warfare rhetoric of "fairness." Other billionaires have done the same — including George Soros and Bill Gates Sr. (the father of Microsoft founder Bill Gates). Seems that a lot of people are seized by guilt over their wealth.
These men, in their own way, are brilliant businessmen, but as tax economists they leave a lot to be desired. Higher taxes, they should know, lead inevitably to slower economic growth. Which leads to fewer jobs, lower incomes and declining standards of living. Most economists employed outside the Democratic Party agree on this.
As Nobel prize winner Edward Prescott recently wrote: "To raise tax rates and thereby dampen economic activity seems a perverse way to improve our economic situation. . . . Let's not keep trying to trick our citizens into accepting one tax one day, and another tax the next. Let's not try to tax our way to prosperity."
The fact is, despite anecdotes like Buffett's, our tax system has never been more "progressive," with fewer and fewer people at the top of the pyramid paying more and more in taxes. In 2004, the top 1% of incomes today paid 37% of all income taxes, and the top 5% paid more than all the rest combined — 57%. These are both near record highs.
What perplexes us is that Buffett seems to want higher taxes on the very people — entrepreneurs — who create the jobs, increase the wealth and stimulate the growth that make America's economy the marvel that it is. Doesn't he realize that when you tax something, you always get less of it?
Tax Policy: Whenever a billionaire starts talking about being undertaxed, better grab your wallet. That's especially true when the billionaire in question is speaking on behalf of a committed tax raiser.
Billionaire Warren Buffet, sage of Omaha, is a man we admire as an investor. He's done a brilliant job of ferreting out value from stocks that are out of favor. He's made many people rich, and that's a noble thing. But when he mounts a political dais at a $4,600-a-plate fundraiser for Sen. Hillary Clinton, and begins saying things that just can't be true, we start to wonder why.
Buffett told Clinton's supporters he makes $46 million a year in income, but is taxed only at 17.7%. Meanwhile, he claims, his secretary pays 30% in taxes, and the rates for others who work for him are as high as 39.7%.
Sounds unjust, if true. But we don't know what tax system Buffett is looking at. It certainly isn't the one we use here in the U.S. We went to the IRS' Web site and used its tax calculator. We put in various incomes, from $50,000 to $350,000 a year — the latter being quite a bit for a secretary to make in Omaha.
So there's no funny business, we gave this fictional person no deductions other than the personal one. That is, no IRAs, no 401(k)s, no children, no mortgage, no nothing. Virtually no one fits that profile, but at least we can't be accused of skewing the data.
Here's what we found: At $50,000, the IRS asks for 13.5% of your income. At $75,000, it's 17.3%. You can keep going all the way to about $350,000 before you're in spitting distance (28.4%) of what Buffett's secretary supposedly pays.
Only if you add in the 6.2% that employees pay for Social Security — which would be cheating, since if she started working before 2000 she'll get that money back — can you reasonably come close to 30%. And that kicks in at an income of just over $190,000.
If this is so, are we to feel sorry for a secretary making $190,000 a year in Omaha, where a dollar doesn't have to be stretched?
So we know that Buffett flunks the IRS calculator test. But what if you add in all federal taxes, even those we don't really pay?
As a starting point, let's note that those in the bottom half of the income distribution don't pay much at all in the way of taxes. In fact, some 45 million people zero out on their taxes entirely or actually end up getting paid by other taxpayers. Another 15 million don't even have to file.
But looking at "effective" tax rates — what people actually paid — in 2004, the fourth quintile of all taxpayers (with average income of $81,700) paid an effective tax rate of 17.2%. That includes individual income taxes, Social Security, sales taxes, corporate income taxes, everything. The highest 20%, with average income of $207,200, paid a 25.1% tax rate. That's still not more than 30%.
According to the Congressional Budget Office's most recent data (2004), just one group paid an effective tax rate of more than a 30% — the top 1% of all earners. And that begins at $1.26 million pre-tax. Not a lot of secretaries there.
So Buffett's math is either false or extremely misleading.
This is nothing new. A longtime Democrat, Buffett has advocated tax hikes in the past, using his party's class-warfare rhetoric of "fairness." Other billionaires have done the same — including George Soros and Bill Gates Sr. (the father of Microsoft founder Bill Gates). Seems that a lot of people are seized by guilt over their wealth.
These men, in their own way, are brilliant businessmen, but as tax economists they leave a lot to be desired. Higher taxes, they should know, lead inevitably to slower economic growth. Which leads to fewer jobs, lower incomes and declining standards of living. Most economists employed outside the Democratic Party agree on this.
As Nobel prize winner Edward Prescott recently wrote: "To raise tax rates and thereby dampen economic activity seems a perverse way to improve our economic situation. . . . Let's not keep trying to trick our citizens into accepting one tax one day, and another tax the next. Let's not try to tax our way to prosperity."
The fact is, despite anecdotes like Buffett's, our tax system has never been more "progressive," with fewer and fewer people at the top of the pyramid paying more and more in taxes. In 2004, the top 1% of incomes today paid 37% of all income taxes, and the top 5% paid more than all the rest combined — 57%. These are both near record highs.
What perplexes us is that Buffett seems to want higher taxes on the very people — entrepreneurs — who create the jobs, increase the wealth and stimulate the growth that make America's economy the marvel that it is. Doesn't he realize that when you tax something, you always get less of it?