Monday, September 19, 2011

Omaha Hokum: IRS Data Contradicts Anecdotal Premise for the Buffett Rule

Warren Buffett started the ball rolling claiming his secretary paid a higher tax rate than he did and following it up with a NYT editorial:
Blessings are showered upon [the super-rich] by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Eager politicians jumped on his claims as justification to propose a special surcharge on millionaires called "The Buffett Rule." But has anyone actually examined the veracity of Buffett's claims? I don't doubt that Buffett paid 17.4% in federal taxes since most of his income was from long-term capital gains taxed at 15%, but I have a lot of trouble believing his office mates paid such high rates unless he is lumping in state and local taxes with federal. We'll never be able to determine their exact tax rates so let's look at taxpayers in the aggregate from the latest IRS data.

The average rate paid by all taxpayers is 17.8%. The lowest rate applies to people earning 15K - 20K is 6.6%. The highest rate tops out at 29.7% for those earning 2M - 5M. If we assume Buffett pays his secretary really well at 100K her tax rate would be 16.3% on the average, still below Buffett's own tax rate. Based upon the averages, it would be hard to see any of his office mates paying more than 30% federal taxes. Unlike the propaganda floated in front of a gullible media, the average millionaire's tax rate is 2 to 3 times that of their secretaries.

Next, let's look at how taxes are distributed across income groups:

Tax Year 2008 - Percentage of Federal Income Tax Paid by AGI

The US tax system is one of the most progressive in the world, and politicians desire to make it even more progressive. Buffett's claims on the whole do not stand up to the tax data for 2009 (the latest data available) as publish by the IRS. Should our politicians be making policy based on such far-fetched claims? Unless Buffett's office is a major statistical outlier, the claims are hard to swallow. The rational solution to Buffett's tax dilemma is to examine his tax return and close the loopholes that allowed him to pay only $6M in taxes on an income of over $40M.

Instead of seeking to punish those highly successful individuals with a tax surcharge, the government should be trying to grow its base of millionaires. In the log run this will bring in more revenue than such punitive tactics as the Buffett rule.


I call total BS on the Buffett Rule and the propaganda it spawns like this commercial:

1 comment:

  1. Anyone who says that we don't have a progressive tax system is just misinformed.