Calling BS Again on the Warren Buffett Secretary Tax Rate

Now that this issue has been demagoged on no less a stage than the President's State of the Union address, it's time to make the returns public because the numbers still don't add up. That's right, I'm calling BS again. What is shocking about the above puff piece from ABC "News" is the lack of pressing for details to prove the claims. As the interview goes on, you'll notice the conversation shifts from marginal tax rates to marginal tax rates + payroll taxes to come up with the 35.8% rate. I know in my case if you added up marginal tax rates + payroll taxes + property taxes + sales taxes + gasoline taxes, my effective tax rate would be somewhere around 50% (not exactly what I'd call fair). The national conversation we should be having is how to shrink government at all levels, not how to grow it through increased tax receipts.

So, just how does Buffett's secretary end up paying 35.8% in taxes. Let's review the taxes rates:

Payroll tax rate taken directly from people's checks was 7.65% in 2010.

The marginal income tax rate for married filing jointly in 2010 was:

10% on the income between $0 and $16,750
15% on the income between $16,750 and $68,000; plus $1,675
25% on the income between $68,000 and $137,300; plus $9,362.50
28% on the income between $137,300 and $209,250; plus $26,687.50
33% on the income between $209,250 and $373,650; plus $46,833.50
35% on the income over $373,650; plus $101,085.50

So keeping the calculation simple, what income level is required to arrive at an effective tax rate of 35.8%?

It is mathematically impossible to arrive at this number based solely on the marginal income tax rate so payroll taxes must be included.

Let's start simple and ballpark a number. If she earned $373,650, her effective tax rate would be 34.7% ((101085.50+(7.65*373650))/373650))---- a little more than a percent shy of the figure claimed.

Applying different income levels to the tax formulas, my calculations show her income would need to be in the neighborhood of $433,150 to have a combined marginal tax rate + payroll tax rate of 35.8%

This means Warren Buffett's secretary and her husband made north of $433K in income in 2010, putting them in the top 1% of earners throughout the country. What is most slimy and deceptive about this entire episode is that the majority of people will think this is he average corporate secretary earning 40-50K a year. Nothing could be further from the truth. ABC does a disgraceful job of by not asking penetrating enough questions to validate the claim in this interview.

Warren, please step up and prove me wrong....... release the returns.


Addendum: To get to the 35.8% rate for his secretary, I bet Buffett is including the part of FICA paid by the employer into his secretary's tax rate. Certainly, a bit deceptive and misleading, and to me means we should be having a conversation about the current structure of Social Security and Medicaid rather than income tax rates. But starting out the with misleading assumption that 15.3% comes out of his secretary's paycheck in FICA taxes each year, the calculations show his secretary earns roughly $90-95K, slightly less than the 100K Buffett pays himself, and a more believable number than above. The bottom line is Buffett's argument lacks transparency, the numbers have not been explained or laid out in detail, and allowing it to be used in a deceptive manner for political demagoguery is highly distasteful.

As I've said before, write a check to the Treasury, Warren, to make up for your under taxation and lead by example in encouraging, cajoling and brow-beating your millionaire and billionaire friends to do the same. But somehow I think the green investments you make through your subsidiary, Mid-America Energy, are going to be much more profitable than the next Solyndra that Stephen Chu throws taxpayer money at from DOE. So maybe, just maybe, the country is better off if you keep more of your own money and invest it in projects that make economic sense.