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A more detailed explanation from the Forbes Blogs. I wondered about that myself.
Quote:
Paul assumes that Buffett’s effective federal income tax rate is 15 percent, the rate at which most capital gains are subjected to income tax. He then looks at IRS Statistics of Income data to find that, typically, a taxpayer would have to make over $200,000 a year to pay such a high effective rate of federal income tax.
But Buffett has never said that his secretary pays federal income tax at a higher rate than him. As he wrote in the New York Times in August, his combined rate of federal income and payroll taxes–including payroll taxes that his employer pays on his behalf–is 17.4 percent, and all of his staff, including Bosanek, pays a higher combined rate of income and payroll tax, again including the employer part. Here’s what Buffett said:
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.
Anybody living solely off wage and salary income and making less than about $110,000 per year pays payroll tax–including the employer part–at an effective rate of 15.3 percent. So, most any wage-earner with a non-trivial income tax liability is going to be paying federal tax at a higher effective rate than Buffett.
Now, if Buffett’s staff isn’t just paying a higher rate than him, but a much higher rate, it’s probably true that they’re all highly paid, including Bosanek.* But even if she were making $60,000, she’d probably still be paying more than him.
As I’ve written, I think Buffett’s tax code critique is flawed. Particularly, it ignores the fact that Buffett’s primary sources of income–capital gains and dividends–are subject to an additional layer of taxation, at the corporate level. Most of the proposed “solutions” to Buffett’s low tax rate, including the “Buffett Rule,” would cause significant problems, including increasing the already-problematic tax distortions in favor of corporate debt finance and against equity finance.
But in evaluating this issue, there’s no need to get the math wrong, or to leave payroll taxes–which are responsible for nearly as much federal revenue as personal income taxes–out of the equation.
You appear to be interested in a debate on the facts. So here they are;
The system was set up by Congress (and supported by Reps and Dems for the last 30 years) to encourage long term capital investment. Capital investment is a very good thing for our economy and is a requirement for growth and jobs expansion. Capital Investment involves risk and some say that is another reason it should be taxed at a lower rate. Some people also believe that Long Term Capital Gains should not be taxed at all since the investor has already paid income tax on the money used to make that investment.
The 15% rate only applies to high income tax payers. Low income tax payers pay ZERO long term capital gains. So most secretaries could choose to make a long term capital investment and pay ZERO income taxes on the gain. They would also pay ZERO FICA and ZERO Medicare taxes. You don't have to be rich to take advantage of this tax provision.
But this thread is about Bufffet's secretary publicly claiming she pays 35.8% (which we all know is not even within the realm or reality) and Obama using that lie for political gain. If she had said something like 20%, there would have been no controversy.
This thread is about more than just the income of Buffett's secretary, she was just an example of the unfairness of the system but it's good that it elevated the issue. I sincerely doubt that those people in the lower tax brackets have much excess income to take advantage of a 0% capital gains since very few of them own stock or real estate, even if they did the investment amounts would be minimal. It's a nice gesture but we all know who the new tax structure really benefits, yes you do have to be rich to have any significant benefit
I don't know of any means testing for SS and Medicare other than a cap at the upper limit.
The point is the capital gains tax has been higher in the past, almost 30% not long ago, companies made profits and life was good but over a decade it went to 15%.
This thread is about more than just the income of Buffett's secretary, she was just an example of the unfairness of the system but it's good that it elevated the issue. I sincerely doubt that those people in the lower tax brackets have much excess income to take advantage of a 0% capital gains since very few of them own stock or real estate, even if they did the investment amounts would be minimal. It's a nice gesture but we all know who the new tax structure really benefits, yes you do have to be rich to have any significant benefit
I don't know of any means testing for SS and Medicare other than a cap at the upper limit.
The point is the capital gains tax has been higher in the past, almost 30% not long ago, companies made profits and life was good but over a decade it went to 15%.
I sincerely doubt that those people in the lower tax brackets have much excess income to take advantage of a 0% capital gains since very few of them own stock or real estate, even if they did the investment amounts would be minimal. It's a nice gesture but we all know who the new tax structure really benefits, yes you do have to be rich to have any significant benefit.
Not true. My dad had very little income, but he had investments. He paid zero taxes due to the Long Term Capital gains provision. He paid zero taxes on his long term gains. He was not rich. In fact, he was dirt poor, but lived within his means. Anyone can take advantage of this provision.
Not true. My dad had very little income, but he had investments. He paid zero taxes due to the Long Term Capital gains provision. He paid zero taxes on his long term gains. He was not rich. In fact, he was dirt poor, but lived within his means. Anyone can take advantage of this provision.
I don't question that some can take advantage of the LT Capital Gains but that's not the norm, someone making just above the poverty level is not investing in the market, they are trying to survive.
How was it different and exactly what drove the changes?
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