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Within the past few months, Warren Buffett has been quoted as saying he only paid 15% income tax while his secretary paid much more (I think the number is 35%, but I could be wrong). This "fact" has been used as an argument for raising taxes on the wealthy.

Without having her tax return I know we can only speculate, but are there any clues that can point us to a true or false assumption? The way the US tax code works is on tax brackets, so having an overall tax rate of 35% seems, well, rather foolish (or you need a better CPA)

For bonus points, was Buffet talking about his income as most Americans have (ie, a pay check from some company) or was he including capital gains?

edit:
according to this article,

Bosanek [his secretary] pays a tax rate of 35.8 percent of income, while Buffett pays a rate at 17.4 percent.

In short:
Did Ms Bosanek have an effective tax rate of 35.8%?

  • The question turns out to be hard to answer without a lot of detail about their respective incomes, but will almost certainly turn on what taxes you include. Buffett presumably pays mostly capital gains, while the secretary pays mostly the package of (income tax + social security + medicare) and those last two can add up to a lot (especially if you do the right thing and include the "employer's contribution"). At which point the argument essentially becomes "social security and medicare are highly regressive", but a lot of people don't want to go there. – dmckee Apr 16 '12 at 17:17
  • @dmckee I know it can be a hard one to answer, but I am hoping someone can dig up some kind of information. On my tax return, it said my effective tax rate less than 19% - married, two kids, no house, standard deduction, 6 figure salary. I don't think it was taking into count the part of SS/MC my employer paid either. I just find it hard to believe her rate was so high. Especially since numbers can get twisted to help push an agenda. – user6204 Apr 16 '12 at 17:24
  • Wow - if I could get my effective rate of tax below 40+% I would be delighted. (That's what you get for being in the UK) – Rory Alsop Apr 16 '12 at 20:22
  • Warren Buffet says here that he asked the 18 people in his office to do a voluntary tax survey, 15 cooperated. Out of those 15 employees, his tax rate was 17.7% while the average for the office was 32.9%. Hat tip to @Borror0 for the video. – Sam I Am Apr 16 '12 at 21:36
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    @RoryAlsop you guys might have more taxes, but at least you get free healthcare. I pay a pretty significant amount in healthcare co-pays, that is with insurance. – Sam I Am Apr 16 '12 at 21:40
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According to (at least the start of) this WSJ article in October 2011

he made almost $63 million last year, yet paid less than $7 million in federal income tax

though it is well known that his salary as chairman and CEO of Berkshire Hathaway is $100,000 and has been for many years.

The secretary tax rate issue (taking account of federal income tax and payroll taxes for Social Security and Medicare) has also been running since at least this NYT column in 2006 which pointed out that

Mr. Buffett, with immense income from dividends and capital gains, paid far, far less as a fraction of his income than the secretaries or the clerks or anyone else in his office. Further, in conversation it came up that Mr. Buffett doesn’t use any tax planning at all.

So it looks like a combination of different income tax treatment of different types of incomes and gains, together with non-progressive Social Security contributions.

My guess is that given Warren Buffett's charitable donations (e.g. he is giving over $1 billion a year over 20 years to the Gates Foundation), a modest amount of tax planning could reduce his tax rate to almost nothing.

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    @Joe: If you mean just federal income tax the secretary would have to be very well paid and have relatively low deductions, if you simply look at things subtracted from his/her wages (so include only the "employee" half of SS and Medicare) it's not hard to get that high. Count in the half of SS and Medicare that the employer pays (i.e. it doesn't appear on the pay stub but the employer factored it into the pay decision) it's really easy to get that high. Which version do you care for? Which version was Buffett using? Have we all read How to Lie With Statistics? – dmckee Apr 16 '12 at 22:52
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    @Chad: even so, Social Security is capped (last year at about $120,000 income), so at 6.2% * 120k = $8.4k appx., adding that to $7MM isn't going to change his effective rate meaningfully. That capping is what makes SS an effectively regressive tax. – RBarryYoung Apr 17 '12 at 17:34
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    BTW. socialist love to use weasel phrases like "far less as a fraction of his income", to obfuscate fact, that he paid much more taxes in absolute numbers. – vartec Apr 18 '12 at 13:14
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    @vartec: "far less as a fraction of his income" comes from an article by Ben Stein, former speechwriter for Richard Nixon and Gerald Ford – Henry Apr 18 '12 at 13:28
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    @vartec 1) Your fallacious arguments don't belong here - this is a place for logical, fact-based discussion 2) Adam Smith proposed the first progressive tax in Wealth of Nations. – dtanders Apr 18 '12 at 15:41

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