Does Buffet's Secretary Pay a Higher Rate Than He?

Obama’s claiming once again that Warren Buffet’s secretary pays more in taxes. But is this true? Let me be the one to spoil his fun with some facts.

Buffet lives off investment income. But to invest he would have had to earn money or inherit it. If he had inherited it, his first tax would have been about 50 percent. But we know he is self-made and probably paid taxes pre-Reagan when the rates were high. But suppose he paid the top marginal rate of 39 percent enforce under Clinton. That money would have gone into his holding company, Bershire Hathaway (BH). It then invested the money in other businesses; call them Business A, Business B and Business C. Let’s be conservative and say these three businesses only made only enough to pay the lowest tax rate, 15 percent. The profits passed on the BH would be taxed again at 15 percent as profit to BH, before being passed on to Buffet so he could pay another 15 percent.

So it is true that the last of the four taxes is likely lower than the one tax his secretary is exposed to. But the $1 in profit from Businesses A, B and C comes to him as $0.72. After paying personal taxes, he pockets $0.61, an effective tax rate is at least 39 percent after having paid 39 percent on the original investment. And it’s likely BH Business pay much more than the minimum so his actual effective tax rate is likely well over 50 percent.

But the businesses paid the taxes, right? If you think that, you need to realize that business do not ever pay taxes; people do. If the businesses had not been taxed, $1 would have come to him instead of $0.72. The rest of what he would have gotten went to the government. I argue that is a tax.

And in case you are a fan of “Don’t tax you; don’t tax me; tax the corporation behind the tree”, you should know there are four ways corporations deal with taxes. “Just go ahead and pay them” is not one of them. They are:
1. Pass the cost on to the consumer.
2. Decrease pay and benefits to employees.
3. Shift jobs off-shore.
4. Go bankrupt and/or out of business.

Businesses typically use a combination of the four but there are always people paying the consequences.

And how does Warren Buffet feel about paying so “little” in taxes. The IRS claims BH owes nearly $1 Billion in additional back taxes. Buffet is fighting them.