Sep

19

Perhaps the Chair has not yet been apprised of (or, more likely, refuses to lower himself to comment on) Obama's new proposal to tax "millionaires" at a new and higher income tax rate, which Obama apparently plans to campaign on by terming it "the Buffett Rule" (cf "the Volcker Rule), based on the Sage's recent op ed piece to the effect that he should pay a higher tax rate to bring him up to the rate paid by his secretary.

In the course of attempting to explain to Elizabeth and other sensible but tax-unsophisticated family members why Buffet's op ed piece is fraudulent and self-serving, I have found the following the clearest and most effective explanation:

Buffett has a net worth of $70 billion. I have read that based on the fairly modest net capital gains he realizes each year (all he needs to live extremely well on) he pays income tax of about $7 million a year. Thus his yearly income tax represents about 1/10,000 (0.0001%) of his net worth.

The average young, single working stiff makes, say, $60,000 a year, and if he's lucky has a net worth of perhaps $20,000. He might pay almost $20,000 a year in income tax, which would mean his yearly income tax represents almost 100% of his net worth.

And let's take an older middle-class family with a hard-working husband and wife making a combined $250,000 a year, who have saved and purchased a house and have some other investments. If they have been highly successful in their house and other investments, they might have a net worth of perhaps a $1 million. If they pay approaching $100,000 in income taxes, this would mean that their yearly income tax represents almost 10% of their net worth.

To reprise each year's income tax payments at current rates:

Young working stiff, 100% of net worth.

Hardworking H& W with successful investments (well within Obama's "the wealthy"), 10% of net worth.

Buffett, 0.0001% of net worth.

So Buffett's unselfish proposal is: That the middle-class family paying 10% of their net worth each year pay significantly more. That perhaps even the young working stiff pay slightly more. And that Buffett himself pay a little more but since his relative income is so low, still close to 0.0001% of his net worth.

Yes, let Obama run his campaign by lauding Buffett for his unselfishness, and for Buffett's explaining tax fairness to the public in such clear and folksy way.

Phil McDonnell adds:

I agree with Dan that the Sage's comments on this are completely disingenuous. He will never get hit by the tax he proposes. He only makes a salary of $524k/yr because that is what he chooses to take. Rich people have a great deal of control over how they get their income. They can hide it in corporations that do not pay dividends. They can choose not to take capital gains in years with high taxes on such. Alternatively one can take capital losses as offsets. They can choose to pay themselves a dividend.

In Buffet's case the vast majority of his money will never be converted to capital gains because it will be donated to the Gates foundation to provide a nice future income for his kids and their kids. It will never see estate taxes either. The idea that the problem is all about the tax rate is a deceitful canard.


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