The Conundrums of Warren Buffet

Recently Warren Buffet was famously quoted in the New York Times as saying that his taxes were "only 17.4 percent of his 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." This quote was used by President Obama as justification for increasing taxes on “millionaires and billionaires” (the so-called Buffet Rule). But should we just take Mr. Buffet at his word and sign up for higher taxes?

Conundrum 1) Well Paid Secretaries

US federal taxes are basically made up of income taxes (graduated from 10% to 35% based on income) plus Social Security Taxes of 6.2% (capped at the first $106,800 of income) and Medicare taxes of 1.45%. I read Mr. Buffet’s statement and thought to myself, “I make pretty good money but my taxes are much less than 33% of my income”. I don’t do anything fancy; I just use the standard deduction, plunk as much as possible into my 401(k) and write off $3,000 in capital losses (the maximum permitted but that is another story). If you take a taxable income of $379,150 (remember gross income is higher) and apply the standard tax rates you would come up with $110,017 of taxes which is equal to 29.0% of taxable income. Adding in Social Security and Medicare taxes would bring the tax rate up to 32.2%, still below the rate supposedly paid by Mr. Buffet’s office staff. A person with taxable income of $1,000,000 would pay an all-in tax rate of 34.85%, below the supposed average of Mr. Buffet’s office workers. Mr. Buffet must pay his workers very well!

Conundrum 2) Poor Warren

Mr. Buffet stated in his Times piece that he paid $6,938,744 in tax which represented only 17.4% of his taxable income which would imply an income of about $39,877,839, give or take a bit for rounding (we, of course, have no idea of his gross income). This is a lot of income (and tax) for anyone. However, since Forbes magazine lists Mr. Buffet fortune at $39 billion, he is only making a (taxable) return of one-tenth of one percent of his wealth. How would Mr. Buffet feel if President Obama came up with a wealth tax of one percent (not that I’m recommending that). That would raise $390 million in taxes – now we’re talking about some money.

Conundrum 3) Giving Pledge

On the web site for the Giving Pledge, Mr. Buffet states that he has already given away about 20% of his wealth and that he plans to donate to various charities 4% of his wealth in the form of shares of Berkshire Hathaway every year until he has given away 99% of his wealth (presumably leaving him only $390 million to muck around with). We must congratulate Mr. Buffet, not only for his generosity which is indeed awesome, but also for his wisdom in keeping most of his wealth out of the hands of the federal government. If Mr. Buffet really wanted to pay more taxes he could have easily given his wealth to the government (which would have actually made a noticeable dent in the deficit giving us a breathing space of about 10 days). But he didn’t. I am sure he realizes that the money can be much more effectively used in actually solving the world’s problems by donating to some of the excellent charitable organizations around the world. Not only that, in this way he will greatly reduce, if not eliminate, the estate taxes incurred by his family upon his death.

I have never met Mr. Buffet. I have read that he is a very nice man. I am sure that is the case: there are not many people willing to give away $39 billion (although Bill Gates is looking hard to find them). For my part, I would be immensely pleased to give the government one-tenth of one percent of my wealth and use the balance for worthy causes of my own selection.

Publius, September 29, 2011

Now comes Mr. Buffet’s latest challenge. That for every dollar a Republican member of Congress donates to reduce the national debt, he will match it. It’s true that many Republicans in Congress are rich, but so are many Democrats – why not include them in his dare? No matter. Let’s just deal with the challenge as stated. As rich as Republican Congressmen are, Mr. Buffet is far richer. The mean, nasty Republicans could all donate all their wealth and Mr. Buffet’s matching funds could be made from his pocket change. It’s like Mike Tyson challenging a toddler to a fight. C’mon Mr. Buffet - pick on somebody your size!