Rosen: Buffett’s Tax Fraud

Perched next to Michelle Obama at President Obama’s State of the Union campaign speech, in full view of the TV cameras, was Warren Buffett’s secretary, the woman who Buffett tells us pays more taxes than he does, her multibillionaire boss. She served as a convenient prop for Obama’s latest round of class warfare. I deconstructed Buffett’s specious claim four years ago when he first made it. Apparently, it’s time for an update.

His assertion is that he and the super rich pay a lower tax rate than their “secretaries and receptionists.” The key word here is “rate.” Obviously, when considering the amount of total tax dollars collected, the rich pay an inordinate share — far more than their “fair share” — of the overall income tax burden. The top 1 percent pays 37 percent of all individual federal income taxes; the top 10 percent pays 70 percent; and the bottom 50 percent carries only 2 percent of the burden.

Buffett extracts a pound of lie from an ounce of truth while throwing in a heavy dose of half truths and convenient omissions. While it’s true that rich and not-so-rich investors pay lower tax rates on things like capital gains, dividends, and interest on municipal bonds than is paid on ordinary wage and salary income, there are perfectly good reasons for that.

Corporations that pay dividends to shareholders do so with after-tax dollars, having already paid a corporate income tax on their earnings. The lower tax rate that shareholders

have paid in the past on dividend income when they file their individual tax returns serves to offset some — but not all — of this double taxation. (The lower tax rate on ordinary dividend income, unfortunately, is being eliminated.)

Likewise, the capital gains tax is also double taxation, as eloquently explained by economists Victor Canto and Harvey Hirschorn in more words than space allows here. Moreover, if a stock increases in value over the years, much of the gain is illusionary, eroded by inflation. The capital gains tax makes no allowance for this. A lower tax on capital gains is a productive incentive for people to defer current consumption and invest in the future, creating wealth for themselves and society.

But Buffett’s worst manipulation is lumping together income taxes and payroll taxes in the comparison with his secretary. Payroll taxes are for specifically dedicated programs like Social Security and Medicare. Investment income isn’t and shouldn’t be subject to the payroll tax, and Buffett has far more investment income than his secretary.

Income taxes are sharply progressive, with almost 50 percent of Americans paying nothing at all. Conversely, a uniform Social Security tax rate (normally 6.2 percent each for employee and employer; although a 4.2 percent employee rate is temporarily in effect) is levied on an employee’s salary, capped at an income limit of $110,100 in 2012 (increasing each year with inflation). So, obviously, a lower-salaried secretary would pay a greater percentage of her income in payroll taxes than a much higher-salaried boss whose income is well above $110,000. But, again, this is for good reason. Social Security benefits are similarly capped. From its inception, Social Security was described as a forced savings plan for your own retirement or disability. If the Social Security tax on individuals had no limit, it would be just another income transfer/welfare program, which is precisely what liberals want.

With no cap, the normal, combined employee/employer rate of 12.4 percent on a $1 million salary would result in a tax of $124,000 in 2012 instead of $13, 652. That’s an increase of about $110,000. On a $10 million salary, that would be a tax increase of about $1,226,000. And this would be on top of income taxes, which Democrats also want to increase. This is grand larceny.
Read more: Mike Rosen – The Denver Post


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