tag:blogger.com,1999:blog-7126131564610858851.post3402686497963932443..comments2023-09-09T10:21:32.853-04:00Comments on The Hackensack: Does Warren Buffett's Secretary Have a Higher Effective Tax Rate than Him?DaveinHackensackhttp://www.blogger.com/profile/01313169814904229272noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-7126131564610858851.post-56963495568511151802009-11-05T16:38:16.942-05:002009-11-05T16:38:16.942-05:00http://www.washingtonpost.com/wp-dyn/content/artic...http://www.washingtonpost.com/wp-dyn/content/article/2007/06/27/AR2007062700097.html<br /><br />According to the washington post, which is quoting Warren Buffett himself, <br />"NEW YORK, June 26 -- Warren E. Buffett was his usual folksy self Tuesday night at a fundraiser for Sen. Hillary Rodham Clinton (D-N.Y.) as he slammed a system that allows the very rich to pay taxes at a lower rate than the middle class.<br /><br />Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent. "Jayhttps://www.blogger.com/profile/08170290337577940269noreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-23204852235964762552009-03-12T09:17:00.000-04:002009-03-12T09:17:00.000-04:00Kevin,As I mentioned in the post, as well as in my...Kevin,<BR/><BR/>As I mentioned in the post, as well as in my previous comment, the CBO data takes into account payroll taxes. To clarify and expand on that, the CBO includes both the employer and employee portion of the payroll taxes in its calculation. I am aware, as is the CBO, that OASDI is capped at the Social Security wage base (and that the Medicare portion of the payroll tax is not). From the <A HREF="http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml" REL="nofollow">CBO site</A>:<BR/><BR/><I>"CBO’s analysis of effective tax rates assumes that households bear the burden of the taxes that they pay directly, such as individual income taxes (including taxes on interest, dividends and capital gains) and employees’ share of payroll taxes. The analysis assumes—as do most economists—that employers’ share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid. Therefore, the amount of those taxes is included in employees’ income, and the taxes are counted as part of employees’ tax burden."</I><BR/><BR/>Now, taking into account both the employer and employee portion of the payroll taxes, the CBO still found that, in 2005, the fourth quintile of earners (who average $85k in pre-tax earnings) had an effective tax rate (taking into account all federal taxes, including income taxes and the employer and employee portion of the payroll tax) of 17.4%. So if Buffett's secretary makes $85k, it seems possible, though highly unlikely, that she has a higher effective federal tax rate than Buffett. <BR/><BR/>If Buffett's secretary is instead in the middle quintile of earners (average income of $58,500) which had an average effective federal tax rate of 14.2% in 2005, it would seem even less likely that she has a higher effective federal tax rate than Buffett, considering that the capital gains tax rate itself is higher than that (15%). <BR/> <BR/>As I wrote in my initial post,<BR/><BR/><I>"It's possible that the ultra-wealthy such as Buffett have lower effective tax rates than the top 1%, because nearly all of the income of the ultra-wealthy comes from capital gains, but I doubt the ultra-wealthy have lower effective tax rates than housekeepers and secretaries. I'd be more inclined to believe that Buffett's physician has a higher effective tax rate than him than that his housekeeper does. Perhaps Buffett will make public his and his secretary's and housekeeper's tax returns so others can verify this."</I>DaveinHackensackhttps://www.blogger.com/profile/01313169814904229272noreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-59333861973912830672009-03-12T07:30:00.000-04:002009-03-12T07:30:00.000-04:00You are correct, it's technically not SECA because...You are correct, it's technically not SECA because the company pays it on your behalf. Nonetheless, he includes it his calculation. I just said SECA because it is the half you would half to pick up if you were self employed.<BR/><BR/>So I pay 7.65%, my employer pays the other 7.65%, for the total of 15.3%. You then have to adjust you income up 7.65% when you go to calculate your tax rate. So say I make 50K and pay an income tax rate of 10%. Then the total according to Buffett (since I am below the SS wage base) is (10%+15.3%)/1.0765 = 23.5%.<BR/><BR/>If you make more than the SS wage base, you have to change the calculation to take into account that the OASDI is capped.<BR/><BR/>So between most of his income being taxed at the capital gains rate and the capping of the OASDI on the portion that is taxed as regular income, you can see how his statement could be true using his formula. So then the question becomes wether or not his formula is appropriate. Hope this helped.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-89156000588451175162009-02-26T20:20:00.000-05:002009-02-26T20:20:00.000-05:00"Buffett includes FICA and SECA in his calculation...<I>"Buffett includes FICA and SECA in his calculation."</I><BR/><BR/>The CBO data I quoted in the post take into account FICA taxes. I'm not sure why Buffett's secretary would have to pay SECA though, which is generally for self-employed business owners.DaveinHackensackhttps://www.blogger.com/profile/01313169814904229272noreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-54617275368725058162009-02-26T13:33:00.000-05:002009-02-26T13:33:00.000-05:00Buffett includes FICA and SECA in his calculation....Buffett includes FICA and SECA in his calculation. My federal income tax rate was about 6.5% last year, but when you add in FICA and SECA it jumps to about 20.7%.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-24280266452622373412008-10-27T21:05:00.000-04:002008-10-27T21:05:00.000-04:00Jason,"Average tax rate" means the same thing as "...Jason,<BR/><BR/>"Average tax rate" means the same thing as "effective tax rate"; they both refer to the actual taxes one pays divided by one's pretax income. See, for example, <A HREF="http://www.investordictionary.com/definition/average+tax+rate.aspx" REL="nofollow">this definition of Average Tax Rate</A> and <A HREF="http://www.investorwords.com/1668/effective_tax_rate.html" REL="nofollow">this definition of Effective Tax Rate</A>. In your comment you seem to be confusing "effective tax rate" with "marginal tax rate". Thanks for your comment though. I'll update the post to note that "average tax rate" is another way of saying "effective tax rate".DaveinHackensackhttps://www.blogger.com/profile/01313169814904229272noreply@blogger.comtag:blogger.com,1999:blog-7126131564610858851.post-12185773875355551032008-10-27T01:00:00.000-04:002008-10-27T01:00:00.000-04:00Megan McCardle DID mean average tax rate! I don't...Megan McCardle DID mean average tax rate! I don't even know who she is, what she was talking about, or how the heck I came across your blog but this is embarrassing. There are fundamental and calculative differences between one's effective and average tax rate. I'm only 22, please don't let people like me school you on your own website.Anonymousnoreply@blogger.com