Thursday, July 28, 2011
The Oracle of Omaha is at it again. On July 7, Warren Buffett told Bloomberg: "I think the rich have a responsibility to pay higher tax rates." Then he groused that his wealthy friends are "paying lower tax rates than the people who are serving us the food." Mr. Buffett has been voicing this complaint for years, once observing that his personal tax rate of 17.7% is lower than that of his receptionist (30%).
During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't. ...
Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. ...
Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett.
Future of Capitalism, Buffett and Taxes, by Ira Stoll:
Mr. Moore doesn't mention anywhere in the piece that Mr. Buffett has pledged a huge portion of that $38 billion to the Bill and Melinda Gates Foundation. When you donate appreciated stock to a charity, you avoid the capital gains tax. I believe one can also avoid the capital gains tax at death under the estate tax by getting a step-up in basis, but then your estate (in essence, your heirs) has to pay the estate tax. In other words, Mr. Buffett may well manage not to pay a capital gains tax on that "income." This point doesn't necessarily undermine Mr. Moore's argument that Mr. Buffett has a higher tax rate than his secretary. ... What it does tend to undermine is Mr. Buffett's argument that he should pay more taxes. If he wanted to, he could. But he has chosen to organize his affairs so as to minimize his taxes, figuring that he (and Bill and Melinda Gates) are better at allocating capital than the politicians in Washington are.