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Date archive for: August 2011

HIGH INCOME EARNERS BUFFETED!

August 16, 2011

1. The Daily News printed in today’s edition a comment column by Warren Buffet. It included several misleading statements.

2. He tried to make the point that the “mega-rich” pay income tax at 15% on most of their earnings, but practically nothing in payroll taxes. He did not indicate any approximate breakdown between dividends, capital gains, and salary that resulted in his 2010 income tax of $6,938,744, which was about 17.4% of his taxable income. Dividend income is taxed at 15% on corporate income that is left after a 35% corporate tax rate. That results in an effective tax rate of 44.75% on those earnings. Some (a relatively few) on Wall Street, if their speculations payoff, get a special “carried-interest” rate of 15% on such gains. For some gains on stock futures (details need to be known) there’s also a 15% tax rate on 60% of the gains.

3. He conveniently lumped his talk about tax rates for the 1980s and 1990s together. That overlooked the substantial reductions authorized in the 1986 Tax Reform Act, which was primarily responsible for the 40 million jobs he mentioned were added during that period.

4. He claims that the “mega-rich” pay practically nothing in payroll taxes. But payroll taxes are based on a limited amount of earned income. For 2011 the limit is $106,800.00. Supposedly recipients of Social Security are paid based on what they, and their employers, pay into the fund. So the “mega-rich” receive no more benefit out of Social Security than anybody else. For a married couple filing jointly, up to $32,000 of Social Security is tax free. The Standard Deduction and Personal Exemption increase the tax exempt amount. Depending on how much income is received from other sources, up to 85% of the Social security income becomes taxable. That’s progressive tax rates in action.

5. He said he knows many “mega-rich” philanthropists who are very decent people, who wouldn’t mind being told to pay more taxes as well. The question is, depending on how much additional tax, what effect would that have on the amount of charitable donations they would make to needy organizations.

What I found to be very conclusive and telling was his comparing the 1992 income tax paid on taxable income for the 400 largest income earners and the 2008 income tax paid by that year’s 400 largest income earners. Mr. Buffett said that the group’s 1992 taxable income of $16.9 billion was taxed at 29.2% while the 2008 group’s taxable income of $90.9 billion was taxed at only 21.5%. But he failed to say that the $90.9 billion at 21.5% generated $19.54 billion in taxes compared to $4.935 billion generated by the $16.9 billion in taxable income. In fact, the 2008 tax rates generated more actual tax revenue than the amount of taxable income generated by the 1992 tax rates. It looks like he made the case for lower tax rates.

Not Meeting Anyone’s Needs

Published in the August 14, 2011 Daily News:

Considering the large and continuing federal budget deficit agreed upon in the debt limit increase, it would have been even more surprising if there was no credit downgrade. If the current trillion dollar-plus annual deficit habit continues, before long there will be no funds for social security, health care, or national defense. All the revenue would have to be used to pay the interest on the debt. Then nobody’s needs are met.