Warren Buffet, the oracle of Omaha, and the chairman of the Berkshire Hathaway mutual fund, has launched his secretary into the national spotlight with claims that it’s unfair that she pays more in federal income taxes than he does. The first question many have had is if we’re going to reform this nation’s tax code based on how much this particular secretary pays in federal income taxes, shouldn’t we know how much she makes? Both Buffet and Ms. Bosanek have said that that’s private information. Buffet did announce that she’s paying 35.8%, and he’s paying 17.4%. Based upon those numbers, the next logical question is how are each of you declaring your income, as earned income or as dividends or capital gains? Buffet’s response to these probing questions, thus far, has been to call such them personal attacks against Ms. Bosanek. He’s amplified his response recently by saying these criticisms are ‘ridiculous’.
In an interview with The Omaha World-Herald, Buffet said, “none of the online guesses about Ms. Bosanek’s salary are right, and the critics are missing my point.” The next logical question to that statement is what is your point? Do you want to raise capital gains taxes and discourage investment in this country? Knowing Mr. Buffet’s position and stature in this country, one would think that that would be anathema to him, as he should understand how vital private investment is to the companies in this nation and the nation as a whole. Buffet has decided not to clarify his point for us in any manner. He simply wants his complaints about tax rates to be taken on face value, and he wants the statements he makes about the general unfairness of the tax code to be left as a general complaint.
“I’m saying she is being treated unfairly in the tax code, as are tens of millions of others, compared to me,” Buffett said. “They shouldn’t change the rates on all the other people. They should change mine.”
If Buffet is solely upset about the amount he is paying, he could simply give the government more. He has that opportunity. There is a box on the tax form that allows us to give more than what is due. Simply check that box and we can give the federal government more than we owe. Doing so, would relieve Mr. Buffet, and his ilk, of the guilt of paying less in their federal taxes than anyone else.
An argument that is being made against the ‘Buffet rule’ is why do we have to increase taxes to achieve fairness? Why can’t we simply lower the federal income taxes of all the Ms. Bosaneks around the nation to match those rates being paid by millionaires? If we did this, we wouldn’t be punishing anyone unfairly for the manner in which they make money or the amount they make.
As Warren Buffet knows, this criticism being leveled against the ‘Buffet rule’ is not a personal attack against Ms Bosanek. It is a study of the federal tax code, and its fairness, with Ms. Bosanek being used as a symbol of this unfairness, a symbol that happened to be created by our own Mr. Buffet.
Is Mr. Buffet saying that capital gains taxes should be raised? I’ve looked, and I’ve listened, and I don’t see anywhere that Mr. Buffet has ever been specific. Buffet, and subsequently Barack Obama, simply want to lay the claim that it’s unfair that Buffet’s secretary, Ms. Debbie Bosanek, should be taxed at a higher rate than Buffet is regardless of how they’re taxed respectively. He doesn’t want you to examine tax rates and how they’re applied. He doesn’t want you to examine the reason why capital gains rates are lower than earned income rates. To those who have attempted to examine, analyze, scrutinize, and get to the bottom of these claims of unfairness, Mr. Buffet has come to Ms. Bosanek’s rescue:
“They can’t attack the facts, so they attack the person. It’s ridiculous.”
He won’t give us the facts though. His argument is similar to the guy who claims he was taken out of context then refuses to put those same statements in context for us. Buffet won’t give us the facts of his argument, so we are left with his projections and his fuzzy math. Then when we make projections based on this fuzzy math, he says ‘these projections are way off’ (i.e. out of context) and ‘ridiculous’ without clarification.
Very few of us can make a living on our investments alone. Most of us invest and seek dividends as supplemental income. It’s this supplemental income that is now being taxed at the 15% capital gains rate. Our annual income is usually taxed much higher. For the purpose of adding in round figures, let’s say that I make $100,000.00 a year in annual income. According to 2011 federal income tax figures, I would be taxed at between 25%-28%. That would leave me with $75,000 in after taxed income. Let’s say I buy and sell a stock, long-term, with that money. If that’s the case, I will be taxed 15% on the amount that I have gained on the sale, so if I made $10,000 in investment profit then I would have $8,500 of that profit after capital gains taxes are taken. If I lose money on that investment, I am only able to declare $3,000 in losses regardless of amount of the loss. If I gain on that investment, my principle amount is still $75,000, but anything over that is taxed at 15%. The principle amount is not double taxed, but the investment profit is taxed. If you up the capital gains rate on the potential profit of their investment, fewer people are going to be as inclined to take such a gamble. They’d just as soon put their money in a proverbial hole and make nothing on that money than take the risk of loss if their gains are going to be taxed higher. Warren Buffet has the luxury of already having a boatload of supplemental income, and he can gamble that away without too much fear of altering his current lifestyle. He’s admitted that investing is more of a game to him. To some of us, that supplemental income is everything. Again, most of us don’t have the luxury Warren Buffet has of deriving the bulk of our income via dividends or capital gains, so most of us are not taxed at 15% as a result.
Buffet’s statement is confusing on so many levels. He says that he’s only taxed 17.4%, and that that’s unfair compared with the 35.8% that his secretary pays. Some sites have listed Warren Buffet’s nominal salary, as chairman of Berkshire Hathaway, at $100,000 in earned income. Buffet remarried in 2006, so if he files separately from his wife, he should be taxed at a 28% rate…if his sole argument were on that reported $100,000 earned income for 2011. If that isn’t his nominal salary, and he is being taxed in the same manner as Ms. Bosanek when he arrives at his 17.4% rate, then his salary would be around $8,501 – $34,500 annually according to the 2011 federal income and tax brackets. If that’s the case, then he should be audited, because we all know he makes more than that. The point is, we shouldn’t be penalizing all millionaires for Buffet’s malfeasance in this scenario, and we shouldn’t be changing our nation’s federal tax code based on his fuzzy math.
As for Ms. Bosanek, she would only be taxed 35.8% (according to the 2011 federal income and tax brackets) if she were making $379,151.00+ and married and filing jointly. If she files jointly, of course, we would need to know her husband’s salary for thorough analysis, but we don’t have that information, so we could only go with what we know. If she files separately, then she would have to make 189,576+. If these numbers are to be taken seriously, combined with Buffet’s numbers and their relative tax brackets, then Buffet pays Ms. Bosanek more than he declares in annual earned income…Unless, of course, you count investments and capital gains and dividends.
Buffett was quoted in the Times of London, about five years ago, as saying he pays his secretary $60,000 a year. If that’s the case, and she files separately, she would be paying 15%. If that’s the case, then Buffet is paying more at 17.4%. That, of course, defeats Buffet and Obama’s entire argument, so a cynical mind could say this is the reason her salary is being kept private. I understand the need for privacy, of course, but one has to figure that if Ms. Bosanek’s salary bolstered their argument, Obama would encourage Buffet to encourage Ms. Bosanek to not be so private about her annual salary.
Buffet claims that criticism of Ms. Bosanek is ‘ridiculous’, but again it’s not criticism of her individually. It’s critical analysis of her being used as a symbol for why we need tax reform in this country. Mr. Buffet sent her out into the public as a talking point. Buffet and Obama sent her to sit in the State of the Union address as a symbol of why we need reform, and if they’re going to hold her out as the reason we need to radically change the tax structure at this point in our history, shouldn’t we evaluate, and analyze, and scrutinize Buffet’s statements and Ms. Bosanek’s salary and the true nature of taxation in this country regardless of how Mr. Buffet feels about it?