Wednesday, June 27, 2007

Warren Buffett, who I give lots of credit as an investor, but little to none as a policy-maker, was moaning last night at a Hillary Clinton fundraiser that it was unfair that his secretary paid in about 30% of her income in taxes while Buffett 'only' paid tax at a rate of 17.7% on his $46 million in income.

Let me first respond by pointing out to dear Warren that he can easily pay a higher rate than 'only' 17.7%. There is no law that requires taxpayers to claim all the deductions they're entitled to. If Buffett wants to pay at a higher rate, then he can do without whatever number of deductions he wants - mortgage interest, medical payments, business expenses and so on, all of which lower his taxable income - and pay more in taxes.

He can also choose to not take his income in the form in which he does. I presume a major reason for his 'only' having to pay 17.7% in taxes is that he takes much of his income in the form of dividends, which are taxed at a rate of 15%. Were he not to do do, but rather take his income in the form of ordinary compensation (which he could easily do, as he is the boss and can pretty much structure his compensation the way he wants), he would be paying taxes on that income at a rate in excess of 30%.

And if he doesn't want to fiddle with his tax return or go about restructuring his compensation agreements, there is nothing - absolutely nothing - that prevents him from sending in a check to the IRS for whatever extra amount he feels he ought to be paying. If he thinks he ought to be paying 30% of his $46 million in income, instead of 'only' 17.7% , then he can send in a check for an additional $5,658,000 (the difference between 30% and 17.7% on $46 million).

In fact, it is this last point that bothers me the most about the rich liberals calling for higher taxes. They claim the federal government needs more money, or they claim, as Buffett is doing, that it is unfair that lower-income people pay taxes at a higher rate than the rich.... but the rich never seem to take out their checkbooks and send in a check for the amount or at the rate they want the rest of us to pay. John Edwards groans and moans about 'Two Americas'... but used a tax avoidance scheme to avoid paying employment taxes on millions of dollars in income. Hillary Clinton goes on and on about needing to take more money out of the pockets of those who 'have' in order to pay for what needs paying... and yet (I presume, based on her not claiming to have done so) neither she nor her $100,000+ a speech husband aren't doing without taking deductions or voluntarily paying taxes at a higher rate. It's hypocrisy to demand that we all do something they're not doing for themselves.

A final (and very non-progressive) point: Assuming Buffett's secretary made somewhere in the ballpark of $125,000 (high for a secretary, but we're talking Buffett), she paid in somewhere in the area of $37,500 in taxes. Buffett, on the other hand, even paying in a rate of 'only' 17.7%, paid in over $8 MILLION in taxes. If I were to complain, I would complain about a tax system that has one taxpayer required to pay over 200 times the amount of taxes that another American is required to pay. Some equal treatment under the law.