Comments on: Tax Rates of the Rich and Famous

By: Steve Verdon

Steve Verdon — Thu, 28 Jun 2007 22:28:13 +0000

By taxing the same income in different ways. If a pension plan has an investment in a firm that pays a dividend and puts that money back into its investments, then it would likely be treated differently than the dividend paid to the idividual stock holder who takes the money, even if he fully intended to re-invest it say at a later date. Basically it causes distortions in how various entities in the economy behave and has two tax wedges (deadweight losses) instead of one.

By: Ugh

Ugh — Thu, 28 Jun 2007 20:53:31 +0000

It violates the notion of vertical equity.

By...?

By: Steve Verdon

Steve Verdon — Thu, 28 Jun 2007 19:41:51 +0000

Why shouldn't it be?

It violates the notion of vertical equity.

By: charles austin

charles austin — Thu, 28 Jun 2007 19:00:02 +0000

I think there is a structural error in the Tax Policy Center's formulas in the link provided. By including deferred and untaxed income (e.g. 401-K contributions) as pretax income, they have decreased the relative percentage of taxes paid, even though an undetermined tax liability still exists on those funds when they are ultimately withdrawn. I believe it would be more correct to exclude any deferred and untaxed income from the pretax income sum to give a tax percentage result that is more accurate. Otherwise, year to year comparisons would be meaningless as the same funds would be counted twice as pretax income (once when earned and once when distributed) though only actually taxed once.

By: Andy

Andy — Thu, 28 Jun 2007 18:13:40 +0000

Quite a bit of "unearned income" is taxed under corporate profits, then gets taxed again as income.

Why shouldn't it be?

By: Steve Verdon

Steve Verdon — Thu, 28 Jun 2007 18:00:04 +0000

Andy,

Quite a bit of "unearned income" is taxed under corporate profits, then gets taxed again as income.

By: Jon Henke

Jon Henke — Thu, 28 Jun 2007 17:34:05 +0000

Are you sure John? I looked at the link and while it mentions Social Security it appears to do so in terms of income.

It gives a separate account of effective tax rates for "social insurance taxes" (i.e., payroll taxes) for each quintile and the top percentages.

It also gives the cumulative effective federal tax rates, which include that and other taxes.

By: James Joyner

James Joyner — Thu, 28 Jun 2007 17:33:40 +0000

providing that it wasn't already previously taxed as income.
What does this mean?

Just making a distinction between whether the stocks were purchased with pre-tax or post-tax dollars.

By: Steve Verdon

Steve Verdon — Thu, 28 Jun 2007 17:28:04 +0000

Are you sure John? I looked at the link and while it mentions Social Security it appears to do so in terms of income.

However, even if it isn't counted I can't imagine it would move a person's federal obligation from say 18% to 32%, that is just a pure load of bravo sierra--i.e. Buffet is lying.

By: Andy

Andy — Thu, 28 Jun 2007 17:24:47 +0000

providing that it wasn't already previously taxed as income.

What does this mean?

By: Jon Henke

Jon Henke — Thu, 28 Jun 2007 16:29:36 +0000

No, James. If you follow the link to the total effective federal tax rates, you'll see that the rates include "all" federal taxes.

Payroll taxes are included, as are wages, dividends, and realized capital gains.

Even with all of that included, the Tax Foundation (Urban Institute and Brookings) says the top 1% of all taxpayers pays a lower total federal tax rate than he claims is "average" for his staff.

By: James Joyner

James Joyner — Thu, 28 Jun 2007 15:10:22 +0000

Buffett arranges so that virtually all of his income is in the form of capital gains that are taxed at a 15% rate.

That's a fair point. I'm not sure why that income shouldn't be taxed at the same rate as any other, providing that it wasn't already previously taxed as income.

By: spencer

spencer — Thu, 28 Jun 2007 14:58:00 +0000

Buffett arranges so that virtually all of his income is in the form of capital gains that are taxed at a 15% rate. He is paid $100,000 in salary that is subject to individual income tax and FICA. But this out of $24 million is insignificant so that the above discussion is irrelevant. Figure it out yourself -- $100,000 at 32%, $90,000 at 7.5% and $23,900,000 at 15%. This actually works out to be 15.1%.
He probably gets some fringe benefits like use of the corporate aircraft that he has to pay taxes on to tax on at a 32% rate that takes his total taxes up to 15.7%.

By: Andy

Andy — Thu, 28 Jun 2007 14:35:59 +0000

Anyone who doesn't include FICA in a discussion of tax rates is a dishonest fraud.

By: Russell Newquist

Russell Newquist — Thu, 28 Jun 2007 14:28:59 +0000

1) Buffett is almost certainly including FICA taxes in his calculation. If you don't, it's almost impossible to get his numbers. If you do, it's actually quite easy. 2) I hope I'm not the only one who sees the irony in calling FICA a form of "retirement savings" in regards to employees of Berkshire Hathaway. I'm not saying you can't make the case, but you have to admit that it's pretty funny in this context.