Wealth Mgmnt

Why Warren Buffett has a Lower Tax Rate than his Secretary

I’m sure you remember this story, it was all the rage a couple of years ago.  And the meme persists, it is a battle cry for certain political factions.

But is that reasonable?

At first, this seems unbelievable, but really it makes sense. It’s not just his secretary, it’s also Jeff Bezo’s, Elon Musk’s, Bill Gates’s and other billionaire’s secretaries. This information mustn’t get in the hands of the likes of Elizabeth Warren and her comrades in taxation, for they will surely use it against the handful of billionaires that actually have created more jobs and taxable income than Bernie Sanders would understand.

Look, these guys aren’t getting rich each year by cashing a paycheck every other week. Buffett, for example, makes an annual salary of $100,000, which incidentally has been the same for the last 25 years. Let’s take a closer look at the ways Warren Buffett and other billionaires pay less tax and the economic benefits.

Capital Gains Tax vs Income Tax: For those of you who don’t know the difference, just stop reading now, and enjoy your day job for the next 40 years. Those that do, will understand why Buffett and his brethren use the benefits of the capital gains tax system, and have very little earnings exposed to federal income tax. As CEO of Berkshire Hathaway, the majority of his income is from stock market investments. Even though the long-term capital gains and qualified dividend taxes did not change in the TJIA (taxed at 0%, 15% and 20%), they remain much lower than ordinary income tax rates with the current maximum tax rate in the U.S. at 37%, down from 39.6%.

Best Accounting and Legal Advice: While the federal income tax rates have dropped, the billionaires are still not paying the top marginal rate of 37%. The rich can pay tax accountants to help them find legal ways to reduce their effective tax rate. Again, the income tax rate is not what actually matters, as mentioned. The richest 1% pay an effective federal income tax rate of 24.7%. That is a little more than the 19.3% rate paid by someone making an average of $75,000. And 1 out of 5 millionaires pays a lower rate than someone making $50,000 to $100,000. This is because innovation and investment make the real wealth in America, not a regular income. If you look at the wealthiest people in the world today, such wealth is based upon the equity they created in the companies they started.

Job Creation: The government rewards companies who create jobs with tax incentives that significantly reduce taxes. While these companies are required to pay Payroll Taxes (Social Security, Medicare, etc.) for every employee, there are many tax deductions and credits that help offset these costs. Buffett and Bezos alone have created more than one million jobs in the private sector. How many jobs have Sanders and Warren created in their decades in Congress?

So what it really boils down to is whether raising corporate rates and eliminating tax incentives that create jobs and investments in the U.S. economy is a good idea? If you’ve read this far and still don’t know the answer, you best head back to your GS-4 job and relish in the rise of socialism. The real question every American should be asking is who do you trust more with your money: the government, corporations or yourself? Would you rather have Warren Buffett and Jeff Bezos generate jobs that produce income or have big government collect more money and be more responsible for our economy? Answer is the former.

Wealth Mgmnt