Obama and the Buffett Rule Explained- Facts and Deception
The Buffett Rule Tax Proposition - A Political Gimmick
Editorial from the Curmudgeon's desk - April 10, 2012
President Obama has made "taxing the rich" one of the major planks of his reelection campaign, and using the so-called "Buffett Rule*" to highlight the apparent inequities of the U.S. tax code - he has tapped into a popular sentiment. But is he playing too fast and loose with the facts? Will the real facts of the Buffett's vs. his secretary's tax comparison validate his contentions, or expose his efforts as demagoguery of the rich?
*Paying a Fair Share Act of 2012, commonly known as the "Buffett Rule", or the "Millionaire's Tax," would require "high-income earners" to pay a minimum tax rate, (30% is the proposed number), regardless of the source of income or legal deductions available.
Warren Buffett started the controversy with an editorial comment that he paid a lower tax rate than his secretary, and from there the issue went viral. The facts that not only was he incorrect, but he was also making an "apples and oranges" comparison, didn't seem to matter. Here was one of the world's richest men complaining about his low taxes - a godsend to an administration whose mantra was "the rich must pay their fair share."
The Buffett tax rate controversy
As any veteran politician will tell you, it's not the facts that are important - it's the perception of those facts, and in the controversy stirred by Mr. Buffett's comments that he pays a lower tax rate than his secretary, the truth of that political adage is obviously apparent.
Fair sentiment - Unfair portrayal
It may seem like a mere case of semantics, and the contention that millionaires, (rich people), should pay more taxes can be popularly defended, but the statements made in this ABC News video are at best misleading, and at worst intentionally deceptive and incorrect.
Warren Buffett does not pay a lower tax rate than his secretary. At least not to the proportions stated. Perhaps a percentage point or two, but not the doubling, 17.4% vs. 35.88% as stated in the video. As a percentage of total income, his rate of taxation is lower than that of his secretary, but it is not due to a special lower tax rate for millionaires - it is due to the type of income taxed and the structure of the U.S. Tax code.
Since in politics, appearances are everything - nobody is pointing out that two different types of taxes are being discussed. Capitol Gains taxes vs. Federal Income taxes. If the same comparisons were made, but using the same type of taxes, then the results would be very different.
Warren Buffett's income is from investments and dividends and are taxed at the 15% capitol gains tax rate. If his secretary, Debbie Bosanek's income were from the same sources - she would pay exactly the same tax rate as Mr. Buffett - the 15% Capitol gains tax rate.
And, if Mr. Buffet's income was from earned income, either in wages or other compensations, he would pay the top Federal Income tax rate of 35%, whereas Ms. Bosanek's Federal Income tax rate on her wage and compensation income is estimated to be in the 20% - 25% tax bracket. (based on an estimated salary of $60,000 per year)
The facts are that two different types of taxation are being compared as if they were the same. The issue is further clouded by the inclusion of Ms. Bosanek's payroll taxes liabilities on her earnings - taxes Mr. Buffet's income is not subject to.
Fairness and the Buffett Rule Tax Proposal
Without addressing the specifics of each one's tax liabilities, and presenting the comparison as an overview, President Obama has turned the issue into one of fairness - a theme that resonates with Americans struggling through these tough economic times.
Buufett's Tax Rate vs. Buffet's Tax Amount
Admittedly, Warren Buffett's secretary's taxes are her own business, and should only be discussed specifically if she chooses to release her information, but in the "Buffett Rule" controversy - much has been made about the fact that she purportedly pays a higher rate of taxes than her billionaire boss. It has been pointed out that this contention is not based on equal comparisons, but what are the facts if tax dollars paid were discussed instead of tax rates?
Based on an assumed, (reliably sourced as a typical salary for her circumstances), annual salary of $60,000, and assuming that she took only the most minimal standard deductions, (a personal exemption of $3700 and a standard deduction of $5800, producing a "taxable income" of $50,500), Ms. Bosanek's Federal Income tax liability would be in the neighborhood of $8750, or 14.6% of her annual salary. Not so far from Mr. Buffett's 15% Capitol Gains tax rate.
To complete the picture, Buffett's secretary also had to pay payroll and medicare taxes of approx. $3390, ($2520 Social Security taxes and $870 Medicare taxes), which brings her total tax liability for the year to $12,140 or 20.2%. Again, not so far from her boss' rate, and a far cry from the "claimed" 35.8%.
Note: the ABC News video, linked above), does not explain how it reached the 35.8% tax rate for Ms. Bosanek. Even using the documented IRS tax bracket of 25%, (for $60,000 income - before deductions), and the 6% Payroll tax numbers - the 35.8% figure is still unexplained.
Mr. Buffet's income for 2010 was given as $62,000,000. On which he paid a 17.4% tax rate, producing a tax liability to the U.S. government of $10,788,000*.
*Note: It has not been confirmed that this tax liability has paid.
By appearances, it seems that the demagoguery of the tax inequity may not be exactly as portrayed. $11,000,000 is a pretty hefty share to pay, regardless of its percentage value.
Congressional Budget Office Tax Analysis Report
Since statistics can easily be "spun" to present different interpretations - to support different positions, it is important to also know the source of the data being used. The tax vs. income ratio chart below is from the U.S. Congressional Budget office, (CBO).
Note: This chart is for fiscal year 2007, the latest data compilation available, but more recent auxiliary CBO reports document that individual tax rates, relative to proportions of income ratios have remained stable since 2007.
The truth vs. the "Buffett Rule" presentation
Notes: In this officially released Congressional Budget Office Report:
- Total U.S. earned income is divided into five "quintiles" (groups) - from lowest incomes earned to highest
- The light blue bars represent the percentage of a group's income relative to the total U.S. income earned
- The light brown bars represent the percentage of a group's income tax liability relative to the total U.S. income taxes paid
Comparing real, actual income tax liabilities to the picture painted by President Obama's "Buffett Rule" speeches and comments yields too many contradictions to make it likely that the president is unaware of the deceptive nature of his comments.
- He speaks of high-income earners needing to pay their "fair share" of taxes, when in fact his own CBO documents that although the highest quintile, (income bracket), earn 55.8% of the total U.S. income, they pay 68.9% of all Federal income tax monies received by the government.
- He speaks of millionaires and billionaires, (the 1%), needing to pay their "fair share" of taxes, but once again the CBO documents that the top 1% of income earners earn 19.4% of total U.S. income - but pay 28.1% of all Federal income taxes received
These CBO report numbers seem to indicate that millionaires, billionaires, and the rest of the "high-income" earners are already paying a pretty hefty "fair share" of Federal income taxes. This appears to contradict the picture the president is painting in his promotion of the the "Buffett Rule" tax solution.
Couple this data with the related issue of Mr. Buffett's 10-year, $1 Billion dollar tax fight with the IRS, (he has been in litigation with the IRS since 2002 over $1,000,000,000 in tax debts), and his angst over the inequities of his tax rate vs. his secretary's, and Mr. Obama's adoption of his cause as an issue of "fairness" seem to lose much of their validity.
President Obama's "Buffett Rule" Statements
It would be difficult to find anyone that would not agree that the U.S. tax code needs reform. It is finding two people that agree on what that reform should be that is difficult.
Given that, depending on which source you quote, the top 10% of taxpayers already pay 40% to 46% of all Federal taxes, and approx. 45% of Americans pay no Federal taxes, President Obama's "Buffett Rule" rhetoric is, at the least, disingenuous, and at worst, outright deception.
If the president is serious about tackling tax reform and the deficit, he should be proposing real tax code reform, not pandering to the emotions of class and wealth envy. It has been said that a lie is not a lie if at the time you say it you did not know it to be false. President Obama knows exactly what he is saying, what he is doing, and how the "masses" will perceive it.
As an individual, most people would be insulted if someone thought they could tell them anything they wanted, just because they thought the listener was too stupid to know better.
Where is the outrage of insult? Are we getting what we deserve? Or, is President Obama telling the truth, and non-believers are just too brainwashed by the conservative-right to see the truth?
To remove any doubt of bias...
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About the Author
Reporting for the Daily Constitutional, and providing articles for various online publishing sites are my primary work responsibilities, but it is the freelance editorials from the Curmudgeon's desk that provide the most satisfaction. - GAA
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