During President Obama’s State of the Union speech, he made a point of introducing überbillionaire Warren Buffet’s secretary — now better known for allegedly having a higher tax rate than Buffet himself. Since Obama wants to put bigger tax burdens on the rich — Buffet has even volunteered that he needs to pay more taxes — having her on hand was grand political theater.
Whether or not you fell for it, let’s take a look at the logic (such as it is) involved.
First, Buffet could always choose to pay his taxes on the short form, which would run his taxes right to the roof. But you can be darn sure he won’t. The short form is for people who have no deductions and probably aren’t making all that much money. Buffet probably employs tax attorneys and accountants to make sure he doesn’t pay a dime more than he is required to under law.
In effect, he is saying, “Change the law so I’ll have to pay more, but don’t think I’m going to be a sucker and send in donations.”
He probably pays his secretary pretty well, too. You can bet she’s not on food stamps or the Nebraska version of MediCal. That’s why her basic tax rate may be higher than yours or mine.
Buffet probably makes most of his money through capital gains — the sale of securities. Tax rates on capital gains are generally lower than on ordinary income.
Likewise, Republican presidential candidate Mitt Romney pays most of his taxes on capital gains. He was slow to show his tax returns, but when he did it showed nothing out of place.
Making money on capital gains and paying capital gains tax rates is not a capitalist plot, by the way. It is following long-standing laws made by Congress. Romney and Buffet aren’t tax cheats. They are just businessmen following the rules.