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Interesting Breakdown of Warren Buffett’s Secretary’s Tax and Salary

By JLP | January 26, 2012

Saw this on Forbes:

Warren Buffett’s Secretary Likely Makes Between $200,000 And $500,000/Year

Not sure how accurate the author’s numbers are. I’m fairly certain that those who are using tax rates for effect, are probably including payroll taxes. If that’s the case, his numbers are off.

One thing I find amusing about Buffett and his tax situation is that he’s the boss and he COULD pay himself a much larger salary and pay the income taxes on it accordingly. He doesn’t do that, though. Oh, and if he really did desire to pay more taxes, he could always write the IRS a check. My respect for Warren has soured over the last few years.

Topics: Taxes, Warren Buffett | 37 Comments »


37 Responses to “Interesting Breakdown of Warren Buffett’s Secretary’s Tax and Salary”

  1. Dave M Says:
    January 26th, 2012 at 5:26 am

    I think Age is having a negative effect on Warren. His tax stance is very dishonest.

  2. BG Says:
    January 26th, 2012 at 7:01 am

    Burffett has always said: “including payroll taxes”. Once again a news article that neglects (or belittles) the largest chunk of taxes paid by 50% of the population.

    Buffetts total federal taxes are around 15%. His secretaries total federal taxes are more than 15%. Those are factual statements and do not require the secretary to make $200-$500k. MY total federal taxes are higher than that, and I make nowhere near those amounts.

    The simple fact is that dividend income is taxed far less than earned income.

  3. Jack Says:
    January 26th, 2012 at 7:16 am

    Buffett paid half of the FICA and Medicare taxes for ALL of his employees.

  4. BG Says:
    January 26th, 2012 at 7:19 am

    JLP) I know you have said: but the dividends are already taxed at the corporate level, and you are right.

    The problem is this: on the individual’s return, that information is simply not available. Which is why I advocate Franking Credits so that information is clear on the individual’s return.

  5. BG Says:
    January 26th, 2012 at 7:21 am

    Jack) No, those taxes are paid, in the end, by the employee based on the employees wages. I guess technically, those taxes are paid by the corp’s customers…

  6. Jack Says:
    January 26th, 2012 at 8:45 am

    You and Adam Smith have a fundamental disagreement. He believed that taxes on income raised income to compensate.

  7. JLP Says:
    January 26th, 2012 at 8:55 am

    I wonder why Buffett didn’t include the employer’s portion of social security in his example. Afterall, isn’t that considered (confiscated)employee income?

    Another thing…

    If Buffett’s secretary isn’t making a high salary, why not? If “taking care of people” is the liberal’s mantra, shouldn’t that start with those closest to you?

  8. tom Says:
    January 26th, 2012 at 9:20 am

    Buffett has written checks to the government to pay down the debt.

    In fact he issued a challenge to Republican lawmakers to write checks and he would match or double them. One GOP lawmaker did take him up it and Buffett wrote a check.

    Buffett could pay himself a salary, but he’s frugal and financially intelligent and sees that it’s a stupid idea.

  9. BG Says:
    January 26th, 2012 at 9:58 am

    JLP) what makes you think liberals (like buffett) are anti-capitalistic? Buffett is probably the best capitalist that has ever lived in the US, and he is a liberal.

    I’m sure Buffett is paying his secretary what he thinks her work is worth. And she likewise, is working for that amount because she believes it to be a fair price. If not, one of them would walk (unless there is some kind of coercion or stressor).

    tom) I’ve read the same thing. I’m surprised even one congressman took him up in the offer (good for him/her).

    Anyhow, all this Obama/Buffett bashing by the right is BS. You do realize that Ronald Reagan (the right’s annointed one), ran on the exact same side of the issue?

  10. BG Says:
    January 26th, 2012 at 11:14 am

    Jack) Adam Smith (another of the right’s anointed ones) must have been a liberal, and I quote:

    “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something MORE THAN in that proportion.” (my emphasis).

    He was even more left than I. I at least want an equal tax burden across all income groups — he was an advocate for a PROGRESSIVE tax system. What say you?

  11. Jack Says:
    January 26th, 2012 at 12:08 pm

    I would appreciate it if you could find a reference for that quote, BG. Here, I will provide a quote directly from The Wealth of Nations: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

    (Book V, Ch. II, Part II, V.2.25)

  12. BG Says:
    January 26th, 2012 at 1:25 pm

    Book V, Ch. II, Part II, V 2.71.

    I already gave you the quote. After reading V 2.71 — please define the word “Rich” for me, as you so often ask me to define. Then try to tell me that Adam Smith was NOT advocating that the “Rich” should pay more than the “not-Rich”.

  13. Sun Says:
    January 26th, 2012 at 1:55 pm

    I’d like to see her 1040 and Buffett’s 1040. Mitt Romney did… why not them if they are advocating for changes in the tax rate?

  14. Jack Says:
    January 26th, 2012 at 2:15 pm

    You may notice, BG, that that particular section was referring to the rent tax. The RATE of tax proposed was the same, however.

    However, I must disagree with his reasoning on the progressive EFFECT of such a flat tax on house-rent. The same section you quote (indeed the immediately preceding sentences) also has this: “The luxuries and vanities of life occasion the principal expence of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich….”

    I cannot say with certainty, but it seems to me that the poor spend a greater portion of their income on housing than the rich do.

  15. Jack Says:
    January 26th, 2012 at 2:27 pm

    Found something. According to Forbes, for the lowest quintile, 37.9% of total spending is on housing. Those numbers are 32.8% and 30.4% for the middle and top quintiles.

    Thus a flat tax on rent would now be regressive.

  16. pat Says:
    January 26th, 2012 at 2:31 pm

    Don`t confuse the % sign with the $ sign. They are not equal. 15% of $1,000,000,000 is 150 million dollars. 35% of $60000.00 is $21,000.00 (before deduction). That is a difference of $149,979,000.00 in taxes paid by anyone fortunate enough to make a billion dollars/year. So stop falling into the obama/buffet bs trap. You can be sure of one other thing W.B`s secretary is a multi millionare or an idiot. There is no way she worked for Buffet without getting a few tips, sort of a intra-office inside trading. Another thing you can be sure of is that Buffet is not supporting Obama with his money without expecting to make a killing. Likewise those that pay $35000 for a chicken dinner with Obama will get their financial return and it will be your honor to pay that return. So stop the envy and bellyaching, use your education or get an education and take advantage of the opportunities this country offers. If you want to be a basket weaving expert expect to get minmum wage. If you want more challenge yourself to be all you can be. If you voted Obama in takes this opportunity to vote him out.

  17. BG Says:
    January 26th, 2012 at 2:36 pm

    “…I cannot say with certainty, but it seems to me that the poor spend a greater portion of their income on housing than the rich do.”

    Nah, you think? *sarcasm*

    The preceding sentence to your quote is this (Smith’s reason for WHY such a loophole is ‘not very unreasonable’):

    “The necessaries of life occasion the great expence of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it.”

    Sun) I think Buffett did cough up his 1040 to a reporter somewhere. Here is a quote:

    “To be specific, my adjusted gross income (line 37) was $62,855,038, my taxable income (line 43) was $39,814,784, and my federal income tax (line 60) was $6,923,494. In addition, my payroll taxes were $15,300.”

    So his tax rates are 11% (on gross), or 17% (on AGI). Now go look at your return and compare (don’t forget to add in your payroll taxes like Buffett did).

    Also, Buffett has a long standing Million Dollar bet (perhaps a million is too low for a billionaire to bother with?):

    “I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists.”

  18. pat Says:
    January 26th, 2012 at 2:45 pm

    P.S. If you want to see Warren Buffet and his group of multi-millionaires/billionaires squirm. Forget about income tax and capital gains tax, keep them for those starting out with the drive to better themselves, create jobs etc. For those that have made it like W.B etc let us give them what they want, a net worth tax just for them. Now if W.B. is worth 50 billion a miniscule 10% net worth tax would be 5 billion, a number that would definitely ease any panges of conscience that is bothering Mr. Buffet.

  19. Jack Says:
    January 26th, 2012 at 2:52 pm

    Yes, Smith said that, and it is true. (Many states exempt food from sales tax for that very reason.) However, it is no longer true that the poor spend a lower percentage of their income on housing. So his proposition of a FLAT tax on house-rent is now regressive, while in his day it might have been progressive.

    The Buffoon from Nebraska is welcome to put his money where his mouth is a cough up some extra money.

  20. tom Says:
    January 26th, 2012 at 3:21 pm

    @Jack

    Buffoon from Nebraska… really? Come on now.

  21. Jack Says:
    January 26th, 2012 at 3:41 pm

    Anyone who “volunteers” to have the government take more of his money, but does not take advantage of the fact that he can just GIVE the government the money he thinks they should take, is a buffoon.

  22. BG Says:
    January 26th, 2012 at 4:09 pm

    “..However, it is no longer true that the poor spend a lower percentage of their income on housing…”

    I think you meant to say higher (not lower). But, come on, you KNOW that the poor spend a much higher percentage of their income on housing (and food and other life necessities) than the not-poor.

    The poor spend practically 100% of their income on life necessities, hence why they are exempt from income taxes (but not payroll taxes) in today’s US tax structure. There are people so friggin poor that we GIVE them income (welfare) to be able to purchase food and other life necessities (subsidized housing, etc).

    And who do you think is getting this money in the end? That welfare is immediately turned around to purchase goods from the businesses that sell the food or the land-owners that own the apartments.

    It really makes the question of whom is actually being subsidized hard. If there were no welfare then the businesses that predominately cater to the poor would not have as many customers. Apartment owners LOVE subsidized housing, because the alternative is having empty apartments and tent-cities/shanty-towns springing up everywhere.

    This is my main point: it is not the RICH that create jobs. It is the CUSTOMERS of the businesses that create the jobs. If Apple had no customers, then they wouldn’t have 500,000 employees in China. Therefore, it is unacceptable to give the rich favorable tax breaks, because that will NOT lead to job creation (the past 10-15 years proves that). We need lower taxes on the middle-class (the upper and lower already have low taxes) — then the middle-class will have more disposable income to BUY things from companies, which would lead to more job creation.

  23. Jack Says:
    January 26th, 2012 at 4:54 pm

    No, I meant to say LOWER. It seems to be Smith’s contention that the poor did pay a lower percentage of their income on housing in his day, so a rent tax would fall proportionally heavier on wealthy. This is not the case today. The inverse is true, so rent taxes (or the equivalent — property taxes) fall disproportionately on the poor.

    Subsidies are neutral to current tenants and landlords. Subsidies drive up the rents, and so drive up the purchase prices. The winners are those who owned the properties before the subsidies came into effect. If subsidies ended, the losers would be those who currently own the properties, because they could not get the rents they are now getting. The prices of those units would fall accordingly.

    Customers and companies need each other. However, the existence of customers does not produce the jobs. There are millions of customers for clean water in India. Capital is needed to create the infrastructure to sanitize the water and distribute it to the customers. After the capital investment has created all that is needed, then the customers start paying and get the water. If there is no capital accumulated, such large projects cannot happen no matter how many customers there are.

  24. BG Says:
    January 26th, 2012 at 5:24 pm

    Just did my tax comparison to Buffett.

    Tax Rate based on Total Income, defined as: (1040 line 60 + W2 Box 4 + W2 Box 6) / 1040 line 37

    Buffett: 11.04%, me 14.33%

    Tax Rate based on AGI, defined as: (1040 line 60 + W2 Box 4 + W2 Box 6) / 1040 line 43

    Buffett: 17.43%, me 20.50%

    In both cases Buffett’s tax rate is less than mine, and I am not even counting the “employer-paid” side of FICA.

    If I were Buffett’s secretary, then yes, I would pay a higher tax rate than him (And I make significantly less than the $200k the article quotes).

    Interested to see if anyone here has numbers less than Buffett.

  25. tom Says:
    January 26th, 2012 at 5:31 pm

    Man, if you think Warren Buffett, the greatest investor of all time, is a buffoon, what do you think of the rest of us?

  26. BG Says:
    January 26th, 2012 at 6:21 pm

    If you want to count the “employer-paid” side of FICA (like Buffett did):

    Tax Rate based on AGI, defined as:
    (1040 line 60 + (W2Box4 + W2Box6)*2) /
    (1040 line 37 + W2Box4 + W2Box6)

    Tax Rate based on Taxable Income, defined as: (1040 line 60 + (W2Box4 + W2Box6)*2) /
    (1040 line 43 + W2Box4 + W2Box6)

    Buffett’s: 11.04%, 17.43%
    Mine: 20.91%, 28.95%

    I pay almost, but not quite, double the tax rate the Buffetts/Romneys enjoy. The second number is after exemptions/deductions/loopholes, so it is not counting Buffett’s charitable contributions.

    BTW, those would be the “obvious” rates if I were self employed, because self-employed people pay both sides of the payroll taxes directly (it is not hidden like it is for the W2 people), and that is why Buffett rightfully counts both sides of the payroll taxes.

    This shows the SIGNIFICANT impact that the payroll taxes have on the lower income people. Payroll taxes are insignificant to Buffett’s tax rates, making up only 00.2% of his total tax bill, whereas they make up 73% of my total tax bill (and 100% for people with lower incomes).

    So if any Republican wants to claim that 50% of the population pays nothing in income taxes, I would LOVE for them to say that to their face — literally call them out and point to them (and I hope you get a nice butt-whooping in the process).

  27. Jack Says:
    January 26th, 2012 at 6:27 pm

    > what do you think of the rest of us?

    You don’t want to know. :-)

    Nevertheless, being skilled in one particular area does not make him any less of a buffoon.

  28. Jack Says:
    January 26th, 2012 at 6:39 pm

    Those payroll taxes are tied to specific benefits. Furthermore, it can be argued that they are paid by the employer because they have pay more to cover the taxes. This was Adam Smith’s argument:

    “A direct tax upon the wages of labour, therefore, though the labourer might perhaps pay it out of his hand, could not properly be said to be even advanced by him; at least if tile demand for labour and the average price of provisions remained the same after the tax as before it. In all such cases, not only the tax but something more than the tax would in reality be advanced by the person who immediately employed him.” V.2.132

  29. BG Says:
    January 26th, 2012 at 7:11 pm

    “Those payroll taxes are tied to specific benefits.”

    That every GOP candidate has said they want to eliminate. Though NONE have mentioned eliminating the hidden TAXES that goes along with it.

    You know what I think about Adam Smith? I can’t say it, because I believe the filters on this site would block it.

    You know what I think about YOU? The same as I think about Adam Smith.

    Don’t mess with me when I’m doing my taxes.

  30. BG Says:
    January 26th, 2012 at 7:43 pm

    pat #18) I agree. A flat tax on networth+income (for everyone) would be even more fair. 10% is way too high though.

    BTW: this is exactly what Texas does with its ~5% property taxes (only on land property). And you know what? It keeps some billionaire from swooping in and buying half the state (and him and his heirs from hoarding it forever).

  31. Jack Says:
    January 26th, 2012 at 7:59 pm

    It is funny that you blast Adam Smith (although you admitted you did not read the book — had that changed? ), while immediately thereafter praising what he suggested — land taxes.

  32. BG Says:
    January 26th, 2012 at 9:03 pm

    Jack) I have not read ye ole book of yore, written before the USA had even declared its independance. And honestly, I am turned off by your treating of the book like it is the biblical word of God. You, just a few posts up, made a statement that one of the bible verses no longer applies due to changes in the world since it was written.

    There are few changes that have happened since that book was written, which I shall list for you: representative governments, dividends, hedge funds, computer trading, multinational corporations, corporations that now significantly control government, stock market flash crashes, world wars, owning slaves is now illegal, etc, etc, etc.

    You have quoted passages that contradict each other as well, so that really doesn’t help your case. For example, you have quoted that raising corporate income taxes will only be passed down as an increase in the cost of goods. Then you claim that employees don’t pay income taxes, only the companies that employ the worker is paying the taxes.

    Plus, you and others on this board have been vehemently against a networth tax (like pat proposed) when I have suggested it in the past – and now you think it is great.

    So which is it?

  33. Jack Says:
    January 26th, 2012 at 9:11 pm

    > You, just a few posts up, made a statement that
    > one of the bible verses no longer applies due to
    > changes in the world since it was written.

    Since the BIBLE was written, or that verse? Certainly the New Testament had an effect on the OT.

    > you have quoted that raising corporate income
    > taxes will only be passed down as an increase
    > in the cost of goods. Then you claim that
    > employees don’t pay income taxes, only the
    > companies that employ the worker is paying
    > the taxes.

    Not really. My point in the second part was only that Smith contends that it is not borne by the worker, but by the corporation. Further on, he says that that is generally passed to the consumer. I did not think it relevant, and did not want to clutter the conversation. You could, of course, read the book yourself. :-)

  34. Jack Says:
    January 26th, 2012 at 9:16 pm

    > Plus, you and others on this board have been
    > vehemently against a networth tax (like pat
    > proposed) when I have suggested it in the past
    > – and now you think it is great.

    I did not say a net worth tax was great, ever.

  35. Jack Says:
    January 26th, 2012 at 9:17 pm

    > I have not read ye ole book of yore, written
    > before the USA had even declared its independance.

    So that MAYBE we can get a common frame of reference, what economics books HAVE you read?

  36. Todd Hickman Says:
    February 1st, 2012 at 10:26 am

    Anyone who is for the taxation of capital gains at same rate as wages is an idiot and for the destruction of the valuation of their own retirement portfolios. Do you pay sales tax at the same rate as your wages are taxed? Stop being simpletons.

  37. Jack Says:
    February 1st, 2012 at 6:08 pm

    Uh, Todd, funds held in retirement accounts (401(k), 401(a), 403(b), IRA, and Roth IRA accounts) are not subject to capital gains taxes. Upon withdrawal, they are taxed as ordinary income unless they are in Roth accounts.

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