Sunday, April 15, 2012

When the lying started about secretaries paying higher tax rates than their bosses

It was back in January that Warren Buffett claimed that his secretary was paying a higher tax rate than his secretary. His rate is claimed to be 17.4%, which I don't doubt, but he and his secretary claimed that her tax rate was 35.8%, which is flat out not mathematically possible since the highest marginal tax rate is only 35% (for income above $379,150), so her effective tax rate would be significantly below that 35% upper bound, especially for a secretary's salary. Even for Obama's secretary at $95,000 a year would have an effective tax rate of only 18.5%.
Buffett further claimed that his "survey" of the employees in his office showed showed that they were paying tax rates of 33%  to 41%. Once again, those numbers are wholly out of line with the tax rates that the IRS levies on taxpayers.
Buffett did say that these rates are for "payroll and income taxes paid to the federal government", so he must be doing something odd with the numbers here. In theory, your "payroll taxes" are for FICA or Social Security and Medicare, which are really money being set aside for the future benefit of the taxpayer and are not normally considered part of "income tax."
I think the idea that Buffett is trying to slip by people (without disclosing it) is that since his own FICA is cut off at a threshold of around $110K, his FICA percentage is a very small number when measured on his large income, while his secretary's FICA is measured as a percentage on her entire income.
In an Op-Ed piece back in August (maybe the original source of the secretary reference) he also referred to "the income tax I paid, as well as payroll taxes paid by me and on my behalf", so he may be counting DOUBLE the actual FICA that his secretary actually pays (adding the FICA contribution that he as the employer pays) when he calculates her alleged "tax rate."
In short, Mr. Buffett appears to be NOT citing "effective tax rate", the proper rate form to use for comparing taxes paid, when he is talking about his secretary paying a higher tax rate than himself.
In other words, he is in fact LYING – by deliberately misleading people, with an intent to deceive.


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