Report supports Buffett tax claim

Premium ContentMouse over Home then click on Premium Content for information.

Warren Buffett got some support Thursday for his notion that he and too many other ultra-rich people pay lower tax rates than their secretaries.

A new congressional study suggests about a fourth of taxpayers making more than a million dollars annually pay federal taxes at a lower rate than a significant number of those who would be considered middle income.

The tax rates on those nearly 100,000 high-earning taxpayers would violate what President Barack Obama has been calling “the Buffett rule” — that no millionaires should pay lower tax rates than middle-income taxpayers.

The report found the main reason for the seeming disparity is a simple one: Many wealthy taxpayers derive a large portion or most of their income from investments, which the federal government taxes at a lower rate than the earned income of many who draw paychecks.

“The results of this analysis show that the current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate income taxpayers,” said the report from the Congressional Research Service, a nonpartisan research arm of Congress.

Despite its conclusion, some who have criticized Buffett's calls for higher taxes on the ultra-rich may conversely note that the study does show most high earners do pay at higher rates. In fact, the study itself later suggested violation of the “Buffett rule” was “not to the extent alluded to by Mr. Buffett.”

But the report also clearly suggests there are a substantial number of millionaires who do pay lower rates.

Debbie Bosanek, the Buffett secretary who has found herself in the middle of the controversy, said Thursday that her boss had not seen the report. She offered no comment from Buffett.

While the report may not result in any policy changes, it surely will fuel the fierce debate over tax policy, income equality and federal budget deficits that Buffett himself helped incite two months ago when he called on Congress to stop coddling the mega-rich.

Buffett wrote in August that his nearly $7 million federal tax bill last year represented 17.4 percent of his taxable income, a lower rate than was paid by any of the other 20 people in his office at Berkshire Hathaway.

In response, Obama called for higher taxes on the wealthiest Americans to pay for a jobs bill, and said any efforts to reform the tax system should follow his so-called “Buffett rule” — that “no household making over $1 million annually should pay a smaller share of its income in taxes than middle-income families pay.”

Conservative commentators and Republican lawmakers have challenged Buffett's claims, noting that the wealthy pay a substantial portion of the nation's total taxes. They've also called on Buffett to release his tax return.

Buffett has declined to release the return, though he did show it to a TV talk show host. And Buffett this week released line-item figures and said he would release his whole return if other mega-rich did likewise — an exercise he said would be fruitful in the tax debate.

That letter this week to a Kansas congressman referred to the “favored 400” — the highest-income Americans whose incomes averaged $227 million. He said that while his staff members pay tax rates in the 30s, those 400 in 2008 paid an average rate of 21.4 percent.

The new study examined data on all federal tax returns filed for 2006.

It first looked at combined federal income and Social Security payroll taxes paid across the income spectrum. On that measure, it found the federal tax system hit moderate-income earners, defined as those with incomes below $100,000, harder than higher earners.

On average, the report found those who make $100,000 or less pay an average of 35 percent of their income in taxes, while those who make $1 million or more a year pay an average rate of 30 percent. In all, almost two-thirds of those making more than $1 million paid a rate that was below the median rate for those making under $100,000.

The report then attempted to factor in federal taxes that corporations pay into the average tax rates of individuals. It's often argued corporate taxes tend to fall indirectly on upper-income earners because they reduce the amount of income they receive from stock capital gains and dividends.

When corporate taxes were factored in, higher income earners generally did pay at higher rates than moderate earners, almost 30 percent on average compared to 19 percent.
However, it found that about 25 percent of those making at least $1 million — about 94,500 taxpayers in all — still paid at a lower rate than about 10 million of the 100 million taxpayers whose income was below $100,000.

The report said tax reforms that would be consistent with the Buffett rule would include raising tax rates on capital gains and dividends.

The federal government currently taxes most capital gains and dividend income at 15 percent. Prior to the Bush-era tax cuts a decade ago, capital gains were taxed at 20 percent and dividends were treated as normal income, subject to much higher rates.

Congress would not have to pass a bill seeking to raise taxes on the wealthy for those rates to change. The Bush tax cuts already are set to expire after 2012, which would return investment tax rates to former levels. Obama has called for preserving those cuts only for middle-income taxpayers.

Critics of Buffett's calls for higher taxes on the rich have suggested that it would harm job creation. The study also examined that question by looking at how the Buffett rule would affect small businesses, which are often cited as major job creators.

Researchers found that few taxpayers with small-business income were among the 25 percent of taxpayers in violation of the Buffett rule. As a result, the report concluded, most small-business owners “would not be affected by tax policies that observe the Buffett rule.”

Contact the writer:
402-444-1130, henry.cordes@owh.com

« News

Share