econscius

Posts Tagged ‘Income Tax Rates’

If Bush Tax Cuts Failed, Why Not Enjoy Riding Over the Fiscal Cliff?

In Income Tax Rates, Obama Administration on December 14, 2012 at 1:25 am

An open question to my liberal friends:

Why do most of the “Bush Tax Cuts” need to be extended?

Almost as perplexing as the hubbub about the 2012 end of the Mayan calendar is the sudden concern of left-leaning folks about the “fiscal cliff”.

For a decade, we’ve been told the broad-based tax cuts enacted in the Bush Presidency “didn’t work”. That economic sage Nancy Pelosi even said the 2008 financial crisis was caused by the full package of Bush-era tax cuts, leading to a “near depression” [1] To think some thought too many subprime mortgages and ultra-low interest rates led to the financial meltdown.

Treasury Secretary Geithner said Bush tax cuts didn’t work. [4] Loony writers like Annie Lowrey of Salon, wrote, “The cuts were a colossal failure.” [5] Some actually argue raising taxes, at least on wealthy, is somehow good for the economy. Call it anti-Keynesianism. If they believe that, they should applaud the fiscal cliff: end those pesky tax cuts once and for all!

But wait, the nonpartisan Congressional Budget Office predicts a return to a recession. [3] Everyone from Obama down to the lowliest Lefty blogger says the Bush tax cuts, at least most of them, better get extended or the world will end. Which is odd, if those same tax cuts were a “colossal failure.”

The Lefties try to parse the cuts, they were great, it turns out, no colossal failure at all, for the bulk of the people earning less than $200,000.

That’s right! The corporate manager who earns $199,000 needs a tax cut, she’s a good human being. A tax cut for her is a positive to the economy. Just don’t give her a pay raise to $201,000; then, she shouldn’t get a tax cut. Crossing the magic $200,000 threshold, she’s become a freeloader now, a bad person not paying her fair share. Increase her taxes and it won’t hurt the economy at all. Understand?

Perhaps the liberals and Obama have, belatedly, figured something out: Eighty-five percent of the cost of extending the Bush tax cut costs in 2010 were for people earning less than $250,000 per year.[2] Meaning many of them have been lying the past decade when they said the Bush tax cuts were “for the rich.”

[1] http://www.cbsnews.com/8301-503544_162-57485549-503544/pelosi-immorality-in-gop-tax-plan/
[2] http://money.cnn.com/2010/12/07/news/economy/tax_cut_deal_obama/index.htm

[3] http://www.stltoday.com/news/opinion/columns/fiscal-cliff-could-erase-the-middle-class/article_b54f2b88-79e4-54d2-9a33-3ffd6a4ff99f.html
[4] http://abcnews.go.com/blogs/headlines/2009/03/geithner-bushs/
[5] http://www.slate.com/articles/business/moneybox/2011/06/happy_10th_birthday_bush_tax_cuts.html

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Warren Buffett’s Secretary Earns Hundreds of Thousands of Dollars

In Buffett Rule, Income Tax Rates, Obama Administration, Warren Buffett on January 25, 2012 at 11:42 pm

As I said last August, it is literally impossible for Warren Buffett’s secretary to be “middle class” and pay a higher income tax rate than Buffett.  She is either married and filing jointly with someone who earns hundreds of thousands of dollars or is earning over $200,000 a year herself.

Forbes picked up on this in a post today: 

“I have nothing against Debbie Bosanke earning a half million or even more. Buffet is a major player in the world economy. His secretary deserves good compensation. At her income, however, she is scarcely the symbol of injustice that Obama wishes her to project.” See http://www.forbes.com/sites/paulroderickgregory/2012/01/25/warren-buffetts-secretary-likely-makes-between-200000-and-500000year/

My original posts on this topic are here:  

https://econscius.wordpress.com/2011/08/29/is-warren-buffetts-924725-employee-super-rich/ 

and see what people actually pay, according to the IRS:  

https://econscius.wordpress.com/2011/10/09/who-pays-what-average-income-tax-rates/

Who Pays What Average Income Tax Rates

In Income Tax Rates, Political Rhetoric, President Obama, Warren Buffett on October 9, 2011 at 2:23 am

Average Tax Rate by Share of Income, Source: IRS 2008 Data

There is an awful lot of misinformation floating around about what average tax rates are paid at different income levels.  It is actually very simple, which is why I put together this graph. 
 
Some would have you believe the richest of the rich pay a lower average rate than “a secretary”.  On average, that is simply not the case.  The Bottom 50% of taxpayers paid an average of 2.59% of their Adjusted Gross Income (“AGI”) as income tax.  The Top 1% paid 23.27% of their AGI as income tax.
  

Share of Income Average Tax Rate
Bottom 50% 2.59%
25-50% 6.75%
10-25% 9.29%
5-10% 12.44%
1-5% 17.21%
Top 1% 23.27%
 
The bottom 50% of taxpayers paid 2.7% of all income taxes paid, and the top 5% paid more than half of the total.
 
 

Share of Income Group’s Share of Income Taxes
Bottom 50% 2.70%
25-50% 10.96%
10-25% 16.40%
5-10% 11.22%
1-5%

  20.70%

Top 1% 38.02%
 
Data source: 2008 IRS data from http://www.taxfoundation.org/news/show/250.html

Taxes Already Going Up On Warren Buffett

In Buffett Rule, Income Tax Rates, Obama Administration, Warren Buffett on September 20, 2011 at 1:46 am

Warren Buffett does not have to worry: his income tax rate will be rising about 3.8% on January 1, 2013.   He does not even need a new “Buffett Rule” tax:  it is a part of the health care reform bill of 2010 (“ObamaCare”) that “unearned income” (meaning interest, dividends and capital gains like those enjoyed by Mr. Buffett) will pay an additional surtax of 3.8% on amounts over $200,000 for individual taxpayers. [1]  

This means Mr. Buffett’s average income tax rate, which he says was 17.7% in 2010, will be approximately 21.5% under the 2013 tax rates.  The new rate is already enacted as law.  This fact is certainly relevant for any discussions of a “Buffett Rule” or higher tax rates on the affluent, yet it seems to be almost completely ignored in the media.

For more on Mr. Buffett’s misleading opinion piece, see https://econscius.wordpress.com/2011/08/19/trust-a-cpa-warren-buffet-is-wrong-about-tax-rates/ and https://econscius.wordpress.com/2011/08/29/is-warren-buffetts-924725-employee-super-rich/

 Berkshire Hathaway.svg

[1] http://www.heritage.org/Research/Reports/2010/04/Obamacare-Impact-on-Taxpayers

Pictures from Wikipedia Commons.  Disclosure: the author owned common stock in Berkshire Hathaway as of this writing.

Is Warren Buffett’s $924,725 Employee Middle Class or ‘Super-Rich’?

In Income Tax Rates, Political Rhetoric, Warren Buffett on August 29, 2011 at 8:32 pm

 

Mr. Buffett’s “Stop Coddling the Super-Rich” opinion piece juxtaposes “while the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet” with a few sentences later, “and that’s actually a lower percentage than was paid by any of the other 20 people in our office.  Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.” [1] 

The implication seems to be Buffett’s 20 co-workers are middle class. 

Berkshire has 260,519 employees [2], which begs the question which 20 are in his office?  We can be sure the 20 does NOT include a janitor from subsidiary Benjamin Moore paints, an engineer from his BNSF Railroad subsidiary nor even the GEICO gekko, though I’d love to have that little green Australian as a cubicle neighbor myself.

In a typical large corporation, the inner sanctum at headquarters includes the CEO (e.g. Mr. Buffett), the Chief Financial Officer (“CFO”), Corporate Controller, Chief Information Officer, Chief Counsel (top lawyer), head of Human Resources, head of Mergers and Acquisitions, a few other high ranking executives from sales, marketing, legal and finance, and perhaps an executive secretary or two.  They are not middle class workers.  Quite possibly all 20 in Mr. Buffett’s office would be six-figure earners, which explains why they would be paying average federal tax rates in the mid 30%’s (see my post https://econscius.wordpress.com/2011/08/19/trust-a-cpa-warren-buffet-is-wrong-about-tax-rates/).

We know what Berkshire Hathaway’s CFO, Marc D. Hamburg, earns from the company’s 2011 proxy statement.  Mr. Hamburg took in $924,725. [3]  Are Mr. Hamburg and the other 19 workers in Mr. Buffett’s corporate office “middle-class” or are they “rich”, even ‘super-rich’?  As I posted before, the IRS reports the bottom half of all taxpayers paid only 2.9% of taxable income in federal income tax.  Even adding on Social Security and Medicare keeps the percentage below what Mr. Buffett pays.  Mr. Buffett’s comparison of his own tax rates to the 20 in his office is essentially meaningless because his co-workers are neither poor nor middle class.  They most certainly are nowhere near the bottom half of earners.

[1] http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1

[2] http://en.wikipedia.org/wiki/Berkshire_Hathaway

[3] http://sec.gov/Archives/edgar/data/1067983/000119312511062515/ddef14a.htm

Disclosure: at the time of this writing, the author owned common stock in Berkshire Hathaway, Inc.

Buffett picture from Wikipedia Commons.