Tim Eriksen

Sure. Buffett earns money largely from his investments which are largely subject to dividend and long term capital gains tax rates of 15%. He says he paid 17% of taxable income in 2010, while his staff paid 33 to 41% of taxable income (salary less deductions and personal exemptions). Buffett counts income taxes and attributes both halves of payroll taxes to the employee to generate his numbers. It is questionable to attribute the cost of the employer's portion of payroll tax to the employee. The business owner pays it. (I would argue that Buffett therefore indirectly pays part of the payroll tax for Berkshire's 160,000 employees). Since Social Security taxes will be recovered if someone lives to within a few years of normal life expectancy it should really be eliminated from the consideration or Buffett should look at one's tax burden over their whole life not just one year. Buffett also ignores medical benefits which are untaxed in this country. These factors inflate his results for his staff. On his side, he ignores that his dividend and capital gain taxes have already been subject to a 35% corporate tax. Thus a 15% tax on dividends is really a 45% tax. So essentially he overstates their taxes and understates his own. His secretary does not have look-through taxes in this sense.

Tim, It would still be far more fair than the status quote, one would think. Are you proposing, instead of what Buffett proposed to move the rate to 30%, to move to 36%, in order for the proposal to be fair? I am confused by your statement. Now, you are saying that since the proposal does not raise the rate on the "super-rich" high enough, by your standard, so it is unfair? And even more unfair than the status quo?! Your line of thought just do not strikes me as logical and self-consistent. Zippy. I am saying that if Buffett truly believes his argument regarding his taxes and those of his staff that he, if he is consistent and truly seeking fairness, must call for his taxes to be higher than all of them. So he should be calling for capital gains and dividends to be taxed at a rate of greater than 41%. I say greater because using Buffett's logic to its ultimate conclusion would also note that it would be unfair to pay the same rate since his annual income is 50 times what his staff's is. Thus his solution to unfairness is just reduced unfairness. That is wimpy. The solution to injustice is not reduced injustice. It is justice. If he truly believes his position, it is inconsistent on his part to argue anything short of a higher rate for him than his staff. If the "wimpy solution" is already so hard to implement with your such vehement opposition, what is the chance of the truly brave proposal to be passed in your view? You apparently are missing my point. The main point is that his analysis is extremely flawed (incorrect). He actually pays more (in terms of both rate and dollars) than his secretary now and significantly more over a lifetime. My follow up was that even if I thought his analysis was correct, which I do not, his proposal is not brave, it is weak (or wimpy) since it does not solve the problem (it still results in him taxed less than his staff per his calculations). Brave solutions solve problems they don't just modestly lessen them. Yes I have vehement opposition to his argument because it is wrong. It is not because I do not want to my taxes increased. I am middle class and think my taxes have been cut too much. I get too much benefit for too little cost. I also care in the sense that our government's tax policies should be based on fairness. I think Buffett's 45% look through tax rate is already higher than his staff and plenty high.

Tim, It would still be far more fair than the status quote, one would think. Are you proposing, instead of what Buffett proposed to move the rate to 30%, to move to 36%, in order for the proposal to be fair? I am confused by your statement. Now, you are saying that since the proposal does not raise the rate on the "super-rich" high enough, by your standard, so it is unfair? And even more unfair than the status quo?! Your line of thought just do not strikes me as logical and self-consistent. Zippy. I am saying that if Buffett truly believes his argument regarding his taxes and those of his staff that he, if he is consistent and truly seeking fairness, must call for his taxes to be higher than all of them. So he should be calling for capital gains and dividends to be taxed at a rate of greater than 41%. I say greater because using Buffett's logic to its ultimate conclusion would also note that it would be unfair to pay the same rate since his annual income is 50 times what his staff's is. Thus his solution to unfairness is just reduced unfairness. That is wimpy. The solution to injustice is not reduced injustice. It is justice. If he truly believes his position, it is inconsistent on his part to argue anything short of a higher rate for him than his staff.

First I tried to make it clear that it looks like self-love is his motivation, because it does not appear obvious that rationality is the reason. The main issue is this - Is Buffett actually taxed less than his secretary? The answer is No. Not currently when corporate taxes are figured in and certainly not over a lifetime (the whole point of the 2.5% analysis). If that conclusion is disagreed with, that is what should be debated. It is not about whether the rise in income for the middle class has stagnated in the last few years. That is a separate issue from tax fairness. If I come to the conclusion that Buffett is incorrectly assessing the situation, taxed more not less, then I cannot conclude that he is acting supremely rationale. Here is another way to look at it. Let's accept Buffett's math for the moment. Under Buffett's logic, implementing the Buffett rule (a 30% tax rate on the super-rich) would result in what? Him paying a 30% rate. What rate did he state his staff paid? A range of 33 to 41% and an average of 36%. So his solution to the gross unfairness in our society is to keep it unfair? That is absurd. Even if I accept his analytical logic, his prescription is irrational. None of that has to do with philosophical/political viewpoint. It is just objectivity.

Shoot me a private email. I have some ideas to solve the problems you mentioned. Tim

It apparently comes down to how to measure mobility. If 58% of children born in the lowest quintile move out of it, that sounds like there is serious potential for upward mobility. If 61% of those born in the top quintile don't stay there, that sounds like there is serious risk of downward mobility to me. Mobility does not mean the elimination of poverty or that all who are poor move out of it. It means there is reasonable opportunity to significantly better your financial situation (i.e. one or two quintiles) through education and hard work. That is still true.

Completely agree with you, Richard. I get more fond of the guy the more I hear from him. WEB is a national treasure. I see it the opposite. He is a man. A great investor, but a very flawed man. While he could be just making an honest mistake, it looks more consistent with the theory laid out in The Snowball - that he is is continuing his lifelong desire for others to love him. Instead of offering ideas that would tackle America's fiscal problems he offers a prescription that makes him look better and fails to make a significant difference. Implementing the Buffett rule (a 30% tax rate on all income over $200,000) is a $50 billion impact to a $1.5 trillion debt (based on 2009 tax data). He isn't solving any problem other than his apparent need for others to praise him and Obama's desire to get re-elected. (By the way, a 100% tax rate would still leave a deficit.) The facts are that the bottom 60% has seen their tax burden reduced significantly over the last thirty years yet Buffett is telling them they have been getting screwed in favor of the rich. Buffett's argument is wrong and his prescription is meaningless. We are not coddling the super rich. Their effective tax rates are largely unchanged from 30 years ago. We are coddling the bottom 80%. Buffett's Secretary, assuming a $60,000 salary and normal life expectancy, will have a lifetime tax burden of 2.5% (income tax plus her half of payroll taxes less SS and Medicare benefits). She isn't getting screwed in favor of Buffett. She is getting an incredible deal.

If you search for AB Value Partners you can see that he started a fund and has tried to do mini tenders for a few unlisted stocks. Interesting approach. From my last conversation he told me he sells the data to a few institutions instead of publishing it for retail. I've considered trying to create an online version myself but you have to have a lot of contacts who will supply annual reports since it takes time and money to buy shares in 500 companies.

While it is possible she earns that much it is highly unlikely. The article in Forbes by Gregory is terrible. His analysis is worse than Buffett's analysis of comparative taxes. He didn't understand that Buffett used taxable income and not salary as the denominator. Her reportedly high rate is not due to a high income tax rate, it is due to the attribution of both employee and employer portions of payroll taxes. Buffett reportedly said "They can't attack the facts, so they attack the person. It's ridiculous." I wholeheartedly agree that it is wrong to attack his Secretary; however, I for one would gladly debate him on the facts.

A+++++. While I was scribing my response to the debate your post appeared. This is the issue I do believe the public is ahead of both parties on this issue most believe that tax increases and enititlement reductions are required. It is only the ideologues who think otherwise. I agree in part. In some ways the public is ahead, but they are also ignorant of the reality. Tax increases on the rich will not generate the needed revenue for the revenue half of the equation. They are also being told by both parties that their (middle class) taxes are too high, yet it was their tax cut (and not the portion for those making $250,000 and over) that helped fuel the deficit. In addition they want benefits cut but not the ones they are going to receive. Ultimately the middle class needs to be willing to accept higher taxes or reduced benefits and they are not willing at this time.

Gee Tim Buffetts secretary may or may not receive promised government benefits. It is pretty clear that if any of the current Republican contenders have their way in the matter the amount of promised benefits she will receive is pretty much moot. Plus since the pie that is being cut up here is a little larger than individuals share of government benefits do you not think it just a little misleading to focus the debate around the share of govt. benefits. I wonder how much of BRK companies profits are derived directly from govt. expenditures. I think your perception of where the Republican candidates (excluding Ron Paul) stand on Social Security is incorrect. None are calling for cuts,let alone elimination of benefits, for middle class retirees. They do admit there is a problem with the system (projected funding falling short of projected costs), which some politicians in Washington will not do. No I do not think it is misleading at all to exclude how much of BRK profits relate to government expenditures. This is a discussion about Buffett's claim and how it is flawed and inaccurate.

To go back to the original topic of Buffett versus his Secretary, there have been reports that her compensation is modest (around $60,000). Whether true or not it is a reasonable number of a solidly middle class income (which is who Buffett and Obama are trying to imply are over paying due to our coddling the super-rich). Under Buffett's analysis, she is highly taxed and he is not. Where Buffett errs is that he is taking a snapshot in time versus looking at it over a lifetime. Let's assume she has and will earn $60k per year (from age 25 to 67) and live to normal life expectancy for a white female (81 years). In Buffett's thinking she will have been paying nearly 40% in taxes but the reality is that most of it is payroll taxes that she will recoup with "interest." Once you add back the Social Security and Medicare benefits, which I calculate at $1,891 and $695 per month, respectively her lifetime tax rate (assuming she lives to age 81) ends up at 11.5% of total salary. As I pointed out previously, Buffett of course uses taxable income in order to come up with a higher rate (and ignores that medical benefits are untaxed). If you do not attribute the employer portion of payroll taxes to the Secretary her lifetime effective rate becomes 3.9%. This is all excluding tax benefits for children. Buffett's secretary has one child, per news reports. The additional tax savings per child amount to $34,650 over 18 years ($1,000 tax credit plus impact of additional exemption). Factoring in one child would lower her rate to 2.5% ($63,000 versus lifetime earnings of $2.5 million). If she lives past age 83 she would move into negative lifetime total tax. Thus the question is this - Is she being asked to pay too much for the benefits she receives in our society?

So, you think the solution is for everyone to upgrade their skills? Hmm, so you'd prefer to live in a world where there are no barbers, baristas, fast food restaurants, people growing and harvesting food, child care, grocery stores, malls, garbage men, physical laborers etc. I think it would be a pretty bad thing to eliminate any retail business, any businesses involving food, and really, any other business that uses low-cost labor in its supply chain. I'm pretty sure that, given long enough without food, I'd die, and it wouldn't surprise me if the same thing would happen to you. Or do you really mean that you'd just like to retain the illusion that that's possible for everyone to be wealthy, so that you can pretend that the inequities of society are entirely because the poor don't make an effort? Did you have to work at mischaracterizing other people's opinions, or does it come naturally? Let me try doing it back and maybe it will be obvious how foolish it is. So, you think the solution is for people to ignore education or self-improvement? Hmm, so you'd prefer to live in a world where there are no colleges, universities, etc. I think it would be a pretty bad thing to eliminate education and an emphasis on personal responsibility, I'm pretty sure that, given long enough without personal responsibility, I'd die, and it wouldn't surprise me if the same thing would happen to you. Or do you really mean that you'd like to eliminate the fact that it is possible for everyone to improve their lot in life, so that you can pretend that the inequities of society are entirely not the fault of individuals? Note: Please don't misunderstand the tenor of my comments. They are a bit tongue in cheek, but also serious in the sense that I am really amazed that one can twist another poster's comments so significantly.

We all want ten baggers, but they do not require the market cap to grow ten fold. For example, if AAPL were to maintain its earnings stream and repurchase shares at 10x earnings they could generate excellent returns without a substantial increase in market cap. When done properly share repurchases are an excellent way to increase shareholder returns. Of course one could argue that AAPL has missed the easy part by not repurchasing shares over the last few years. I will admit that I have not read Jobs' biography, but am I the only one who finds attribution of their success solely to him ridiculous? I'll bet a year from now when Apple is doing well we will have plenty of stories of how their success runs deep. Of course many will probably still attribute that to Jobs as well.

Let's put it this way. Restore the dividend tax to regular "income" rates and watch them squirm and resist. Would you support that with an elimination of corporate taxes?

I think you are being overly simplistic. If Apple is selling products for the twice the price of similar offerings why do they only have 40% gross margins. It is mathematically impossible. They must be selling something better. The XOM comparison is really irrelevant - totally different industry with different economics. Sure their margins are better than a Dell of HP but they are not as high as Microsoft.

You are sampling the wrong population. The top 1% is not the right category to draw statistics from. Too many people in there work for a living. Instead, focus on the individuals who don't -- those people who have it so good that they live on investment income. They're the ones who got the tax cut. Start your search for truth in the top 1/10 of the 1%. I have already detailed their true effective tax rate on capital gains and dividends in prior posts on this thread (effectively 45% not 15%). By the way, if 1/10 of the top 1% is paying appreciably less it would show up in the stats for the top 1%, unless you are arguing that the rest of the 1% saw an increase which is masking it. If that is true they should be the ones upset (and not the middle class) since everyone else saw a decrease in the last thirty years. The facts are that the bottom three quintiles have actually seen their tax burdens fall significantly in the last thirty years. Yet Buffett and Obama argue those people are getting shafted. The lower three quintiles are getting more benefits and paying less than ever before. The bottom line is Buffett is wrong - we are not coddling the super-rich, we are coddling everyone.

What matters are effective rates. Effective rates are largely unchanged for the wealthy since then. The left likes to harp on the lower tax rates but ignores all the other changes to deductions. Effective rates for the top 1% were as follows: 1981 21.5% 1982 20.4% 1983 19.4% 1984 19.3% 1985 18.9% 1986 18.3% 1987 21.5% 1988 20.7% from 2003 to 2007 it ranged from 18.9% to 19.7%. Thus it is an overall change from 20% to 19.3%, not that significant. I would bet the already enacted tax increases will push the rate above the Reagan years. What is interesting is to look at what the Reagan and Bush tax cuts did for the poor and middle class. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456 The lowest two quintiles now have negative effective income tax rates due to credits (Child Tax Credit and EITC). The middle quintile has gone from an effective rate of 6% to 3%. The fourth quintile has gone from 9% to 6%. Yet the President uses Buffett's poor logic to argue that the middle class are taxed more than the super rich. The facts on the whole do not support his argument.

I think you would find a majority of people that would disagree with you on that one. The whole reason Republicans are dissatisfied with the existing candidates is that they compare them to Reagan.

The rates were only the same from 1988 to 1990 per this source http://www.ctj.org/pdf/regcg.pdf It is really hard to take seriously an article where the authors cannot even spell Buffett's name correctly. Just as annoying they argue that the loss of $18 billion in tax revenue from the super-rich results in higher taxes for everyone else. Patently false. One it is not zero sum. Two, the middle class enjoyed a tax cut too. While not a huge amount per person it is huge in terms of the overall budget.

Good questions. Does the lower purchase price (due to corporate taxes) offset the effect of double taxation and still provide the investor with the same earnings yield? You could argue that the earnings yield would immediately adjust to be the same if there were no corporate taxes. I think it might be higher given reinvestment opportunities, regardless, I would not argue that that fact means that double taxation can be eliminated from consideration. Look at it this way. What if Buffett had taken BRK completely private forty years ago. Would you attribute the corporate taxes to him? I certainly would. If not, what if he changed BRK from a C-corp to a S-Corp or LLC? He would then pay at individual rates, would you argue that he suddenly started paying more taxes than before? When an owner decides structure he/she (in addition to liability risks) looks at after-tax rates - currently corporate rate plus dividend taxes versus personal rates. They don't look at just dividend rate versus individual income tax rates, or else everyone would incorporate to save taxes.

Buffett already pays a higher rate he just refuses to acknowledge it. His old annual letters used the concept of look-through earnings to detail what the true earnings value of BRK was. In the same way he pays taxes on a look-through basis at the corporate level and personal level. To raise Buffett's rates would just make him pay even more than his secretary. If Buffett were to propose eliminating corporate taxes and then tax dividends and capital gains at the same rate as income that might have some merit. The point on the payroll taxes is that he attributes the employer portion to the employee. The employee did not pay it, nor was it included in her "taxable income". One can argue who effectively pays it. At best it is a split. Regardless, Buffett's secretary will get it all back (both portions) and more if she lives to normal life expectancy. I believe it is deceptive to include the payroll tax impact in the calculation while completely ignoring the benefit side. His Secretary will collect nearly $30,000 a year for the rest of her life once she hits 67. In other words her "tax rate" will likely be significantly negative due to the social security payments. If you argue they are a tax when paid they must be a benefit when received. Buffett is using a snap shot in time that helps his argument when he should be looking at it over a lifetime and a look-through basis. I am not going to sidetrack into carried interest. There is a great deal of misunderstanding there too.

I have never read where Buffett has said that he believes the rich should pay the social security taxes of the middle class. I would note that he as an owner already pays half of it through payroll taxes. Of course Buffett somehow argues that his Secretary pays that portion too. Buffett completely ignores that his investments are actually taxed at 45% once you include corporate taxes. I am pretty sure his secretary doesn't want to pay at that combined rate. There is so much to challenge in what you wrote but most are related but separate issues. What does it mean for the middle class to pay their fair share? What is their fair share? Why do you imply that they are already paying that amount or more? Do they have an inherent right to education and healthcare? I am a middle class person. I fully realize that I benefit from the wealthy paying such a high amount. I come nowhere near covering the education costs of my children, let alone public safety and roads. I am thankful for it but do not believe for one second that I am entitled to that. Whether we like it or not, effort is not what is taxed in this country nor what compensation is based on. Is it perfect? No. To say that Debbie is not asking for Buffett to pay more may be true. Although it appears likely that she is a "prop" that the President will use tonight to gain support (votes) in order to be re-elected in order to raise taxes on Buffett. So in a way she is being used to do that very thing.

It continues to amaze me how Buffett comes to his conclusion and how few people spend the time to see its absurdity. He has to use a non-representative example of the rich. His 17% rate is much lower than the average 27% effective rate those with incomes over $10 million pay. In addition he has to attribute both the employee and employer share of payroll taxes to the employee, use taxable income instead of gross income, and completely ignore the corporate level taxes that are paid on his investments. We have a progressive system. The more you make the higher your rate. There are good reasons why dividends and capital gains are treated differently than income. They have already been, or will be, taxed at a 35% rate. Does Buffett really believe that the rich should pay for the retirement (social Security and Medicare) of the middle class?

I would put it differently. Both parties believe in compromise. The Democrats want to raise taxes and increase the size of government. Being compromisers they willingly dropped the raise taxes part. Republicans want to shrink government and lower taxes. Being compromisers they willingly dropped the shrink government part.