Obama on Poor W. Buffets Tax Rate

[Lynco Cards]

He portrays her as a VICTIM??? A secretary making this amount

The IRS publishes detailed tax tables by income level. The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent. This is below Buffet’s rate; so she must earn more than that. Taxpayers earning adjusted gross incomes of $200,000 to $500,000, pay an average tax rate of nineteen percent. Therefore Buffet must pay Debbie Bosanke a salary above two hundred thousand.

[AUTaxMan]

The whole thing is a farce. For those who don't understand the tax system, here's a little primer:

Your marginal ordinary income tax rate is the rate of tax that you pay based on your adjusted gross income. These are the rates set forth in the various tax brackets.

Tax Brackets 2011 for people who are Married Filing Jointly (that's me)
10% Bracket $0 – $17,000
15% Bracket $17,000 – $69,000
25% Bracket $69,000 – $139,350
28% Bracket $139,350 – $212,300
33% Bracket $212,300 – $379,150
35% Bracket $379,150+

The capital gains tax rate and the dividend rate are both currently 15%. Super-rich people usually make most of their money from investments in the form of capital gains and dividends, so they pay a 15% marginal tax rate on that income. Wait a second. Are you telling me that I make $100,000 per year and I pay a 25% tax rate, while Warren Buffett pays 15%? Oh, the outrage!

Not exactly. If I make $100,000 per year, I pay 10% on the first $17,000, 15% on $17,000-$69,000, and 25% on $69,000-$100,000. That's $17,250 in tax paid on $100,000 of income. My effective tax rate is only 17.25% at this point. Still higher than Buffett! But wait, I get some deductions.

Assuming I don't itemize, I get a standard deduction as a joint filer of $11,600. I also get deductions for personal exemptions of $3,700 for the 4 people in my house. That's an additional $14,800. I also have to pay for child care for my two kids. Fortunately, the government subsidizes this to the sweet tune of $1,200 in tax credit per year.

Well, $11,600 + $14,800 = $26,400 x 25% = $6,600. Add in my credit of $1,200, and I have $7,800 less in tax that I have to pay. That means my tax paid is $9,450, and my effective rate is 9.45%.

Buffett, of course, has deductions of his own, but I'll bet he has at least some ordinary taxable income (which he pays at the same rates that I pay), and he's still going to hover in that 15% range.

At the end of the day, I pay a 9.5% effective tax rate, and Warren Buffett pays a 15% effective tax rate. But President Obama told me the other night that Warren Buffett pays a lower tax rate than his secretary.

Remember, effective rate is the amount of tax you pay as a percentage of your taxable income. Taking it a step further, even taking into account 15% capital gains and dividend rates, average effective tax rates for the overwhelming majority of Americans are STILL lower than those of the wealthiest Americans, and the more money you make, the higher effective rate you are going to have. See the table here, and focus on the "Average Tax Rate" column. That is the average effective tax rate:

http://www.taxfoundation.org/blog/sh...icy+Blog%22%29
(I just noticed that this happens to be the table that tjstc's numbers come from.)

Thus, this entire tax rate argument is entirely farcical. The rich pay more taxes at a higher rate than the middle class and the poor, and anyone telling you otherwise is either intentionally misleading you or is ignorant with respect to how federal income and capital gains taxes generally work.

Hope this clears up any confusion on the issue. Let me know if you have any questions.

[duane1969]

Cleared up A LOT for me.

[habsheaven]

Do you pay state taxes on your income?

[ensbergcollector]

autaxman - that was the most concise summary of taxes i have seen. thanks!

[pghin08]

But what about other vehicles for the wealthy to evade taxes? Remember, capital gains can be eliminated by capital losses. Not to mention foundations/muni bonds/gift giving (this in particular now, since there's a $5 million gift allowance, which is really just a great way for old rich people to make their kids/grandkids rich without dying), etc.

[AUTaxMan]

Do you pay state taxes on your income?

Most states you do. Some you don't. Texas, Florida, and Tennessee come to mind.

[mrveggieman]

Most states you do. Some you don't. Texas, Florida, and Tennessee come to mind.

Alaska, Washington State, Wyoming. I keep forgetting the others.

[AUTaxMan]

But what about other vehicles for the wealthy to evade taxes? Remember, capital gains can be eliminated by capital losses. Not to mention foundations/muni bonds/gift giving (this in particular now, since there's a $5 million gift allowance, which is really just a great way for old rich people to make their kids/grandkids rich without dying), etc.

Capital losses are not a vehicle to evade taxes. They are an economically justified reason for a deduction. You shouldn't have to pay tax on gross income. Net income is what makes the most economic sense. Otherwise, nobody would be able to afford to do business.

Charitable foundations and gift giving are given deductions because the government wants to encourage giving. There is nothing wrong with those deductions.

Municipal bonds pay you tax-free interest. Anyone can buy those. Again, government incentivizing people to invest in public infrastructure. Not a tax evasion tool. There is still real economic risk being taken.

I personally think the gift tax is ridiculous. The money was already taxed (at least once) when you earned it. You shouldn't have to pay an additional tax if you want to give that money to your kids (or anyone else).

[AUTaxMan]

Alaska, Washington State, Wyoming. I keep forgetting the others.

Pretty sure Nevada as well, and maybe Arizona.