Sunday, January 29, 2012

Mr. Buffett, His Secretary & Their Tax Rates

Inequality's pair most iconic,
Mr. Buffett and Mrs. Bosanek,
Have talked up the facts
Of the rates of his tax,
Which are lower than hers – most ironic.

"But investors like Buffett," says Mankiw,
"Have firms that pay tax as well, thank you;
We must add the taxation
Of each corporation
To see in which bracket we rank you."

So taxation's not simple as "one-two",
You can argue the point if you want to,
But unequal or not,
Ms. Bosanek ain't got
Someone else she can pass the tax onto.

Harvard's famed Professor Greg Mankiw, who chaired President George W. Bush's Council of Economic Advisers (and may someday do the same for Mitt Romney, if things should take such a turn), has made his voice prominent in rebutting the claim of Warren Buffett that he pays a lower income tax rate than his secretary. Debbie Bosanek pays roughly 33% of her income in taxes, while her billionaire boss pays 19%. The difference is due to the 15% rate of taxation on capital gains, which liberals argue is unfair. Professor Mankiw has argued that one must consider the shareholder's stake in the corporate income tax paid by the companies he owns.

Along comes a new and intriguingly anonymous blogger to put meat on the bones of Mankiw's argument. "PrometheeFeu" points out that, if Buffett pays 15% tax on his dividends and the company paying the dividend has already paid 25% income tax, then this is the same as a 35% income tax between Buffett and the original source of the income. Furthermore, one must distinguish between the person who pays the tax and the people on whom the burden of the tax ultimately falls. In other words, corporate tax burdens can be passed along to customers, vendors and employees as well as shareholders. However, this second point undermines the first, since it suggests that the companies owned by Berkshire Hathaway may spread the burden of their taxes, while Mrs. Bosanek would be hard-pressed to do so.


  1. I'm intrigued by Mr. Buffett's position, and find his current position hypocritical, in light of the conditions he put on his Gates Foundation contribution (on the Foundation's own website at:

    "The foundation must continue to satisfy the legal requirements qualifying Warren’s gift as charitable, exempt from gift or other taxes."

    Why go to this trouble? Here was a perfect case in which he had an opportunity to pay the higher tax rates he claims to crave, but explicitly chose to avoid them.

  2. I'm amazed by how many smart people make this silly argument. Buffett, as a rational businessman, seeks to maximize his utility within the current system, therefore he pays the tax that he owes, and no more. He also thinks that the system should be changed so that his class shoulders more of the burden of paying for our national security (border, health, old age, etc.). If policy were to change as he thinks it should, he would still pay just what he owes and no more, but he would owe a higher amount.

    Suppose Pat Riley were to complain that the NBA shot clock is too long and it slows down the game. Should people say: "Pat, you hypocrite, why don't the Heat complete all of their shots in 20 seconds?" No, because it is obvious that Pat wants not to set an example, but for all teams to play by a better set of rules.

  3. I'm amazed how many smart people resort to sports analogies that really don't fit. Warren Buffet is so far and away wealthier than the average "rich" person, that a better analogy would involve Tiger Woods (some years ago) and golf.

    The wallet is the most sensitive part of the anatomy. As such, no ready analogy applies. He should lead by example, and not wait, as liberals are wont to do, for the state to impose desired social change.


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