AP fact check: Secretaries don’t pay more taxes than their bosses

posted at 9:25 am on September 20, 2011 by Ed Morrissey

Let’s hope that Warren Buffet is better at managing funds than he is at tax policy.  After Buffett complained that his secretary pays a higher tax rate than he does, Barack Obama decided to call his new class-warfare taxes “the Buffett Rule” and emphasize that he wants to make taxes more “fair.”  But was Buffett right?  According to an AP fact check — and just about every ounce of common sense that exists outside of the class-warfare fever swamps of the White House these days — not at all:

“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said Monday. “That’s pretty straightforward. It’s hard to argue against that.”

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.

Even when talking rates rather than aggregate payments, the claims made by Buffett and Obama are nothing more than an urban legend:

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.

That has been true ever since the US went to a progressive income tax.  It was true decades ago, it was true a few years ago, and it remains true today.  Those with higher incomes pay more taxes at higher rates that those with lower incomes.  So unless Buffett’s paying his secretary a million dollars a year, the notion that we’re burying secretaries in higher taxes while letting millionaires and billionaires off the hook is flat-out false.

Buffett should know better than to make that kind of claim without checking his facts first, but no one elected Buffett to be in charge of anything, either.  The President of the United States has vast resources at his command to get the facts straight before speaking to the American people, especially before pushing a divisive and destructive policy like his tax plan with class-warfare rhetoric designed to gin up demand for government to start seizing more from the successful than they already do.  Either Obama doesn’t bother to do his homework, or he doesn’t care whether he’s passing along myths rather than facts.

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The millionaire who paid a lower tax rate than Buffet’s secretary, to whom Pres. Obama was referring, was Tim (TurboTax) Geithner. If every millionaire used Tim’s approach to filing their taxes (i.e., income… what income?), they would all have lower rates than their secretaries.

suburbanite on September 20, 2011 at 11:49 AM

Cindy Munford on September 20, 2011 at 11:47 AM

Then we have something concrete we agree on.

Bradky on September 20, 2011 at 11:49 AM

In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service.

You can’t just look at one year anyway. It wouldn’t be too unusual for someone with that kind of income to dump a lot of stock that was loosing money and post a big loss that one year to offset their income. You really need to average it over 3 years or so to get a more reasonable picture when stocks are a large part of your income & loss.

Socratease on September 20, 2011 at 11:51 AM

Maybe El Presidente Downgrade isn’t as smart as his college transcripts show him to be…

Chip on September 20, 2011 at 10:39 AM

What do his college transcripts show?

holygoat on September 20, 2011 at 11:26 AM

Well now, they haven’t released them – maybe that should tell you something.

Chip on September 20, 2011 at 11:54 AM

President Downgrade… S-U-P-E-R GENIUS!!

Khun Joe on September 20, 2011 at 11:59 AM

Forget tax rates… show comparisons of actuall tax dollars. Then you’ll see who’s really paying.

Scrappy on September 20, 2011 at 11:59 AM

Bradky on September 20, 2011 at 11:49 AM

Yes and I am extremely happy to see you on this thread.

Cindy Munford on September 20, 2011 at 12:07 PM

Yes and I am extremely happy to see you on this thread.

Cindy Munford on September 20, 2011 at 12:07 PM

*chuckles* thanks Cindy

Bradky on September 20, 2011 at 12:09 PM

he doesn’t care whether he’s passing along myths rather than facts.

That was the gist of your entire blog entry, why waste all the beautiful white space on the page with all those other words?

ButterflyDragon on September 20, 2011 at 12:13 PM

Buffet has already gotten his money; what does he care about the rest of us?

Keep your success guilt to yourself…

RedSoxNation on September 20, 2011 at 12:25 PM

The AP fact check says absolutely nothing about this.

burt on September 20, 2011 at 10:28 AM

By all means, let’s make tax policy by anecdote. Sort of goes along with the practice of conducting macroeconomic policy by press release.

DrSteve on September 20, 2011 at 12:43 PM

Buffet’s rates are abnormally low because the vast majority of his income is from long term capital gains, taxed at 15%, while he only takes a salary of 100K. Any other CEO of a company that size would have a much higher salary (and thus pay higher tax rates on more of their income). So he’s purposely gaming the system and then acting surprised at the results. What a load of bullshit.

BuzzCrutcher on September 20, 2011 at 12:52 PM

You see the tax code has these weird things called deductions, and credits which reduce your tax liability. Which strangely also reduce the percentage tax you pay relative to income.
Dasher on September 20, 2011 at 11:22 AM

Spending through the tax code.

Count to 10 on September 20, 2011 at 12:54 PM

Either Obama doesn’t bother to do his homework, or he doesn’t care whether he’s passing along myths rather than facts.

He is purposefully lying. He knows that much of the electorate won’t even question what he says, because they are just too lazy to check or don’t know any better. Stupid people will always vote for him, he is after all “The One”.

Susanboo on September 20, 2011 at 1:15 PM

Full disclosure, I greatly dislike federal income, FICA, and medicare taxes.

The article makes some dubious assumptions, such as the one that capped “middle class” at a household income of $75,000. Another is the unspecified assumption of that income being AGI or post deduction income. Obviously they made an assumption, the authors simply didn’t bother to post it.

Another problematic assumption is their ignorance (accidental or purposeful) of FICA. Buffet clearly, in his statements about his secretary, included FICA taxes in his assessment. Also, the article makes no effort to determine what portion of these “middle class” incomes are taxed at the lower, unearned (e.g. capital gains, dividend), income tax rates.

No FICA is assessed on unearned income; Buffet’s primary source of income is unearned (capital gains, interest, dividends, etc.); so he pays 0% of this tax on the bulk of his income. The employee portion of FICA is 7.65% (temporarily less this year, but will return next); the employer portion is the same 7.65%. If you are self-employed, you get to pay a full 15% in addition to regular income tax. Also, the bulk of FICA, social security tax, is only assessed on a limited amount of regular income; this year the cap is $106,800. So, compared to his secretary, Buffet pays very little of this income tax. You can quibble that this is a “payroll tax” but it is assessed against income, just like regular income tax (but without any chance of lessening the burden with credits and deductions) and it goes directly to paying for the entitlements of others. What’s that saying about things looking like a duck?

Buffet didn’t include corporate taxes in his analysis, but as a percentage of income, the poor and middle class are much more affected by corporate taxes than are the wealthy. Corporate tax is the regressive tax the left sells to the poor by packaging it as a way to get back at the wealthy. But it really does the opposite by making the poor spend more on the items they purchase, taking up a larger portion of their income than it does the wealthy, through higher prices.

Until all sides stop obscuring the issue to make their political points, nothing will change and everyone will continue to be burdened by an every growing tax-borrow-and-spend machine.

Jens on September 20, 2011 at 1:22 PM

Let’s hope that Warren Buffet is better at managing funds than he is at tax policy.

That’s completely out of context. Buffet has repeatedly said that his secretary pays into a higher tax rate. His point has never been that a millionaire paying a 15% capital gains tax rate pays less in overall taxes than a secretary.

By your remark, it’s clear that you fail to appreciate the brilliance of Buffet, a man who will be recorded in history as one of the greatest capitalists to ever walk this earth and certainly the greatest financier of all time. I know that some of his ideas, such as forcing China into more even-handed trade policy with the US may be disturbing to you, but Buffet understands finance at a level that very few mortals can match. His ability to make visionary multi-billion dollar decisions after reviewing a balance sheet for 15 minutes is legendary.

When Buffet finds grave issues in the balance sheet and financials of the US as a whole, it’s hard to believe that the right wing masses, without a finance background, just write it off because of disagreements over tax policy. When Buffet talks about the giant sucking sound of the US trade imbalance and the danger is semi-trade policy, it’s beyond foolish to ignore him.

bayam on September 20, 2011 at 1:38 PM

Buffett is the world’s biggest tax cheat……..yet he lectures us on good tax policies. What a POS of a human being.

David in ATL on September 20, 2011 at 1:41 PM

Buffet is correct….his secretary has less advantage in claiming loopholes, deferring income, sheltering income and taking advantage of myriad lawyers and accountants to make sure not a penny in tax is paid…unlike real working Americans who annually file their taxes, being as honest as possible lest the IRS garnish their entire lives…while Buffet can buy his way out of any IRS difficulties, should he need to, preferring rather to allow politicians to grant him amnesty and such, for his being to large to fail

All true, the amount of offshore wealth that’s never taxed isn’t fully reflected in IRS numbers. This deflects the accuracy of the ‘fact check’.
Then again, I know a number of people on Wall Street who receive $1 million plus bonuses every year (not to mention salary) and don’t make a serious effort to hide it. The taxes just aren’t seen as a major threat to their lifestyle or ability to save.

bayam on September 20, 2011 at 1:42 PM

I second Jens’ mention of unearned income versus earned income. Boofay makes a killing on scheduling unearned through the hoops and mazes using slick lawyers, shady lobbyists and accounting departments whilst the office worker likely not having more than a mall kiosk preparer rarely gets beyond the single sheet 1040. Meanwhile, the small business filer who uses the 1040 for both business and personal gets screwed worse than a Kennedy mistress.

viking01 on September 20, 2011 at 1:45 PM

I don’t know where they even get these numbers. There isn’t a “federal tax” line item. Do they include SS/Medicare taxes (oh, sorry, “Contributions”)? That’s more than 5% of the employee’s gross income right there – more before the rate was reduced.

Do they only mean income tax? They must have good accountants or a lot of dependents, these people. According to my trusty old Pub15 handbook, a regular single person has to make less than $40,300 a year to qualify for the 15% withholding rate.

And that is just ignoring the payroll tax their employer pays for the privilege of having them work there. I know that is not really on-point, but it does add to the bottom line of employers who are not all Warren Buffet.

Sorry I am really venting. 9/15 was the deadline for quarterly estimated tax payments and payroll taxes, and I am taxed out.

Who is John Galt, anyway?

yocheved on September 20, 2011 at 1:49 PM

Buffet is worth billions because he bought family-owned companies at fire-sale prices from heirs who needed the money to pay death (inheritance) taxes. The family that owns a company that is worth $20 million is not “rich.” Usually their only significant asset is the company and to pay the taxes they have to sell it. Buffet saw this decades ago and moved in like the buzzard he is. He’s as bad currency-speculator Soros. Buffet has no idea what he or anybody else pays in taxes and he knows even less about finance. He only knows that the government distorts the free market with schemes like inheritance taxes and he takes advantage of the distortion. He produces nothing. He creates no wealth. He only takes it.

InterestedObserver on September 20, 2011 at 2:00 PM

Buffett should know better than to make that kind of claim without checking his facts first …

Why should he?
What I hear is he is that he trying to get out from under some IRS troubles, and he is also buying up land in Texas like crazy to build wind turbines – two excellent reasons to keep his lips firmly planted on Obama’s bum…

Frank_D on September 20, 2011 at 2:19 PM

No FICA is assessed on unearned income; Buffet’s primary source of income is unearned (capital gains, interest, dividends, etc.); so he pays 0% of this tax on the bulk of his income.

Jens on September 20, 2011 at 1:22 PM

He pays nothing into Soc Sec, so he will get no benefits based on that lack of contribution. SS is totally different from income tax because your benefits are based on what you paid in.

mdenis39 on September 20, 2011 at 2:44 PM

Maybe El Presidente Downgrade isn’t as smart as his college transcripts show him to be…

Chip on September 20, 2011 at 10:39 AM

What do his college transcripts show?

holygoat on September 20, 2011 at 11:26 AM

Well now, they haven’t released them – maybe that should tell you something.

Chip on September 20, 2011 at 11:54 AM

He was D- student at best. I saw the transcripts myself. Got copies right here.

Don’t believe me? You get your copies and I’ll get my copies and we’ll compare notes.

I love using the left’s tactics against them. I don’t have to prove a thing, just tell it like I “know” it. The only way to disprove my claim is for them to produce the actual transcripts (the ones I have copies of). Since I know they won’t, my claim can never be disproven. Go ahead, try it out. Tell all the leftists you know that you have proof obama was a D- student. When they call you a liar, demand to see their proof (we all know they don’t have it). Oddly enough, that makes them liars.

runawayyyy on September 20, 2011 at 3:27 PM

The “Buffet Tax” is perfect metaphor for the Obama administration.

The premise of the whole thing is a reckless lie and Buffet has been using an army of lawyers and accountants to fight against paying his $2 Billion in owed taxes since at least 2002.

RJL on September 20, 2011 at 3:31 PM

Someone should report Obama to Attack Watch.

evergreen on September 20, 2011 at 3:32 PM

Any individual’s rate may vary, of course, depending on the mix of capital gains and dividends with salaries and other regular income. There is only one breakdown where a lower income pays on average a higher rate, though: those earning between $500,000 and $1 million pay around 27.3%, while those over $1 million per year as group average about 24.7%.

For comparison, the average tax rate for those making under $50,000 is 7.3%.

So if Buffett’s “secretary” makes over $500,000, it is possible she pays a higher rate than he does, but most secretaries would take that without complaint.

IOW, Buffett may have been telling the truth about his particular situation (if his secretary makes that much), but Obama is most certainly lying about the general case.

Adjoran on September 20, 2011 at 3:50 PM

What do you call a Capitalist turned Socialist?

A Buffett-Obamalist. A buffet of CHANGE you HOPE you never have to eat from. At the rate we’re going, it won’t be long before it will cost the equivalent of a share of BRK.A to eat a buffet at a growing number of Obama soup kitchens. Of course, they won’t be supported by private donations anymore, they will all be Big Government subsidized with YOUR tax dollars. That is if YOU still have a job.

I recall Costner’s movie “The Postman” and I envision a time when we have “The Last Employee” who shoulders the burden of paying the tax that runs all the government handout programs. I also envision a government arguing over how much they should raise that hapless prole’s taxes…

wonk-a-donk on September 20, 2011 at 3:58 PM

bayam on September 20, 2011 at 1:38 PM

Can always count on you to show up and be completely befuddled by whatever the topic is.

Kudos.

Midas on September 20, 2011 at 5:28 PM

SS is totally different from income tax because your benefits are based on what you paid in.

mdenis39 on September 20, 2011 at 2:44 PM

While I understand how you can be confused by that, your statement, especially the part “…what you paid in” is very misleading. No one gets benefits from Social Security due to investment returns on the taxes one pays. Social Security tax isn’t a Defined Benefit Contribution to a Defined Benefit Plan that generates interest, dividends or capital gains from “what you paid in.” It is a tax that funds the entitlement program’s current payments. It isn’t just mismanagement that makes it so, it was so designed; people began getting benefits nearly as soon as the plan began.

See Ida May Fuller’s case at ssa.gov for an example.

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

Jens on September 20, 2011 at 5:49 PM

Buffet has no idea what he or anybody else pays in taxes and he knows even less about finance.

You should write a book for the world’s finance experts- these people lack your nuanced understanding of Buffet’s value investment philosophy.

The wing nuts are out tonight.

bayam on September 20, 2011 at 6:48 PM

Bayam and yet the reality is that the rich like Buffet do not pay less in taxes than their secretaries. So play your little dishonest games. We know who you are and that you say screw the truth because you see Buffet as your financial god.

CW on September 20, 2011 at 7:31 PM

We know who you are and that you say screw the truth because you see Buffet as your financial god.

Buffet said his tax rate was lower than his secretary’s rate- unless you take him out of context.

It’s true anyone who has studied the history of modern finance and security analysis looks up to Warren Buffet. Apparently you don’t fall into that category.

You’re also failing to appreciate that most of Buffet’s observations are apolitical.

Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in – and I’ll use hyperbole here for emphasis – a ‘sharecropping society’.

bayam on September 20, 2011 at 11:23 PM

Instead of the Warren Buffett tax perhaps we should consider the GE butkus tax.

Dr. Charles G. Waugh on September 21, 2011 at 10:51 AM

Why is the third richest man in the world paying his Executive Secretary only $60,000 per year?

elclynn on September 21, 2011 at 2:03 PM

bayam on September 20, 2011 at 1:38 PM

At the risk of pointing out the obvious, what lever is Buffet/Obama using to force China to balance the trade deficit?

All of us realize there’s a trade deficit, but what lever is there? Smoot-Hawley? That worked out well for Herbert Hoover, didn’t it — making the poor pay more?

unclesmrgol on September 22, 2011 at 5:45 PM

Either Obama doesn’t bother to do his homework, or he doesn’t care whether he’s passing along myths rather than facts.

What do you mean, “or”?

Pablo Snooze on September 22, 2011 at 6:32 PM

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