At Work

Taxing your what? The “income” you don’t have. 20% of Americans pay the bulk of ALL taxes

Progressive rhetoric about taxes is misleading, inflammatory and unfair. “Fair share” is a rallying cry designed only to garner support for a greater bureaucracy, more wealth transfer and greater public dependence on larger government and the politicians who control it. 

If that sounds a bit radical; sorry, but that is what’s happening to America.

Mr. Buf­fett said Monday that he earned adjusted gross income of $11.6 mil­lion in 2015 and paid $1.8 mil­lion in federal in­come tax. He said his in­come was off­set by $5.5 mil­lion in de­ductions, which included $3.5 mil­lion in char­i­ta­ble dona­tions and al­most all of the rest in state in­come taxes.

The size of the char­i­table deduction was lim­ited by law, Mr. Buf­fett said, even though he donated a to­tal of $2.86 billion last year…

Tax spe­cial­ists said Mr. Buffett’s 2015 in­come was low rel­a­tive to his net worth, which Forbes re­cently pegged at $65.2 bil­lion. The numbers help show how wealthy Americans who earn money from in­vest­ments can end up pay­ing taxes at lower rates than peo­ple who rely on wages.

“It’s less than 0.02% of his wealth,” says Roberton Williams, a tax ex­pert at the non­par­ti­san Tax Pol­icy Cen­ter in Wash­ington. “Almost all of his in­come is in unre­al­ized capi­tal gains, which aren’t taxed un­til he sells as­sets.”

Mr. Buf­fett’s ef­fec­tive tax rate was 16%, less than half the 34% rate paid by Bill and Hillary Clin­ton on their 2015 in­come of $10.6 mil­lion.

“Every share of Mr. Buf­fett’s Berk­shire Hathaway stock has been pledged to phil­an­thropy. None will ever be sold by him, so he will never re­ceive anything from Berk­shire except for his $100,000 a year salary,” said Mr. Buf­fett’s assistant.

Excerpt: Wall Street Journal 10-11-16

So what?

Of what relevance is the fact “It’s less than 0.02% of his wealth?” Buffett’s wealth is in Berkshire Hathaway stock and like every other person and entity holding stock, you can’t spend it unless you sell the stock and you only make money if the stock you sell is worth more than when you bought it.

man_with_empty_pockets_hg_clr â€śAlmost all of his in­come is in unre­al­ized capi­tal gains, which aren’t taxed un­til he sells as­sets.”  Guess what unrealized means? It means  “not made real or actual; not resulting in accomplishment” So, Buffett’s capital gains are not yet real and could be considerably lower than they are now or conceivably they could eventually be non-existent.  So the fact is, it is not his income at all and yet, the words used in the article create the impression that this “income” is not being taxed.  Would you like to pay income tax of any kind on the increased value of your home even while you have no plans to sell your home?

What makes more sense; for the Buffett’s to give billions directly to charity and pay less in taxes or to give billions more to the bureaucracy of the federal government? If you believe the later, it’s time to stop reading.

The article fails to make the strong point that Buffett gave away 4.4% of his total net worth in one year.

Warren Buffett’s income other than a meager salary, is from dividends and interest outside of Berkshire Hathaway which does not pay dividends. Every American who earns dividends from stocks pays a lower tax rate on those payments then on salary and wages. If you earn it from municipal bonds, you pay no taxes. The only difference between Buffett and the rest of us is the $$$ involved … and the fact he is far wiser than most of us.

Very average people can (and probably should) build a portfolio that over time generates income from interest and dividends. That income can provide a steady income stream in retirement at lower or even no tax rates. The fact that the amount of income or wealth involved will differ vastly from the Buffetts of the world is irrelevant in my mind.

The idea that higher income Americans don’t pay their fair share is media and political hype.  Even if you include all taxes beyond income taxes, higher income American pay the lions share of all taxes.

What is unfair, however, is that the income from a 401(k) plan or IRA, etc. is taxed as ordinary income and not investment income. Many middle-class Americans forced to take a minimum distribution would benefit from taxing the earnings portion of the distributions not as ordinary income, but the same as capital gains and dividends, which it actually is. 

But you see, the progressive elite view this not as a benefit for more average Americans, but as a loss of revenue they can control and distribute according to their priorities, not yours.

Remember as you read the following. You only need a family income of about $111,000 to break into the top 20%. In many parts of the US that can include the income of a couple of teachers, or police officers or government workers. Are they the “rich people?”

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1 reply »

  1. I am betting that $1m of Mr. Buffett’s donations have more of a direct impact to the receivers of said donations whether they are employed by a local museum or a woman in a shelter than $100m spent by the federal government. I believe in this sense he helps save other taxpayers money.

    Even Mr. Buffett realizes that he doesn’t pay a fair share compared to his secretary, it not the amount but the percentage of the tax that is not fair. This is another case for a flat income tax where everybody pays the same percentage and based on real income, not total assets.

    But I like your thinking. Imagine if your income tax was based on your assets. It would be fun to watch all those people sell their McManson homes not because of the property taxes but because of the income taxes. It doesn’t matter that they still own $400k on the house, but it is their unrealized wealth that caused them to sell. See how fast they will yell that they want to be unequal and keep their unfair share.

    Like

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