Buffett Was Wrong: His tax rate is higher than his secretary.
Remember when Warren Buffett famously claimed that his secretary, Debbie Bosanek, had a higher tax rate than he did? I’ll let you in on a little secret, it isn’t true.
Warren Buffett has disclosed that he pays Bosanek $60,000 per year in wages meaning she pays less than 21% of her wages in taxes. According to Berkshire Hathaway, the company pays Warren Buffett an annual salary of $100,000 meaning he pays around 38% of his wages in taxes. Buffett’s tax rate on his wages is almost double that of his secretary.
By the way, Bosanek also receives stock compensation every year in the form of a gift of Berkshire Hathaway stock from Buffett on her birthday (worth more than $200,000 per share). She pays no taxes on these gifts (any taxes owed would be Buffett’s responsibility). When she sells her shares she pays a maximum 23.8% tax rate.
Sorry, but the example Buffett used doesn’t actually make his point primarily because it isn’t true.
The Real Point — Capital Gains Taxes
Buffett was suggesting that the taxes on capital appreciation should be higher. Currently, capital gains on dividends are taxed at 23.8% compared to 39.6% for wages at the top rate. But this isn’t the whole story because it doesn’t take into account the fact that the company who pays the dividend to the investor must pay taxes on those same dividends. The total tax rate on dividends is actually 50.47% and as the Tax Foundation explains that’s “10% percentage points higher than the top marginal tax rate on wages.”
The current anti-corporation climate in the United States promulgated by Bernie Sanders and Hillary Clinton is dangerous and counterproductive. ‘Evil’ companies like IBM (500K employees), Hewlett-Packard (330K employees) or UPS (400K employees) are where Americans work building amazing things like smartphones, automobiles, and video games. Companies need investment from Americans to build these creations. For each dollar, these companies pay their investors the government takes more than half — if we start to take more, fewer investors will invest in American companies. We want more investment not less.