Warren Buffett’s Fraudulent Tax Claims
By James D. Agresti
December 3, 2012
In the op-ed pages of last week’s New York Times, Warren Buffett again called for increased taxes on “the wealthy.” Buffett, whose net worth of $46 billion makes him the second-richest person in America, defined “wealthy” as those who earn more than half a million dollars per year or about .001% of his aggregate wealth. Buffett laced his arguments with explicit “outrage” and dramatic statistics about how the “ultrarich” pay federal tax rates “well below those incurred by people with income just a tiny fraction of ours.” Buffett’s figures, however, are based upon deceptive measures of taxes and income, which create a false impression that high-income earners pay a lower federal tax rate than other income groups—when in reality—the polar opposite is true.
Buffett distorts the truth about taxes via a two-step process. First, he entirely ignores corporate income taxes, which fall much harder on high-income earners. The effect of this lapse is evident in the Tax Policy Center’s estimates of federal tax burdens, which show that the federal corporate income tax burden on the top 0.1% of income earners is 10.7%, whereas this burden on the middle class is only 0.6%. By excluding these taxes, Buffett skews his figures to make it seem like high-income earners pay far lower tax rates than they actually do.
Second, Buffett uses two different definitions of income for his tax rate calculations, both of which artificially and significantly inflate the tax burdens of many taxpayers. Tax specialists explicitly warn that these narrow definitions of income (adjusted gross income and taxable income) cannot be used to accurately calculate tax burdens. For instance, the academic book Federal Taxation explains that using “taxable income” to compute tax burdens is a “bit misleading” and says “little about the true impact of a tax on the taxpayer.” Likewise, the Tax Policy Center cautions that adjusted gross income “is a very narrow measure of income” that will “understate taxpayers’ ability to pay taxes and overstate their ETRs [effective tax rates].” Nonetheless, Buffett skips back and forth between these two measures of income without regard for consistency and without regard for the fact that neither of them are honest measures in this context.
Relatively comprehensive estimates of federal tax burdens by the Congressional Budget Office (CBO) and Tax Policy Center both show that the wealthy pay a far greater share of their income in federal taxes than all other income groups. Buffett’s rhetoric advances a narrative that clashes with this reality, and his famous claim that his secretary pays a higher federal tax rate than him is based upon the same incomplete and misleading measures of taxes and income detailed above. The following graphs display the latest CBO data on federal tax burdens. Although there is always room for uncertainty in such estimates, there is not nearly enough uncertainty to make Buffett’s rhetoric remotely plausible.
Buffett is not the only person to use these deceptive accounting methods. The Obama campaign, FactCheck.org, PolitiFact, and former Clinton Labor Secretary Robert Reich have all done precisely the same. Those reports (and many like them) have led to widespread misinformation among voters, which was recently measured in a pre-election poll commissioned by Just Facts. This poll found that only 17% of likely voters knew that the top 1% of income earners pay a higher federal tax rate than the middle class.
Beyond Buffett’s faulty accounting of tax rates, he makes three other materially misleading claims in this latest op-ed. These are detailed in the second part of this two-parts series, which is located here.
Not surprising, the know-nothing left praises Buffett and Krugman as GOD
This pseudo president cannot even compose a grammatical sentence, so we should disregard his political opinion.
“his famous claim that his secretary pays a lower federal tax rate than him”
I believe if you check the facts, Buffett actually said his secretary pays a higher federal tax rate than him. I think that is what you meant to say.
Thank you. I will fix that.
The article was not very clear about the distinction between Adjusted Gross Income and Taxable Income. The following might help:
“When income from all sources is added up and some specific items mentioned in the taxation laws of a country are reduced from it, we arrive at adjusted gross income. This amount is taken as a base to then arrive on taxable income by adjusting certain deductions, whether standard or personal.
Thus adjusted gross income is the income which is taken as a standard from which some allowable adjustments are made so as to arrive at taxable income.”
One of the tax reforms that should be enacted without delay is the “carried interest” provision that allows venture capitalists and many fund managers to receive part of their management fee as a percentage of the fund being managed and then report that income as a “carried interest” so that it is taxed at capital gains rates rather than as ordinary income. Fee income, no matter the form in which it is paid, should be classified as earned income and treated accordingly.
Our tax system is complex. Make it simple, fair and efficient. Close loopholes too. If there is a tax in place there should not be a way to get around it. Corporation making billions each year that pay zero taxes doesn’t pass the smell test. Participation in the tax system can be beneficial for the country. If our elected leaders could take a step back from all the bickering and work toward a solution it would be great. And don’t stop working until an efficient system is in place. One that helps our country sustain growth as well as pay down debt.
Respectfully, the argumentative nature of this writing makes me uncomfortable. Its tone seems to argue that Buffett is willingly and fraudulently portraying a skewed or entirely fabricated narrative of unfairness in taxation, while I find it more likely that he actually believes what he is saying, be it true or false. I would have found a more calm and neutral explanation of his inaccuracies to be more compelling.
Thank you for your feedback. I used terms such as “fraudulent” and “deceptive” because it is not plausible that Buffett made an honest mistake by ignoring corporate income taxes. This is evidenced by the fact that Buffett includes the burden of corporate payroll taxes in his tax rate comparison with his secretary. Buffett appears to be keenly aware of his duplicity on this matter, as evidenced by the veiled terminology he uses to describe corporate payroll taxes: “payroll taxes paid by me and on my behalf.” The sly reference to “on my behalf” refers to corporate payroll taxes, which happen to fall far more heavily on lower income households: http://www.justfacts.com/taxes.asp#social. Yet, when it comes to corporate income taxes (which fall far more heavily on upper income households), Buffett simply ignores them. This is manifestly hypocritical and far too slick to be the result of authentic ignorance.
Also, as the facts in part 2 of this article indicate, several of Buffett’s other false assertions in his op-ed cannot plausibly be attributed to ignorance on his part. Again, they appear very calculated: https://www.justfactsdaily.com/warren-buffetts-fraudulent-tax-claims-part-2.
Anytime when someone refers to Tax as a Burden is a total red flag! Only conservative propaganda think tanks and such would use that term. It’s a coded word for Burden for the 1%! Because lower Tax Talks always benefit the 1%.
Go and read Thom Hartmann’s Roll Back The Reagan’s Tax Cuts and open up your eyes.
Pay taxes shouldn’t be viewed as a burden but as a passage to a civil society!
These charts seem fine, but deceptive in themselves because they omit the amount of income in question. I fairly quickly found that the threshold to be in the top 1% is about $340k (https://origin.bankrate.com/finance/taxes/top-1-percent-earn.aspx), but the range extends to the top earner in the country. Medians for income and taxes would be more comparable.