Millionaires Paying More Taxes? Really?

Dollars This is a guest post from Mr. Accountability.

By now you have probably heard about President Obama’s newest government debt scheme which is supposed to lower our deficit and help reduce our debt by implementing the Buffet Rule.

From whitehouse.gov:

No household making more than $1 million each year should pay a smaller share of their income in taxes than a middle class family pays. This is the Buffett Rule—a simple principle of tax fairness that asks everyone to pay their fair share.

This proposed plan would require those earning more than 1 million dollars annually to pay at least 30% in income taxes. The only problem… Warren Buffett will not be paying the proposed income tax increase. At least not in income taxes.

Some people say the wealthy (the “1 percenters”) are benefiting from our unfair tax system which rewards only the top 1%.

Not true.

Mr. Buffett does not actually earn an income. Neither does Bill Gates, Oprah or even that crusty old sinister investor who is trying to short the euro at this very moment as he did a number of other currencies in the past, George Soros.  These folks do not make a salary, they do not earn income. They are living off of their investments. This is different than earned income, and is not subject to income tax.

Mr. Buffett’s secretary pays 30% of her salary in income taxes.  I don’t know the actual percentage that Mr. Buffett pays, but let’s use 10% for an example.  The 10% he pays is not on earned income, but on dividends earned on his investments.  Money he has already paid earned income taxes on then took what was left over and invested that money, and then has to pay a different tax with a different rate of 10% (as the example) on his dividend earnings. Thus no income taxes only dividend taxes apply to the most wealthy among us.

This is exactly why Mr. Buffett is in favor of the new “Buffet Rule” for higher income taxes on the wealthy. It could be 100% in income taxes. Still no affect on him. That’s why he is all for it.

 

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1 comment to Millionaires Paying More Taxes? Really?

  • I think definition of terms is very important here.

    What you’re defining as “income” is generally referred to as “ordinary income” (although this sounds generic, it’s a tax term with a defined meaning). The IRS defines the concept of “income” more broadly – includes both ordinary income, capital gains, dividends, and more.

    Note that dividends (line 9) and capital gains (line 13) both appear in the “income” section of form 1040. Yes, extra steps are required to compute the taxes on those items, but they are still income items and still incur an income tax – just not at the rate for “ordinary income”

    Buffett may not earn a salary, but he certainly has a substantial income.

    [Reply]

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