Image via WikipediaThe Atlantic reports that Buffett released his returns earlier today. He reported $63M in adjusted gross income (AGI), had $40M in taxable income (AGI less exemptions and itemized deductions like donations to charity), and paid $7M in income taxes (and $15K in payroll taxes). That's his tax rate of 17.4%.
I'm frankly surprised Buffett had the income that he did, given Berkshire's refusal to pay dividends. Given Buffett's long-standing refusal to pay himself a multimillion dollar salary, he must have liquidated significant stock.
Warren Buffett challenges Rupert Murdoch to a showdown in tax returns (from Politico). Buffett will publicize his if Murdoch will do the same.
Many people seem to disbelieve Buffett on what personal tax rate he pays, and Senator Cornyn notes that the return would be valuable to see for policy purposes.
This just seems silly to me. I have no idea how much Warren Buffett earned last year, but I believe he's been fairly transparent that he takes a smaller salary (something like $100,000) and earns most of his income through his investments. Since Berkshire Hathaway doesn't really pay dividends, I'm guessing that if he sells some of his appreciated stock (for a capital gain), he'll pay 15% in capital gains tax.
Using those quick numbers and some back-of-the-envelope math (assuming $0 deductions or exclusions, which is unlikely, and married-filing-jointly status), he'd pay 17.25% income tax on his salary, 6.2% for social security, and 1.45% for Medicare. That's a total of 24.9% on his earned income. If he had capital gains of 312,000 (that's selling ~ 3 shares of Berkshire Hathaway stock), Buffett would net out his claimed 17.4% tax rate....
Clearly, the biggest drivers of this are as follows:
1. Buffett takes most of his earnings as capital gains, not income. He's done this for years.
2. The social security and FICA taxes aren't paid on unearned (capital gains/dividend) income. Furthermore, the social security taxes top out at 106,000. Even if Buffett had a salary of $250,000 or $1,000,000, he would pay almost $0 marginal taxes (although, if he earned an extra $1M, he'd incur an extra $14,500 in the Medicare tax because that doesn't have the same cap).
3. Most of Warren Buffett's wealth is paper. Although it might be difficult to imagine, he doesn't have Scrooge McDuck's giant cash vault (see below). He owns tremendous amounts of his company's stock and is not taxed on those investments until he sells them.
I might have neglected some piece of this math, but it's directionally correct. Buffett takes advantage of the capital gains tax rate, and his long-time secretary (probably) doesn't. And it makes all the difference in the world!
Image via WikipediaThe Atlantic reports that Buffett released his returns earlier today. He reported $63M in adjusted gross income (AGI), had $40M in taxable income (AGI less exemptions and itemized deductions like donations to charity), and paid $7M in income taxes (and $15K in payroll taxes). That's his tax rate of 17.4%.
