Sunday, December 16, 2007


Warren Buffett continues to whine that he is not paying enough in federal taxes and campaign for more “progressivity” in the Tax Code.

I have never been a fan of the “progressive” income tax system - where the more you earn the greater the percentage of your earnings that are taxed. I favor a more flat tax system.

Is it fair that an individual with a higher level of income must pay a higher percentage of that income in tax? Obviously a person with an income of $1 Million should pay more taxes than one making only $50,000. But a taxpayer earning $1 Million who would pay a flat 20% tax would certainly be paying more tax than a taxpayer paying that flat 20% on $50,000 of earnings, although not proportionately so.

Is it fair that a large, and growing, segment of the American population are “non-taxpayers” – individuals who pay absolutely no federal income tax, although beneficiaries, perhaps even at a greater level, of government protections and programs?

The Tax Foundation has produced a “Fiscal Fact” report that shows just who pays what.

Foundation President Scott Hodge, responding to a recent joint appearance by Buffett and Hillary Clinton, has pointed out –

A new report by the Congressional Budget Office shows that Buffett and Clinton have their facts quite wrong. Indeed, the 'super-rich', the top 1 percent of households, are now paying a record 27.6 percent of federal taxes (those taxes measured by CBO) and a record 38.8 percent of income taxes. By contrast, the bottom 80 percent of households—representing 90 million households—pay 31.1 percent of federal taxes and just 13.7 percent of income taxes.
In other words, the top 1.1 million American households pay a greater share of the income tax burden than the bottom 90 million combined.”
A posting by TAX PROF Paul Caron led me to Greg Mankiw's Blog (Random Observations for Students of Economics), which discusses the same Congessional Budget Office report used as a source by the Tax Foundation Fiscal Fact in the post “Tax Rates: Current vs Historical Averages”. Greg comments –
“Notice that all groups are paying lower tax rates than the historical average. But in contrast to some popular perceptions, the change is not concentrated among the upper income groups. In fact, the opposite is true.”

As a fellow blogger (I can’t recall whom) pointed out – if Warren Buffett thinks he should be paying more to the federal government he can always make a donation to the federal treasury!



Scott said...

The thing that disturbs me about Buffett's contention -- like his bottom-line tax rate being lower than his secretary's -- is that he doesn't count all the taxes paid on behalf of his capital as taxes he pays.

If he owns 5% of Coca-Cola, then isn't he paying 5% of their corporate income taxes? If he's not, then who is?

But this doesn't make it to his personal 1040. I think Warren's trying to pull a fast one...because I know he's smarter than that.

Anonymous said...

Suggesting Mr. Buffett can fix the disparity in tax rates by voluntarily paying more taxes is nonsensical, it would not change the tax rates.

I think a fair tax should consider disposable income. A family earning $30,000 per year may barely be able to survive, even with a zero tax rate. Suggesting a 20% "flat tax" impacts a $30,000 and $30 million income equally is not correct.

I think eliminating corporate taxes has a lot of academic merit.

Robert D Flach said...


I was only using the 20% flat rate and $50,000 income as an example. I do not mean to suggest that a flat tax rate should necessarily be 20%, or that it should be applied in full on those with incomes of $50,000 or $30,000.

Even if the tax is applied to "disposable" income it should be applied equally as a percentage to all.

Unfortunately disposable income varies not only by level of income, but by geographic location - and the Tax Code does not adjust for the geographic cost of living differentials.

I would expect that a flat tax system would provide a large enough exemption so that only a small portion, if any, of the $30,000 would be taxed.