Warren Buffett’s Taxes

For some strange reason, probably because this is an election year, I decided to watch President Obama’s State of the Union address tonight.  I usually avoid watching because I don’t need to elevate my blood pressure beyond what’s safe, given my advancing age.  But I also don’t watch because I find the President boring.  His version of the State of America is not the same as mine.  And since he uses rhetoric instead of facts to support his arguments, and delivers them in a manner that is both condescending and arrogant, I generally choose to avoid his incendiary speeches.

But this is an election year, and much is being made about how the uber-wealthy are being taxed, whether it’s Warren Buffett, or Mr. Buffett’s secretary, or Mitt Romney or Newt Gingrich.  What we hear is that they pay a rate of something outrageous like 15% of their income in taxes, while the top marginal rate is 35%, and so some feel (Is the term “Liberal Reader” an oxymoron?) that Governor Romney is somehow not paying his fair share.  Apparently $300,000 is not enough for him.

Here’s the reality of the situation.  Much of Mr. Buffett’s and Governor Romney’s income is not what we would categorize as “ordinary” income, that is, earnings from wages and interest on savings.  Rather, it’s dividend and capital gain income, which is taxed at 15%.  Dividends, quite simply, are what’s left over after corporations have already been taxed.  Corporations provide many functions, one of which is to collect taxes (income, payroll and sales taxes) from their employees and customers.  The dollars that flow back to investors in the form of dividends have already been taxed multiple times.  To suggest that those dollars should be taxed yet again at a higher rate is akin to stealing.  If I do it, it’s wrong, but if the government does it, it’s legal, and the argument is probably borne of jealousy.  My wish is that everyone would have a healthy income derived from dividends.

No one can argue that the government isn’t in a financial fix.  Spending is out of control, but so is the size of government.  Senator Marco Rubio (R-Florida) perhaps said it best.  What the country needs is not more taxes, he said, but more tax payers.  That’s what President Obama should have been addressing in his State of the Union.

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About the Author

Mr. Durant is a member of a Financial Services firm in Clive, Iowa. He holds a Bachelor of Arts Degree in History from Siena College in Loudonville, NY and an MBA from Ashland University in Ashland, OH.

 

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