I Am Spartacus: MoveOn.Org Perpetuates Buffett Tax Lie

I Am Spartacus: MoveOn.Org Perpetuates Buffett Tax Lie

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I just saw a MoveOn.org¹ commercial on MSNBC that exploits Warren Buffett’s absurd suggestion that secretaries pay taxes at a higher rate than their multi-billion dollar bosses.

Like the slaves in the movie Spartacus who claimed they were all Kirk Douglas, the women in the commercial all begin by saying “I am Warren Buffett’s secretary.”

One lady in particular - we’ll call her Ms. Spartacus – caught my attention. Here’s what she said

I am Warren Buffett’s secretary. I make $40,000 a year and support three children. I shouldn’t pay taxes at a higher rate than millionaires and billionaires.

I did a quick tax return for this lady using refile.com’s tax calculator and I came up with a tax liability of $1,553. Then I did a few calculations:

Taxes as a Percentage of Gross Income:

We simply divide the tax liability by the gross income as follows:

1,553/40,000 = .039%

Ms. Spartacus tax rate as a percentage of gross income is less than one half of one percent 4%.

Taxes as a Percentage of Taxable Income:

First, we calculate taxable income:

40,000 gross income LESS 5,000 standard deduction LESS $12,800 (4 dependency exemptions x 3,200 each) = $22,200.

Then we calculate the effective tax rate:

1,552/22,200 = 6.99%

Conclusion:

Ms. Spartacus pays taxes at a rate of less than four percentage points of her gross income. Read that again. Less than 4%.

And her effective tax rate – after the government gives her $17,800 worth of deductions and dependency exemptions - is less than 7.0%.

Even Warren Buffett wouldn’t claim that his tax rate is this low. Of course, we can’t know for sure because he hasn’t produced his tax return.

In any case, even assuming that Mr. Buffett pays taxes at the lower capital gains rate of 15% on all of his income – a very big assumption – his effective tax rate is still twice what hers is.

Where is Marcus Crassus when you need him?

Footnotes:

¹  MoveOn.org serially distorts the facts and tells outright lies in order to further its progressive agenda. Here‘s another example. These Alinskyites will do and say anything to further their anti-capitalist, anti-Republican, anti-business agenda.

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About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. Peter,

    I’m not quibbling with your numbers. But you might want to add the impact of payroll taxes.

    If you read Gene Sperling’s defense of the rule on the White House blog, you can see that they were literally only looking to tag a subset of the richest 400 individuals. The fact that we’re spending so much time discussing the taxation of a handful of billionaires is symptomatic of a diseased tax system.

  2. Peter,

    I am a CPA and enjoy your blog every day. I agree with everything in this post except your use of the term “marginal tax rate.” I think you mean the effective tax rate — the actual percentage of income the tax represents. The marginal rate is the highest tax bracket a taxpayer falls into–it’s the rate paid on the last dollar of taxable income.

  3. Dave,

    Thanks for the compliment.

    You are right. It’s effective tax rate. I made the correction.

    Appreciate it.

  4. “The fact that we’re spending so much time discussing the taxation of a handful of billionaires is symptomatic of a diseased tax system.”

    Yup. And the fact that we’re hearing so, so much about this when it patently obviously won’t make the slightest dent in the long term problem is symptomatic of a diseased and desperate government and administration that are far too cozy with a compliant and malleable media.

  5. Warren Buffett´s main point has always been that he doesn´t pay payroll taxes on his investment income, while his employees pay payroll taxes on wage income. This, combined with income taxes, causes his employees to pay a greater percentage of their income in taxes. MoveOn´s video is consistent with this. You are distorting the facts in your computations, which completely ignore payroll taxes.

  6. Ted,

    Thanks for your comment, but I have to disagree.

    Buffett’s point has always been that his secretary pays taxes at a higher rate than he does.

    The lady in the commerical doesn’t pay tax at a higher rate than anybody’s boss.

  7. you say you changed “marginal” to “effective,” but it does not appear that you did. the marginal rate on taxable income of 22k is 15 pct. some of the deductions that brought her down to 22k were at a marginal rate of 25 pct. if all of buffet’s income were gain and dividends, his marginal rate would be 15 pct. across the board. and as has been pointed out, the “secretary” pays payroll taxes that buffet probably does not pay at all, unless he is taking a salary for managing the fund.

  8. r willis,

    I changed it to effective. I missed a few “marginals.” I am comparing the effective tax rates, not the marginal tax rates.

  9. Leaving out the payroll tax is why you’re wrong. If this woman makes $40,000, she is paying SS and Medicare tax on every dollar. Moreover, most economists agree that she is indirectly paying the employer’s share of the payroll tax as well. If you take that perspective, she’s paying 15.3% of her income in payroll taxes alone, which is more than Mr. Buffett or the average hedge fund manager pays. Adding the income tax on top of that just increases the gap more. It is categorically true that the lowest taxes on earnings in the country are those paid by professional investors. Denying this basic fact is what makes one a liar.

  10. Robert,

    For every economist you can find that says a single mother of three making $40K a year pays taxes at a higher rate than Warren friggin Buffett I can find 200 who say you’re wrong.

    By the way, I don’t share the perspective that the employee also pays the employee’s share of FICA. He doesn’t.

    The MoveOn ad is a lie and I suspect, deep down, you know it’s a lie.

    Nice try, Bobby. I think you’ve been strolling through the groves of academe too long.