Just how well-off is Warren Buffet’s secretary?

One of the more interesting choices for a Presidential SOTU speech prop during the last few years has been Debbie Bosanek, personal secretary to mega-billionaire Warren Buffett.  Bosanek was chosen to be a visual illustration of a theme repeated a lot by Warren Buffet these days – “My secretary pays more tax than I do.”

Buffet has long publicized his effective tax rate, which he claims is 17.4% and is “unfairly” low.  In contrast, Debbie Bosanek’s tax rate was said to be a whopping 35.8%.

That claim sent financial writers into a tizzy.  The highest US marginal income tax rate is 35.1%, which is paid on adjusted gross incomes greater than $373,650.  Most taxpayers who primarily earn wage-derived income and end up with an AGI of over $373,000 (after deductions and other adjustments) earn wages in the neighborhood of $500,000 a year.

Of course this is mostly meaningless speculation, because Buffett himself has never explained exactly how his 17.4% tax rate is calculated.  Buffett claims it is his effective Federal income tax rate, derived from a 2010 AGI of $39.8 million, which is derived from total income of $62.8 million.  But at the same time, Berkshire Hathaway, Buffett’s investment company, is contesting the results of IRS audits and re-computations for at least a decade’s worth of tax returns.  If the IRS’s figures are correct, Berkshire Hathaway (the bulk of Warren Buffett’s personal wealth consists of his ownership of the company) may have underpaid its Federal corporate income taxes by as much as $1 billion.

Anyway, amid the stink created over the 35.8% tax rate claimed for Debbie Bosanek, someone pointed out that Buffett has already publicly admitted that he pays Bosanek about $60,000 a year.  Instead of making things better … well, read on.

For starters, one of the world’s five richest men paying his personal assistant a paltry $60,000 a year makes Buffett look like a huge cheapskate.  Second, how on earth does a wage-earner making $60k a year end up with an outrageous 35.8% Federal income tax rate?  Bosanek’s likely Federal income tax rate is 25%.  If you add in Federal employee withholdings for Social Security and Medicare (7.65% in 2010) you come closer to 35.8% but still fall a little short.  Further, we have no idea what Bosanek really receives in compensation from Buffett.  Bonuses?  Stocks (I hope they’re BRK-A)?  Warrants or options for BRK-B shares? Interest/dividend income?  We just don’t know.

The bottom line here is simple.  There is no way to honestly compare the taxes paid by Debbie Bosanek, who presumably earns primarily wage income, and Warren Buffett, whose income is largely derived from corporate dividends, capital gains, and interest payments.  Much of Buffett’s paper wealth is tied up in his ownership stake of Berkshire Hathaway; another significant portion is tied up in the non-profit Buffett Foundation.  Financially, Buffett lives in a different world from Debbie Bosanek.  And he has wisely constructed his wealth portfolio to take full advantage of our nation’s tax laws, as well he should.

Buffett and President Obama agree that the super rich (those earning over $1 million annually) should be paying an effective tax rate closer to 30%.  But for Buffett to pay taxes in this range, increasing the marginal rate for wage income is largely useless.  We would have to radically alter the tax code for capital gains and dividends, as well as possibly introduce a way to compute and extract a tax unrealized capital gains.  Until Congressional Democrats start pushing those kind of reforms (and I’m not supporting them, by the way) we can be sure that their “tax the rich” rhetoric is nothing but election year hot air.

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  • Warren is just a poster boy for Mr Obama, Warren knows nothing about the middle class he’s been alittle sheltered boy all of his life. Im retired but work  part time for a apartment complex- half of our apartments are rented by the US Govt for so called poor people who drive anything from Lexus to Cadillacs and ALL have bigger TV’s than I. Warren lets give these people alittle more money for what, they have everything thay want. They have nice apts for almost free and driving 50-60000 dollar cars. They are happy, it seems to me you need to talk to your CPA about giving more money  to taxes and stop taking every deduction you can. This is not a race issue as my wife is different than I

  • GarandFan

    “Until Congressional Democrats start pushing those kind of reforms (and
    I’m not supporting them, by the way) we can be sure that their “tax the
    rich” rhetoric is nothing but election year hot air.”

    It will be a cold day in hell before Nancy-poo and the other fat cat Democrats do anything like that.  They “talk”, but they’ve already had two years when they could have “walked the talk”. 

    As for Buffet, the guy is a lying hypocrite who can’t seem to find his checkbook.  He’s been fighting the $1 BILLION tax bill for several years, all the while decrying that he “doesn’t pay enough”.

    Now he bitches that people are picking on his secretary.  WHO USED HIS SECRETARY IN THE FIRST PLACE?

  • Oysteria

    There’s no way to prove what Buffet’s saying.  Is his secretary married?  If so, do they file jointly?  And what does the husband make?  Is this their percentage filing jointly or is she filing separately and paying a penalty?

    It’s all just a dog and pony show.

    • herddog505

      That’s the beauty of it: it’s a charge that can’t really be proved or disproved because that would require evidence that would violate the secretary’s privacy and lead to hysterical, self-righteous shrieking from the left about how “mean” people are being to her and how they are “prying in her personal life” and “making her into the story”.

      Remember poor little Graeme Frost and the S-Chip saga?  The dems went out and found this “poor” family that was in desperate need of federal assistance to pay medical bills for their badly injured child.  When Michelle Malkin and others started looking into the actual finances of the Frost family, they were labeled as “meanies” and “stalkers”.  What really bothered the dems, thought, was that Malkin and the rest uncovered evidence that the Frosts weren’t at all desitute, which in turn led people to look harder at the S-CHIP bill.

      Can’t have that!

      The dems are masters at the quick sob story.  They know that, for those millions of Americans with a credulous nature and a short attention span, sob stories are a perfect way to get what they want.

  • ackwired

    I wonder if they included the portion that the employer pays on her payroll tax on the theory that it would be paid to her if not to her social security account.  I suspect that would make the numbers about right.

    • 914

      I suspect you are out of koolada!!

    • UOG

      For all we know they threw in State and local taxes as well. But it’s pretty obvious that where ever that number came from they compared it to Buffet’s “effective” tax rate. So at the bare minimum they are comparing apples to oranges.

      Or they might be lying all together. There’s no way to tell. Except now Buffet is trying to tell everyone to stop looking… and just believe.

      • ackwired

        We absolutely know that people whose primary income is capital gains pay a lower rate than those whose primary income is earned income.  Diversion and denial isn’t going to fool anybody.  There are ways to justify the difference.  But accusing those who are saying that it is so of lying rings a little hollow.

        ________________________________
        From: Disqus
        To: [email protected]
        Sent: Sunday, January 29, 2012 6:13 AM
        Subject: [wizbang] Re: Just how well-off is Warren Buffet’s secretary?
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        UOG wrote, in response to ackwired:
        For all we know they threw in State and local taxes as well. But it’s pretty obvious that where ever that number came from they compared it to Buffet’s “effective” tax rate. So at the bare minimum they are comparing apples to oranges.
        Or they might be lying all together. There’s no way to tell. Except now Buffet is trying to tell everyone to stop looking… and just believe. Link to comment

        • SCSIwuzzy

          Yes, investments pay a smaller share on their profits then you and I do on our wages.
          1) Because there is risk.  Investment profit is not a sure thing.  The government taxes these profits at a lower rate to encourage investment.
          1a) Because private investment helps the economy as a whole.  Without investments, and their risks, we would have far less growth historically and we’d be even deeper in the can than we are now.
          2) Most money that is invested began as those already higher taxed wages.  The rest is rolled over from other investments.  It’s already been taxed.  Many times, usually.
          3) Capital gains includes the pay outs from many structured investments that retired folks live off of.  Anyone that wants to soak the rich by increasing the taxes must hate old people…

          • ackwired

            There you go!  There are reasonable arguments for the different rates.  It sounds disingenuous to deny the difference or to call Buffet a lier because he points it out and he does not think it is fair.  You could also include Mankiw’s argument that corporate taxes come out of the shareholder’s equity, and is therefore being paid by the shareholders.

            ________________________________
            From: Disqus
            To: [email protected]
            Sent: Sunday, January 29, 2012 5:26 PM
            Subject: [wizbang] Re: Just how well-off is Warren Buffet’s secretary?
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            SCSIwuzzy wrote, in response to ackwired:
            Yes, investments pay a smaller share on their profits then you and I do on our wages. 1) Because there is risk.  Investment profit is not a sure thing.  The government taxes these profits at a lower rate to encourage investment. 1a) Because private investment helps the economy as a whole.  Without investments, and their risks, we would have far less growth historically and we’d be even deeper in the can than we are now. 2) Most money that is invested began as those already higher taxed wages.  The rest is rolled over from other investments.  It’s already been taxed.  Many times, usually. 3) Capital gains includes the pay outs from many structured investments that retired folks live off of.  Anyone that wants to soak the rich by increasing the taxes must hate old people…
            Link to comment

          • EricSteel

            But here is the problem, Buffet, Obama and the Left are not explaining that these are fundamentally different types of taxes, they are intentionally blurring the lines.  I had an argument with a co-worker about Buffet’s taxes.  My co-worker was convinced that Buffet is paying 15% income taxes and his secretary is paying 35% income taxes.  It took more than a few minutes to explain and convince my co-worker that there are two completely different types of taxes involved.

            Because of that experience I think there are a lot of Americans who don’t understand that, and Obama is preying on that misunderstanding to play populist class warrior.

          • jim_m

            Noit only that, but Buffett is simply not paying is taxes at all.  Berkshire Hathaway’s own annual report shows that it owes $1 B to the federal government in taxes.

            According to page 56 of the company report, “At December 31, 2010… net unrecognized tax benefits were $1,005 million”, or about $1 billion. McCarty explained, “Unrecognized tax benefits represent the company’s potential future obligation to the IRS and other taxing authorities.  They have to be recorded in the company’s financial statements.”
            He added, “The notation means that Berkshire Hathaway’s own auditors have probably said that $1 billion is more likely than not owed to the government.”

            It’s really easy to say you don’t pay enough taxes when you owe a Billion dollars.I agree with you Warren.  Pay your frealking taxes already!!!

          • ackwired

            I realize that it is politically correct to demonize Obama around here.  But I think most Americans are hearing that Buffets secretary is paying a larger percent of her income in taxes than Buffet is.  It’s true.  Denying it and calling him a liar destroys the accuser’s credibility.  If you want to justify it, there are reasonable arguments that attempt to do so.

            ________________________________
            From: Disqus
            To: [email protected]
            Sent: Monday, January 30, 2012 8:12 AM
            Subject: [wizbang] Re: Just how well-off is Warren Buffet’s secretary?
            Disqus generic email template

            EricSteel wrote, in response to ackwired:
            But here is the problem, Buffet, Obama and the Left are not explaining that these are fundamentally different types of taxes, they are intentionally blurring the lines.  I had an argument with a co-worker about Buffet’s taxes.  My co-worker was convinced that Buffet is paying 15% income taxes and his secretary is paying 35% income taxes.  It took more than a few minutes to explain and convince my co-worker that there are two completely different types of taxes involved.
            Because of that experience I think there are a lot of Americans who don’t understand that, and Obama is preying on that misunderstanding to play populist class warrior. Link to comment

  • I dont get this article – its defeatist and a bit mud-slinging. You accept we dont know the detail but still find it necessary to depict someone as a ‘huge cheapskate’. You finish it by complaining that unless the tax code is radically altered it wont fix the problem… ummm yes, exactly, Buffett’s point..whats the article trying to do?

    • cirby

      You need to remember that the press (and, basically, the entire left wing of the blogosphere) didn’t have any “details” either, yet took Buffet’s unsupported story as proof that we needed massive tax increases on rich people to make things “more fair.”

      You also don’t need a lot of details to find the gaps in the original story.  Either Buffet lied about how much she paid (as a percentage of income), or he’s not paying her very much at all for the level of responsibility she has.

    • SCSIwuzzy

      So Buffet complains he doesn’t pay enough and his secretary pays too much?
      A) He can pay more, but he chose to pay the bare minimum he is required to (there is a reason he’s rich, he never pays when he has a way not to)
      B) His gal Friday could have alot more money in her pocket.  He chose not to make that happen.

  • iwogisdead

    There are reasons why, among other things, cap gains are taxed lower than employment income, why muni bonds aren’t taxed at all, and why neither one is subject to FICA or self employment tax. If those reasons are invalid, why the hell didn’t Obumble resolve this issue in 2009 or 2010?

    There are all sorts of changes I’d like to see in the tax code, especially some form of national sales tax. If we have to tax such things, why not a net worth tax? But none of this can be done in a vacuum, and each change would have some impact on the economy as a whole. The fact is that the only change that will fix things is to reduce federal spending. Which will never happen.

  • 914

    “Just how well-off is Warren Buffet’s secretary?”

    Well enough to know better but apparently does not..

  • jim_m

    Seeing as Warren has contested his taxes for the last ten years and is spending undisclosed sums of money trying to avoid paying them it is just a touch hypocritical.

    Buffett says that he should pay more taxes, the IRS says that he should pay more taxes, yet he demagogues the issue for obama’s sake.  Can’t be that obama is killing the Keystone Pipeline project to enrich Buffett’s trucking interests could it?

    Buffett is a fraud and obama is a crook. No wonder they like each other so much.