Thursday, October 13, 2011

More on Warren Buffett's Questionable Tax Analysis

In response to claims by David Clayton on the Vox Rationalis blog that I'm "thoughtless, dishonest and/or lazy" in my analysis of Warren Buffett's tax claims, I provide the chart above displaying the average federal tax rates that various income groups paid for: a) individual federal income taxes and b) payroll taxes in 2007 (most recent year available from the Congressional Budget Office, retrieved from the Tax Policy Center). These data allow for the most accurate "apples-to-apples" analysis of Buffett's claim that his federal tax rate was 17.4% for income taxes and payroll taxes (see today's WSJ and Buffett's letter to Rep. Huelskamp), compared to the average federal tax rate of 36% for his employees.  

It should also be noted that Buffett's original claims in the NY Times were as follows:

"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."

Here are my thoughts:

1. Warren Buffett's tax situation is not typical for "wealthy" taxpayers, because the average tax rate for those in the top quintile is more than 20% compared to Buffett's 17.4% rate.  As discussed previously, Buffett's lower-than-average tax rate is because he receives most of his taxable income as dividends (which have been taxed previously at the corporate level) and capital gains - taxed at only 15% - and not as ordinary income, which would be taxed as high as 35%.  He also may receive income from tax-exempt municipal bonds.    

2. More importantly, it seems highly unlikely that Buffett's secretary and other co-workers are paying effective federal tax rates of 33-41%.  It's important to note that Buffett has only mentioned federal income taxes and payroll taxes, and not state income taxes, and has specifically reported his 17.4% rate on only federal taxes.  Given the tax data in the chart above, it's either the case that: a) Buffett's assessment of his co-workers' tax data is inaccurate, or b) all of his office workers faced extremely unusual tax situations last year, which are not at all representative of the taxes paid by typical Americans.  

3. Our federal tax system is highly progressive on average - higher income groups pay higher rates of federal taxes even when including payroll taxes - in general and on average.  Buffett's suggestion and anecdotal "evidence" that the federal tax system is regressive in at least some cases (his secretary and lower-paid employees pay a higher federal tax rate than he does) is not typical, but can only be considered as special cases of extreme outliers, both for him and his employees.  

Now that Buffett has released some of his tax information, perhaps he should have his employees release their tax information, so that we could see how it's possible that they are paying an average rate of 36%.  If he claims that he's adding state taxes to his "analysis" for his employees, then that should be clarified, and he should explain why he didn't include state taxes in the tax information he released. 

Comments welcome.  

43 Comments:

At 10/13/2011 3:04 PM, Blogger Benjamin said...

I congratulate Dr. Perry on presenting a more-balanced view on federal taxation.

Remember. state and local taxes tend to be regressive.

If we clumped all the taxes together, I expect we would find a mildly progressive tax code.

Still, I am drowning in my own tears when I consider the plight of the wealthiest in the USA today. They are today's true victims and martyrs.

A moment of silence on behalf of America's rich. Let's show respect.

 
At 10/13/2011 3:32 PM, Blogger Ira said...

"Buffett's lower-than-average tax rate is because he receives most of his taxable income as dividends (which have been taxed previously at the corporate level) and capital gains - taxed at only 15%"

Some of it is probably also interest on tax-exempt treasuries or municipals or other government bonds.

 
At 10/13/2011 3:43 PM, Blogger Sean said...

The graph implies taxation is progressive until the top 10%, then roughly flat from there. Is that the case?

 
At 10/13/2011 3:50 PM, OpenID voxrationalis said...

When I wrote that you were "Dishonest, Lazy, Thoughtless, or Some Combination Thereof," I was specifically talking about one chart, which has nothing at all to do with Buffett's tax arguments. Perhaps I wasn't specific enough - I'm sure it's not a fair general description, and I apologize if it came across that way.

I've already described how Buffett's calculation works. So has he - he spelled it out in his response letter, to which you linked. My "Buffett Rate" is 32.8% - have you even bothered to see what yours would be? I imagine not, as if you had, you probably would have developed the same criticism of the method that I describe here: http://voxrationalis.wordpress.com/2011/09/22/warren-buffetts-secretary-fact-checking-the-fact-checkers/

I'll probably write something more during the Cardinals game. In the meantime, you might want to read this: http://voxrationalis.wordpress.com/2011/10/13/congressional-research-service-warren-buffetts-right-in-a-big-way/

 
At 10/13/2011 4:52 PM, Blogger rjs said...

An Analysis of the “Buffett Rule” (congressional research service pdf)

The results of this analysis show that the current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers. Roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderateincome taxpayers (10% of the moderate-income taxpayers). Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends. For example, the President has proposed allowing the 2001 and 2003 Bush tax cuts to expire for highincome taxpayers and taxing carried interests of hedge fund managers as ordinary income as tax reforms that observe the Buffett rule. Research suggests that these tax reforms are unlikely to affect many small businesses or to deter saving and investment.

 
At 10/13/2011 5:06 PM, Blogger Jon said...

Suppose you are single, don't own a home, and therefore don't have much by way of exemptions. If you make $100K you'd pay $19K in income taxes. You'd pay $14K for social security and medicare. That's 33% right there.

 
At 10/13/2011 6:59 PM, Blogger Junkyard_hawg1985 said...

Wow, the 1%, 5% and 10% tax rates seem to confirm Hauser's law.

 
At 10/13/2011 7:22 PM, Blogger PeakTrader said...

Junkyard_hawg1985, that's an excellent observation.

Many people don't understand, when holding all else constant (no economic period is the same), a high tax rate on the rich has a negative impact on the economy.

There's No Escaping Hauser's Law
NOVEMBER 26, 2010

Federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

Why? Higher taxes discourage the "animal spirits" of entrepreneurship.

When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income.

Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments.

This behavior tends to dampen economic growth and job creation.

 
At 10/13/2011 9:18 PM, OpenID Sprewell said...

Benjie, who you should be crying for is the poor and lower class, who are made poorer by living in a poorer society as a result of ever-suffocating govt. Of course the rich aren't going to miss that money much, but the fact that they'll have less available to consider investing in the next google, like Jeff Bezos did, makes us all poorer. As we all know, living in a rich society like the US means that the "poor" here are richer than the well-off most everywhere else. It got that way because the rich and those striving to get there grew our economy, so stealing their money to redistribute it to middle-class unions only makes us poorer over the medium-term. Worse, it tells those trying to get ahead that it's better to enter a coalition of parasites like the govt or teachers' unions and try to leech off those who've done well through political graft, rather than try an entrepreneurial endeavor on their own. We are drowning in govt spending and debt, that's the real problem and the fact that you fall for the Democrats' ruse of "Let's just take even more from the well-off" marks you as woefully blind.

Sean, the top rate threshold is at $380k, so of course it's flat after that, for the top 10%. The only way it'd be different is if you had an ever-increasing rate the higher and higher you went in income. Considering the rich already pay a shitload more than they use and are subsidizing everyone else to the tune of twice their income share, what we should be doing is cutting spending first and then cutting taxes on the rich and broadening the base. Of course, that will never happen because the rich have a lot less "votes," so this democracy will fail like all those before it.

 
At 10/13/2011 9:32 PM, Blogger Matthew Holbrook said...

Buffett's calculation of his own and his employees' federal tax percentage includes payroll taxes paid both directly and indirectly. So it is conceivable that a secretary could pay 14% in income taxes and then another 15+% in payroll taxes. However, I find the inclusion of the employer-paid payroll taxes to be dubious, in that the employee doesn't actually see this money coming out of her check - it's like any other employer-paid benefit.

The focus on effective tax rates directs us away from a more interesting aspect of taxes: that the share of tax liability among the higher income brackets is very large, and much higher than it was in the mid-1980s. The CBO and IRS data show a significant increase in the share that the top quarter/quintile paid in taxes, over 10 percent points. According to the IRS data, the top 1 percent of filers in 2009 paid a share of over 36%, while their share of AGI was less than 17%. Furthermore, nealy all of federal income taxes in 2009 were paid by the top 50 percent.

This debate over tax rates seems to be a red herring, if the IRS and CBO are to be believed.

 
At 10/13/2011 11:56 PM, OpenID voxrationalis said...

Why Perry's chart was bogus: http://voxrationalis.wordpress.com/2011/10/13/why-perrys-chart-was-dishonest-lazy-or-thoughtless/

Quick take on this post: why does Perry continue to repeat things that have been resolved?
http://voxrationalis.wordpress.com/2011/10/14/quick-response-to-perrys-buffett-parry/

 
At 10/14/2011 12:52 AM, Blogger juandos said...

"Roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate income taxpayers"...

O.K. rjs but in actual dollar amount who is still having more money extorted from them by the government?

 
At 10/14/2011 1:32 AM, Blogger arbitrage789 said...

I took a quick look at the analysis on VoxRationalis.wordpress.com.

http://bit.ly/nu26tO

Apparently what Buffet is doing is using the employees contribution to the payroll tax + the employers contribution, and then dividing all taxes paid, not by adjusted gross income, but rather, by “taxable income”. Rather sleezy on Buffet’s part to do all this, without disclosing it.

But there is a more important point than any of this minutia. And that is the CONSEQUENCES of raising the capital gains & dividends taxes. Lots of ways to defer cap gains… can be deferred indefinitely. Results in inefficient capital allocation, to say nothing of reduced IRS revenues.

So even if is “fair” to set the cap gains rate at 35% or 45%, the important question is that of the total IRS revenues (from all sources) that will result (given the substantial changes in behavior that will occur).

 
At 10/14/2011 5:13 AM, Blogger OBloodyHell said...

>> A moment of silence on behalf of America's rich. Let's show respect.

Y'know, benny, you might want to work on creating more distance between your cranium and your rectal orifice. I mean, going around in life with them in constant direct contact just has to be physically taxing.

The one thing I've noticed about six-figure salary people is that, at the least, they bust their asses to get that -- they regularly work 60 and 70 hour weeks, and they've done that for years to develop the skills and acumen required to be paid that well. They often practice, all their lives, a constant policy of "delayed gratification", as well, which is part of the reason for their bounty of assets. When you've been steadily paying into your assets for 30-40 years, starting from an early age, the compound interest gets pretty damned impressive. Combine that with a measure of brilliance and, yes, being in The Right Place at The Right Time with exactly The Right Skills and you often find that they've earned every bit of it.

Sam Walton, as I recall, drove an ancient pickup truck for most, if not all, of his life, for example.

Q.E.D., In summary, Benny, you ought to blow it out your ass. It might help you with that serious cranio-rectal insertion issue you've got going.

 
At 10/14/2011 7:08 AM, Blogger Free2Choose said...

"As we all know, living in a rich society like the US means that the "poor" here are richer than the well-off most everywhere else. It got that way because the rich and those striving to get there grew our economy, so stealing their money to redistribute it to middle-class unions only makes us poorer over the medium-term. Worse, it tells those trying to get ahead that it's better to enter a coalition of parasites like the govt or teachers' unions and try to leech off those who've done well through political graft, rather than try an entrepreneurial endeavor on their own."

Bingo! The most concise and impactful synopsis of why the OWS and similar ilk would, if they were able, drag everyone down into poverty.

 
At 10/14/2011 7:27 AM, Blogger morganovich said...

mark-

are you sure about that 1.8mn income number for the top 1%?

that sounds awfully high to me.

according to the census bureau, in 2005 (2 years earlier than your data) only 1.5% of americans made over $250k.

for the top 1% to average 7 times that just 2 years later seems implausible, even with the mean being heavily skewed away from the median by a few massive earners.

where did that number come from?

 
At 10/14/2011 7:28 AM, Blogger Zachriel said...

PeakTrader: There's No Escaping Hauser's Law
NOVEMBER 26, 2010. Federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.


Federal tax receipts were below 15% in 2009, 20% below your baseline.

Sprewell: Of course, that will never happen because the rich have a lot less "votes," so this democracy will fail like all those before it.

A lot of people think the rich have an inordinate share of influence already, there are so few old white rich guys in the Congress now. Maybe there should be a House of Lords. But we'll shed a tear for the rich along with Benjamin.

 
At 10/14/2011 7:32 AM, Blogger Mark J. Perry said...

morgonovich: I have a link in the post to the data source (CBO via Tax Policy Center), showing average income for the top 1% to be $1.87 million. It's possible that it's an average skewed heavily by the extreme outliers at the top end of the scale?

 
At 10/14/2011 7:32 AM, Blogger morganovich said...

juandos-

i agree completely.

couching this in % terms of income is an entirely bogus way to look at it.

if you earn 200k and pay 39k in taxes and i earn 100k and pay 20k, sure, my % is higher, but you would be paying far more in taxes (and getting nothing extra for it).

nothing else is priced like that.

it's like you having to pay twice as much to see the same movie or buy the same groceries.

most would call that unfair, yet, strangely, these same people call it "not paying your fair share" for you to pay twice as much for the same government.

 
At 10/14/2011 7:43 AM, Blogger morganovich said...

bunny-

shouldn't you be out occupying the financial district with the rest of the class envy driven "flea party"?

i just heard that name this morning.

i really like it: blood sucking parasites who wish to vote themselves more or someone else's juice.

if the posters were honest they would say "fleas demand more blood, less scratching!"

state and local taxes tend to be flat. that makes them progressive in dollar terms, not regressive. why are %'s even relevant?

if we buy the same ticket to the same ballgame, we pay the same. THAT is flat. if you pay $50 and then i have to pay $499 because i make 10 times what you do, in your mind, that's regressive, but that's clearly preposterous.

if the cost of a seat is $100, then you and 7 of your leechy friends are all getting half off by paying $50 because i am overcharged.

i'm sure it feels all warm and fuzzy to have such a sense of entitlement, but it's still being a leech.

 
At 10/14/2011 7:54 AM, OpenID voxrationalis said...

Morganovich and Mark - Any slice of the income scale that includes the very top will have a mean that seems unreasonably high, because as Mark said of the outliers at the very top. It's often better to use medians, but you have to do what you can with available data.

Alan Reynolds has useful things to say about this.

 
At 10/14/2011 8:15 AM, Blogger morganovich said...

mark-

i found some census data stating that the top 1% starts at $350k.

i suspect that 80% of that group lie below 1.8mm.

if the data exist, might be interesting to slice deciles again and look at the top 0.1%.

that would likely be where you saw a dip down, as that's going to be a pretty heavily cap gains oriented crowd.

 
At 10/14/2011 8:26 AM, Blogger Spartacus said...

We really need to move away from all this class warfare talk, as it is unproductive. America was founded on the idea of being the "Land of Opportunity". We destroy this concept when we look to distribute income down the wage scale to solve the deficit and unemployment problems. The government should be working instead to increase opportunity for the lower classes, and therefore increase the upward mobility of people in these classes. Redistributing income and increasing the tax rolls in the public sector (when there is no real need to do so) is a zero-sum game that will continue to grow the deficit and restrict the private (job creating) sector.

 
At 10/14/2011 8:35 AM, OpenID voxrationalis said...

Arbitrage wrote: "Rather sleezy on Buffet’s part to do all this, without disclosing it."

Buffett has been very clear about how he did his calculation at every step along the way - I defy you to come up with a time when he wasn't. It's not his fault that almost nobody paid attention closely enough to understand it.

For the record, here's the fundamental problem: federal taxable income is not the basis for payroll taxes; gross wages is. So bringing these two numbers together without adjustment is not a fair treatment of the subject.

However, the underlying argument is undiminished - between 1997 and 2003 there was a shift in taxation away from capital that continues to disproportionally benefit the very wealthy.

If you're interested in this question and haven't read the Congressional Research Service report "An Analysis of the 'Buffett Rule,'" you should.

 
At 10/14/2011 8:40 AM, Blogger morganovich said...

vox-

buffet is just talking his book.

he wants cap gains rates up so that life insurance looks more attractive as a wealth management tool.

also note that berkshire Hathaway owes over a billion in unpaid taxes that they are fighting at the IRS.

far from being a populist, buffet is just being an opportunist and a rent seeker.

 
At 10/14/2011 9:30 AM, Blogger morganovich said...

"However, the underlying argument is undiminished - between 1997 and 2003 there was a shift in taxation away from capital that continues to disproportionally benefit the very wealthy."

vox-

if it's the wealth getting all the benefit, then explain how the % of americans paying no net federal income tax rose from 26% in 2000 to 51% today.

a doubling of non-taxpayers in a decade hardly seems like a squeezing of the bottom earners.

 
At 10/14/2011 9:37 AM, Blogger Zachriel said...

morganovich: if it's the wealth getting all the benefit, then explain how the % of americans paying no net federal income tax rose from 26% in 2000 to 51% today.

Because of greater income disparity, that is, more people on the lower end of the spectrum, with more income concentrated in fewer individuals. And because of a greater reliance on payroll taxes to support deficit spending (excepting the recent temporary payroll tax cut).

 
At 10/14/2011 11:16 AM, Blogger Rich B said...

Clearly, a flat tax with a basic standard deduction and all income treated the same would make the Voice of Reason happy. The effective rate would rise monontonically and no millionaire would pay a lower rate than the common working man or woman. It would make me happy, too, if Congress did not have the ability to tamper with the tax code.

 
At 10/14/2011 2:17 PM, Blogger Zachriel said...

Rich B: It would make me happy, too, if Congress did not have the ability to tamper with the tax code.

It took centuries of hard struggle to ensure that parliaments, rather than lords, would have the power to raise taxes. The rallying cry of the American Revolution was "No Taxation Without Representation!" Who would you like to see responsible for making decisions on taxes?

 
At 10/14/2011 3:05 PM, Blogger OBloodyHell said...

>> "flea party"?

Nice. gonna steal that one.

 
At 10/14/2011 3:10 PM, Blogger OBloodyHell said...

>>> It's not his fault that almost nobody paid attention closely enough to understand it.

No, it's his fault for:
a) couching it in terms so easily distorted by the media with their class-warfare meme in mind. He's not stupid, he knows this was going to happen.
b) Not being just flat out simple about it in the first place. Why use complex mechanisms that someone has to go "look up" to understand?

He's doing this to score points with the bureaucrats, and selling out the "lesser wealthy", throwing them to the wolves, in the process.

I think far, far less of him as a result of this crap. I used to respect him. Not any more. When he kicks off I'll not be in the crowd saying, "Too bad, he was a good man."

 
At 10/14/2011 3:32 PM, Blogger OBloodyHell said...

>> However, the underlying argument is undiminished - between 1997 and 2003 there was a shift in taxation away from capital that continues to disproportionally benefit the very wealthy.

You're a freakin' ignoramus. There was a shift in taxation away from the super-rich in 1907 when they passed the laws creating special rules for tax-free foundations.

Buffet doesn't pay taxes on the income from his 40-odd billion in assets. The vast majority of those assets lie in a tax-free foundation which he controls but doesn't get "income" from. Gee, a distinction without much of a difference -- actually, he shifted a lot of it to the B&M Gates Foundation, but that's beside the point -- he gets all the advantages of having the assets with none of the tax liability.

So the rules YOU are talking about NEVER had any substantial effect on him. They have an effect on the "lower upper class", many of whom are the ones who start businesses and create new companies... that is, the engine that drives the economy in most ways, being highly responsible for most newly created jobs.

The problem is that people like you seem to think of wealth based on the Scrooge McDuck model. There's some eeevil bastards out there piling it up in their money bins so they can swim in it, while not letting anyone else have any to play with.

In reality, wealth doesn't work that way at all. The last person to actually keep serious riches in a mattress was probably Hetty Green. People who set assets in a fixed location are losing out entirely on the greatest power those assets provide, which is to use them to build still more wealth, much of which spills over onto others.

You can grouse about someone wealthy enough to pay a million bucks for a Maybach, but that million doesn't go into a closet somewhere, it is used to hire engineers, designers, artisans, and machinists to create that car. In short, a lot of people get the benefit of that "ostentatious" expenditure of wealth.

The "middle-rich" -- those making six figures to low-sevens -- usually bust their asses for every dime of it, both for the years before their getting it as well as for the time they are getting it -- as noted above. The do so far more than most, and vastly, vastly more than anyone in the "flea party" (Thx, M!).

Modern times flip the parable of The Ant and The Grasshopper on its head.

The grasshoppers now outnumber the ants, so they just bash the ants over the head and take what they want, and do so under the cover of "democracy".

This is inevitably the road on which lies the death of any society.

 
At 10/14/2011 3:44 PM, OpenID voxrationalis said...

Morganovich: I understand your argument about Buffett advocating policy changes that might have an impact on his business. I just don't find it very compelling - can you show what kind of impact such a change is likely to have on Berkshire Hathaway?

As for the billion dollar tax thing, that strikes me as standard operating procedure for an American corporation. The company has a duty to shareholders (not just to Buffett) to maximize profits, and that's what it tries to do. Note that there's a history of Berkshire winning against the government in such cases; a fact that seems devastating to your argument here, which is basically that Berkshire's efforts in this area are meritless.

About the lucky duckies, note that I didn't say anything about the taxation of earned income; my statement was that there's been a shift away from taxing investment income. Though the decline in taxation of earned income is certainly worthy of discussion. I'd like to see analysis of the impacts of the low-end tax cuts (increases in the EITC and child tax credit) on low-end wages. In a sense, the federal government is subsidizing low-wage work. It's possible that this has a positive impact on employment; it's also possible that this depresses wages paid at the low end. This kind of research is probably out there, I just haven't looked.

Consider this framing of the Bush tax cuts: they shifted the burden of current government spending from current taxpayers to future ones.

 
At 10/14/2011 3:53 PM, Blogger OBloodyHell said...

>>> Because of greater income disparity, that is, more people on the lower end of the spectrum, with more income concentrated in fewer individuals. And because of a greater reliance on payroll taxes to support deficit spending (excepting the recent temporary payroll tax cut).

As with benny -- head, ass, much more separation called for.

You need to go look back at past CD articles on the difference between statistical income classes and the individuals IN those classes. It's probably searchable on CD under the term "mobility". Perhaps someone else will feel like hunting it up, I'm not going to bother since I'm willing to bet you won't get your head and ass separated for long enough to actually read such a thing, much less have the capacity to wrap your head around it, rather than your ass back around your head.


> And because of a greater reliance on payroll taxes to support deficit spending (excepting the recent temporary payroll tax cut).

Aaand here we have proof of your ignorance. In actual fact the last three quarters haven't been paid for by anyone but the Federal Printing Press.

..But that's ok, we know where your head is, so it's pretty much obvious you can't help talking out your ass.

>> Who would you like to see responsible for making decisions on taxes?

Right now, anyone but someone in the government would be little worse.

I could throw a dart at a phone book and get decisions from the "appointee" that would be little worse than this crop of dunderheads.

The whole system needs revision, and, personally, I don't see that happening without a revolution -- but the important question is, which model are we going to use -- the American Revolution (Tea Party) or the French Revolution (Flea Party)?

"We live in interesting times" indeed.

 
At 10/14/2011 4:20 PM, OpenID voxrationalis said...

Obloodyhell wrote quite a lot, though it deteriorated into ranting not against me:

"No, it's his fault for... couching it in terms so easily distorted by the media..."

In what way has the media distorted what Buffett wrote?

"Why use complex mechanisms that someone has to go "look up" to understand?"

It's not complex at all. Take your income tax. Add 2x your payroll tax. Divide by taxable income. How could it be simpler?

What was problematic here is that people's reflexive attacks against any argument for higher taxes caused them to criticize Buffett without bothering to THINK.

"You're a freakin' ignoramus."

Perhaps.

"Buffet doesn't pay taxes on the income from his 40-odd billion in assets."

Then why did he send a check for almost $7 million to the IRS last year?

"The vast majority of those assets lie in a tax-free foundation which he controls but doesn't get 'income' from."

I'm eager to see evidence of this. I'm also curious: why would he put the vast majority of his stock into a foundation, when there's no tax liability until he sells it?

"[A]ctually, he shifted a lot of it to the B&M Gates Foundation,"

Here's the Gates Foundation page describing Buffett's gift. It's not at all as you describe.

"he gets all the advantages of having the assets with none of the tax liability."

It sounds like you think the Gates Foundation can pay Warren Buffett's personal bills without running afoul of IRS rules covering charities. I say you're wrong. If you were right, how would the IRS collect any money at all from any wealthy person?

 
At 10/14/2011 6:19 PM, Blogger Margaret said...

For skewed data, a median is more appropriate than an average. Ranges would also work well in a case like this.

I was always taught that income distribution was skewed enough that you did not use a mean. And to be clear, I mean skewed in the statistical sense (3rd moment of the distribution), I'm not making a value judgement about income distribution in the US.

 
At 10/14/2011 6:34 PM, Blogger Margaret said...

Here is a CBO that may be good table fodder for you: http://www.cbo.gov/ftpdocs/98xx/doc9884/12-23-EffectiveTaxRates_Letter.pdf

It has both effective federal tax rates from 1979-2005 AND lists the minimum income in each group, with the higher levels broken up into very small groups so you can get a better idea of what the income is in the various percentiles. It's interesting to see how it's changed over time.

 
At 10/15/2011 2:38 AM, Blogger PeakTrader said...

Zachriel says: "Federal tax receipts were below 15% in 2009."

Yes, that's true.

Since WWII, it has been rare when it fell that low, and it has never risen above 20 1/2%.

Are you suggesting now is the time to raise taxes, particularly for middle and lower income Americans?

In California, hikes in taxes, fees, fines, fares, tolls, tuition, etc. offset federal tax cuts.

That may help explain the state's 12% unemployment rate.

 
At 10/15/2011 9:11 AM, Blogger Zachriel said...

Zachriel: Federal tax receipts were below 15% in 2009.

PeakTrader: Yes, that's true.

To be considered a law, Hauser's shouldn't have any violations within the relevant domain.

PeakTrader: Are you suggesting now is the time to raise taxes, particularly for middle and lower income Americans?

Not at all. A mature response would be to keep taxes low, continue to stimulate the economy, then when the economy recovers sufficiently, raise taxes and prudently cut back on spending, meanwhile addressing long term entitlement costs and the root causes of the crisis. Having such a plan *in place now* would reassure the market that the U.S. is a responsible borrower, and this would help keep interest rates low and markets stable during the interim. However, the U.S. is politically dysfunctional and not capable of having a discussion on taxes—but they want to keep their social programs.

 
At 10/17/2011 4:01 PM, Blogger Junkyard_hawg1985 said...

Zacriel,

I think you miss the point of Hauser's law. You can get less than 20%, but you won't get much more than 20%. Looking at the top three income brackets listed (1%, 5% and 10%), despite very different income levels, the tax take was about the same (just over 20%).

 
At 10/17/2011 8:02 PM, Blogger Zachriel said...

Junkyard_hawg1985: I think you miss the point of Hauser's law.

Hauser, 1993: "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."

The current 15% is not close to 19.5%. If we look at other countries, tax revenues as a percentage of GDP vary considerably, though they are obviously bounded.

 
At 10/18/2011 12:46 PM, OpenID voxrationalis said...

"Hauser, 1993: 'No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.'"

I've never been able to reconcile Hauser's 19.5% against EROP table B-79, which shows an average of 17.7% between 1946 and 1992, with swings as high as 19.6% in 1982 and as low as 14.4% in 1950. Hauser's figures, for which I can't find underlying figures, seem to claim far less variation than what government statistics show.

Any objective look at the official data shows that tax rates have had a significant impact on revenue; revenue was 19.6% at the 1981 peak, but then never got higher than 18.4% under Reagan and Bush. Immediately after Hauser's article and Clinton's tax hike, revenues increased to 19.9% in 1998, 20.6% in 2000, and 19.5% in 2001. Following the Bush tax cuts, revenues fell, reaching 16.1% in 2004, a number not seen since 1959. By the 2007 peak, revenues had climbed to 18.5% - significantly lower than the peaks under Clinton or Carter.

Hauser's notion is not reflected by the historical record.

 
At 10/18/2011 3:23 PM, Blogger Ron H. said...

Vox: 1. "Hauser's notion is not reflected by the historical record."

Vox: 2. "Any objective look at the official data shows that tax rates have had a significant impact on revenue; "

Without disagreeing with #1, I will point out that the historical record doesn't exactly support #2 either.

A percentage of GDP doesn't really tell us much about actual revenue. In times of high GDP growth, for example, a constant percentage could represent increasing real revenue. Changes in government spending also change GDP, and therefore the percentage of tax revenue, without indicating actual revenue.

Therefore, it is difficult to correlate tax rates with tax revenue from the information provided.

 

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