America's Highly Progressive Federal Tax System
The chart above shows the average tax rates paid by income quintiles (and the top 1%) in 2009 for all federal taxes (income, social insurance, corporate and excise taxes), according to new data from the CBO. Here are some comments:
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 23% compared to Buffett's 17.4% rate. As has been documented, 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 may also 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.