Warren Buffett on taxation of dividends

[Theophylact]

A Washington Post op-ed.

The taxes I pay to the federal government, including the payroll tax that is paid for me by my employer, Berkshire Hathaway, are roughly the same proportion of my income -- about 30 percent -- as that paid by the receptionist in our office. My case is not atypical -- my earnings, like those of many rich people, are a mix of capital gains and ordinary income -- nor is it affected by tax shelters (I've never used any). As it works out, I pay a somewhat higher rate for my combination of salary, investment and capital gain income than our receptionist does. But she pays a far higher portion of her income in payroll taxes than I do. ...

...Now the Senate says that dividends should be tax-free to recipients. Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.

And our receptionist? She'd still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.

There's more, but you get the idea...

[M_Six]

Ah, but that $310 million will eventually trickle down to the receptionist. She could be lookin' at a 1, maybe 2 percent raise! Cool how that works, no?

[RADAR1797]

Theo,

While Warren Buffett has frustrated me on some of his public declarations of tax policy, it is mainly how the media construes his message that upsets me. My point has always been to tax fairly across the board. I would not support Dr. Walter Williams' position which is take the price of the federal government (about $2.3 Trillion) and divide it by the population and that is how much each person in the US owes for taxes. But I would advocate getting rid of tobacco, alcohol, gas, FICA, medicare, etc.. taxes and replacing them with a flat tax. We could either do it through a value added sales tax that is applied to all value transfers (ie buying a car, stereo or stocks would get taxed the same) or just a straight income tax where there are two lines How much did you earn and what is that multiplied by 15% or whatever the rate decided.

-RADAR

[osprey4]

That receptionist must be making some serious money if she's paying 30% federal taxes. You don't even reach a 30% rate until you make $320,000.

Either that or Warren Buffet has a PhD in how to lie with statistics.

[Theophylact]

osprey4, you're not paying attention. Buffett specifically counts her payroll taxes, which include Social Security: 7.65% right off the top, before any kind of adjustment. And he includes the employer's contribution: an equal 7.65%. (Most analysts consider that this should really be considered as part of the employee's cost, because it's fully deductible by the company; otherwise, they could pay it directly to the employee, who would then pay the full amount in tax, as self-employed people do.) That means the receptionist is in effect paying 15.3% of gross, unadjusted income even before you start counting income tax.

[osprey4]

How bogus.

[Theophylact]

How bogus.

What, osprey 4, you think the arithmetic is wrong? Or do you think it's phoney to consider Social Security a tax? Or do you think that Warren Buffett is a liar?

What is your point?

[osprey4]

Buffet's main point is to criticize the tax cut. But his primary argument, this mythological "regressive" tax structure, is based on Social Security. It's completely bogus.

He also conveniently forgets that the primary beneficiaries of the dividend tax cut are senior citizens.

[M_Six]

...the primary beneficiaries of the dividend tax cut are senior citizens.

Huh???

[Tomteriffic]

I think where osprey is going with the Senior Citizens thing is that most of us Seasoned Citizens, if we are living on our retirement savings/investment protfolios, have arranged the portfolio to being very heavy on "investing for income". That means dividends, in most cases.

Without getting into the Warren Buffet thing, the dividend tax has always been onerous, simply because each dividend has been taxed twice. Once on the payer, once on the recipient.

No problem paying taxes, but it seems a bit unfair for a transaction to be taxed twice. Now, if I get that dividend check and spend it, OK, I'll pay the taxes on that separate transaction. But to tax one transaction twice seems a bit heavy-handed.