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Warren Buffett Updates: He Sheltered Millions Through Giving To Charity, Must Not Trust Gov't.?

 October 12, 2011 04:02 PM

Based on early release tax data from the IRS for 2009, the chart above displays new average tax rates for various income groups and shows that federal income taxes are highly progressive as intended - the higher the taxable income the higher the tax rate, on average.  Americans in the bottom 50% with incomes below $32,400 paid only 1.85% of their income in federal income taxes in 2009, while those in the top 1% with incomes above $344,000 paid an average of 24% of their income in federal taxes.   Also in 2009, the IRS reports that the top 1% made less than 17% of gross income but paid almost 37% of all federal income taxes collected, and some of the members of this group are the ones who Warren Buffett claims are "undertaxed" relative to those in lower income groups like his secretary.  (Note: Buffett is also considering payroll taxes which are not included in the chart above.)

Another update, via CNN: Last week Rep. Tim Huelskamp (R-Kan.) sent a letter to Warren Buffett asking him to release his tax returns so that the American people could verify his low 17.4% tax rate now being used to justify the "Buffett Rule" that could be part of a major tax overhaul.  In Buffett's response, he said he wouldn't release his tax returns unless other "ultra-rich" colleagues like Rupert Murdoch also agreed to release their personal tax information, which is consistent with Buffett's refusal to pay higher taxes voluntarily unless others do the same. 

Buffett did reveal in his letter that he paid almost $7 million in federal taxes last year (including $15,300 in payroll taxes) on taxable income of $39,814,784 for a tax rate of 17.4%, as he reported in the New York Times.  Buffett's adjusted gross income in 2010 was almost $63 million before taking more than $23 million in deductions for charitable contributions. 

Huelskamp was quick to point out to CNN that "By sheltering millions of dollars of income from taxation through charitable giving, Mr. Buffett demonstrates that he doesn't trust Washington with his own money either."  

Bottom Line: If Buffett and others in the "super-rich" category are paying 17.4% or less in taxes instead of something closer to the 24% average tax rate for the top 1%, those cases are clearly exceptions usually involving receiving low amounts of wages or ordinary income (like Buffett's salary of only $100,000) and high amounts of tax preferred income (dividends and capital gains taxed at 15% like Warren Buffet) or tax-free investments like municipal bonds.  Other "super-rich" like Buffett may be taking large deductions for charitable giving that run into the tens of millions.  Therefore, rather than taxing the ordinary income of millionaires at higher rates, Buffett might really be making alternative cases for a:) taxing dividends and capital gains as ordinary income, b) ending or limiting the deductions to charity, and c) ending the tax-free status of municipal bonds?  

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