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Posted By: Chief Renegade Truth about taxes... - 04/12/12 01:48 PM
Last night, for the seemingly millionth time, President Obama said that Warren Buffett's secretary paid more in taxes last year than Buffett, himself. Obama is comparing apples and oranges, and it's not a fair comparison. I was going to write my own comparison, but I found one that explains it perfectly:

Buffett is comparing two different taxes. One is a tax on income, one is a tax on investments. They are two different taxes on two different things. Warren Buffett has already been taxed on that money. Here’s an oversimplification to explain what I mean.

You earn $100 in salary.

TAX #1: Uncle Sam takes $35, leaving you with $65.

You then invest that $65, and that investment earns 10% or $6.50.

TAX #2: Of that new $6.50, Uncle Sam takes another $1.

Now, add up the earnings: the original $100 + $6.50 = $106.50.

And, add up the taxes: $35 + $1 = $36.

On $106.50 in earnings, you were taxed $36, or 33.8%,– about double the rate Warren Buffet claims he’s paying. This gets more complicated with margin, outside investment, and a million other variables, but this how it works in general. (Dividends are worse: you get taxed on initial income, the company gets taxed on their profits, then when they give you a slice, it gets taxed again.)

So, how does Buffett justify his low tax numbers? He acts as if TAX #1 never occurred. Then he tells you that the rate of TAX #2 is too low. It’s a completely disingenuous shell game.
Posted By: John Johnson Re: Truth about taxes... - 04/15/12 03:40 PM
No Chief, if you only earn $100 you pay a 15% rate, less deductions. Exactly where the 36% tax rate kicks in on earning is something I am not sure of, I have never made that much.

Plus, you are double counting. The $1 you paid on the $6.50 earned the second year is the tax paid on earning only. The principal is never taxed again. Plus, on those earning you made by investing, you are only paying 15%, where salaries on working people can be much higher, especially when you factor in the payroll tax. So, lets say you make a million from investments you pay only a 15% rate, with no payroll tax. Which means your effective tax rate is higher than mine.

In the truth about taxes we should probably talk about the payroll tax and that only the first $106,000 in earnings is covered. Which means most Americans pay about the same amount - from the plumber to the pro football player.

Also, on the news today, it was noted that in the last 10 years, 93% of the salary gains have gone to the top 1%. This cannot be healthy for the country.
Posted By: Chief Renegade Re: Truth about taxes... - 04/16/12 11:42 AM
John,

You are still not completing the story. You did include, "less deductions", but spell it out with "nearly half of American tax filers will pay no federal income taxes this year".

Some 76 million tax filers, or 46.4 percent of the total, will be exempt from federal income tax in 2011.

The $1 tax on the 6.50 is still a tax that must be counted! A critical point also needs to be added to your swing at the top 1%. This group rotates dramatically! Ultimately, the core lesson that has to be followed in every growing economy is...

"You cannot bring about prosperity by discouraging thrift.
You cannot help small men by tearing down big men.
You cannot strengthen the weak by weakening the strong.
You cannot lift the wage-earner by pulling down the wage-payer.
You cannot help the poor man by destroying the rich.
You cannot keep out of trouble by spending more than your income.
You cannot further the brotherhood of man by inciting class hatred.
You cannot establish security on borrowed money.
You cannot build character and courage by taking away men's initiative
and independence.
You cannot help men permanently by doing for them what they could
and should do for themselves."

Let's not repeat the mistakes of the past!
Posted By: Husker Fan Re: Truth about taxes... - 04/17/12 09:44 AM
Originally Posted By: andrew p hurla
I agree with Mr. Johnson! smile


Andy,

I can see you are ready to be a politician yourself! smile I can see that Aquinas HS and Baker University education is paying off! smile
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