Obama now likes to do math, but his math must come straight out of Orwell — 2+2=5. If you do real math, the truth is that the funds from which Buffett gets ‘paid’ always get taxed at a higher rate than his
Let’s say Buffett and 5 friends invest $1M each in Acme Roadrunner & Job Killers, Inc. In 2010, the company has income of $1M and expenses of $750,000.
Included in the expenses is the $50,000 salary (median salary for the U.S.) for Sally Secretary that is taxed as below:
Sally pays the $5,944 in taxes, and Sally’s effective tax rate is 11.8% — below the 15% Capital Gains tax that Buffett pays when he takes dividends from the Company. Sally would have to make more than $84,500 to get above a 15% effective tax rate. Pretty good salary if you can get it.
The 2010 taxable income for Acme is $250,000. Assuming we divide the $250,000 evenly between the 5 investors when we pay Corporate Taxes, take Dividends, and Pay Taxes on the Dividends, we would see that the total tax for Mr. Buffett is $22,375.
Again, the amount of tax the Federal Government gets from Sally’s $50,000 is $5,944 and the amount from Mr. Buffett’s $50,000 is $22,375.
If Sally Secretary is the best secretary on the planet, her $1,000,000 salary still only gets taxed at a 32.4% effective rate! No matter what the earnings for the corporation, when Buffett takes his Dividend, the total tax to the government will be 44.75%.
As usual, Obama’s rhetoric belies the truth and reality. Tell your friends, if you want less of something, tax it; if you want fewer jobs; tax the job creators more.