Jon Henke is dubious of Warren Buffett’s oft-repeated claim that his $46 million annual income is taxed at 17.7 percent whereas his employees pay an average of 32.9 percent. Jon looks at the numbers and concludes, “Buffett is either paying his staff millions apiece, or they’re getting very bad tax advice.”
My guess is that Buffett is including payroll taxes for Social Security into the calculation, skewing the numbers. We currently only collect FICA on the first $90,000 of income. My guess is that almost all of Buffett’s employees, therefore, pay FICA on all their income whereas $45,910,000 of Buffett’s salary is FICA tax-free.
Whether including FICA in the category of “taxes” for this comparison is reasonable is debatable. Certainly, it looks and feels like a tax. On the other hand, it is, theoretically at least, a retirement savings account whereby people are coerced to pay in and then receive a fixed stipend upon retirement or disability. Given that people who make $90,000 a year and those who make $46,000,000 a year will receive the exact same monthly payout, it stands to reason that they should pay in the same amount.
UPDATE: Henke notes in the comments that his own calculations were based on Tax Policy Center statistics, which include all federal taxes, including FICA.
