Saturday, September 24, 2011

Buffet Rule

There is a talk about the taxing of millionaires an especially the issue of Warren Buffet being taxed at a lower rate than his secretary. Before we get all up in arms we have to look at this one a little closer. When it comes to getting taxed the rate you pay depends on how you earn your money.

In an example if I made a million dollars a year in salary (income) I would be taxed @35%

If I made a million dollars in capital gains (my only source of income is from stocks, dividends etc) I would pay 15%

This is why Warren Buffet is taxed at a lower rate. It is also why it is dangerous to just say tax everyone who makes a million dollars a year even more. It is not that simple.

You say so raise the Capital Gains Tax to 35% but then the Capital Gains is already taxed on the Corporate Side @ 35% so that is not a good option either.

My advise save your money in investment instruments and eventually more of your income will be taxed at a lower rate. Plus…

1.) Raise the estate tax
2.) Eliminate the mortgage deduction on homes > $800k

Even as a left leaning independent I know the mantra of taxing just the rich is populist non-sense. There is a bigger issue here that needs to be addressed and it is being glossed over by this silly example. Every time I hear buffet rule I cringe a little.

2 comments:

Joe Weedman said...

long term capital gains are taxed at 15% not short term(less than one year). Ask anyone who has ever day traded how much they've paid in taxes!

Brian in Mpls said...

True there is a ton of variance to this example tax free muni's etc but the concept is still the same the amount of tax you pay depends on how you earn it rather then how much you make.

How is life going? Sorry I will miss you guys for Halloween