Warren Buffet’s Tell-Tale Heart

J.P. Morgan’s latest edition of Eye on the Market takes a look at Warren Buffet’s now well-known and controversial assertion that millionaires pay lower tax rates than their receptionists.

A quick look at a recent study, published by the Congressional Research Service (CRS), puts a major question mark over Buffet’s claim. The chart below shows the range of tax rates within each income category. The dot marks the average within each category.

Of course, tax rates are not static numbers and can vary widely within each category based on the individual circumstances of each taxpayer. So while an individual in the second category could potentially pay a higher effective tax rate than someone in the fourth category, the higher the incremental gross income category, the higher the tax rate. In the last three categories, the trend progressivity plateaus, possibly due to tax savvy individuals (or those most likely to seek professional advice).

And while taxpayers in Cluster A are taxed at a higher percentage of their income than those in Cluster B, as a general rule, those in the lowest income category pay a much lower percentage on average than do those in the highest income categories.

Since there are no absolutes in the tax code, it would impossible to legislate on absolutes. Additionally, there will always be a small percentage of exceptions that fall outside these averages.

The Buffet Rule seems to completely disregard these as exceptions and attempt to rope them into the rule. The authors note in Eye on the Market, “Like Edgar Allen Poe’s Tell-Tale Heart, perhaps the constant thumping of Buffet’s abnormally low tax rate became too loud for them to ignore.”

Not only would it be impossible to legislate around the exceptional experiences of individual taxpayers like Buffet, it would be unwise for this to be the basis for our national tax policy.

2017-06-08T11:42:14+00:00Government Policy|