Commentary: Warren Buffett sparks much-needed debate on tax fairness

The Sacramento BeeAugust 19, 2011 

Conservatives talk a lot about "personal responsibility" in any discussion about the poor and entitlements. But when someone such as Warren Buffett urges Congress to stop coddling the super-rich and calls on fellow billionaires to share in the sacrifice needed to solve the nation's financial crisis, he gets blasted as a hypocritical elitist.

In a New York Times column this week, Buffett wrote that he and his billionaire buddies can afford to pay higher taxes, and that most wouldn't mind doing so, "particularly when so many of their fellow citizens are truly suffering."

Yet very few of his fellow billionaires have rallied to his side. Instead, anti-tax think tanks (financed in part by billionaires attempting to avoid taxes and government regulation) have gone after Buffett, saying if he's so determined to pay more, he should just send a big check to the U.S. Treasury.

It's pretty clear that many of the ultra-wealthy are threatened by the conversation Buffet has started. But it's one they cannot avoid.

The bottom line is this: Many of the super-rich pay a lower tax rate than the merely affluent and, when you factor in payroll taxes, they're taxed at a lower rate than many working Americans.

The 400 households reporting the highest incomes in 2008 – an average of $270 million each – had an average effective tax rate of 18 percent, according to the most recent figures from the Internal Revenue Service. That tax burden is about half the official 35 percent top rate and is lower than those with adjusted gross incomes of $200,000 to $1 million.

It's because the richest Americans make most of their money from investments, not from wages, and the tax rates on dividends and other investment earnings are lower. And that doesn't count all the other tax breaks, loopholes and shelters that some use to substantially reduce their income even subject to taxes.

Also, payroll taxes – Social Security and Medicare – are a relative pittance for the very rich, but take a proportionately bigger bite from Americans who work for a living.

In his New York Times opinion article, Buffett pointed out that his federal tax bill last year amounted to an effective tax rate of 17.4 percent – less than half the rate paid by any of the other 20 people in his office at Berkshire Hathaway, his investment firm.

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