Monday, April 23, 2012

Buffet Pays More Than His Secretary

Warren Buffett's claim that he pays at a lower tax rate than his secretary is bogus. The real question is what we will do about the dizzying tax code, not what we will do about secretaries paying a lower tax rate than their supervisors who earn tens of millions per year.

Not that Buffett can't lobby to be taxed at a higher rate than he is currently taxed, or that feeling that he could pay more is somehow illegitimate, but the basis for a tax increase should be something more sound than the tax rate shell game being perpetrated on observers innocent of how the tax system really works.

Now, for something that might prove to be a real puzzle: why is "carried interest" – a bonus paid to fund managers for service that exceeds performance metrics – treated as capital gain rather than the ordinary income of the fund manager? The difference is 15% vs. 35% in marginal rate. Anyone care to venture an explanation? I haven't researched this one but it was certainly a surprise.

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