How Rich Is Warren Buffett's Secretary?

By Megan McArdle

Thanks to ABC, we now have a number on the difference between Warren Buffett's tax rate, and his secretary's.  According to the network, "Bosanek pays a tax rate of 35.8 percent of income, while Buffett pays a rate at 17.4 percent."


Conservatives have swooped on this.  What sort of income is implied by a 35.8% tax rate?  A very, very high one.  Various commentators have suggested that she must be making north of $200,000.

Well, it's clear that we're not just talking about federal income taxes, because her claimed taxes are higher than the top marginal tax rate.  They're also higher than the top effective tax rate, including payroll taxes.  As far as I can ascertain, there is no way at all to pay effective federal income tax--or even effective federal income tax + payroll tax--that sums to 35.8%.  You can--just barely--get a marginal tax rate of 35.8% if she is making almost exactly the taxable social security limit of $110,000.  This is not vast riches, though of course, it is also not the sort of income most people are thinking about when they hear that Warren Buffet pays more in taxes than his secretary.

However, this assumes that she has no deductions: no health insurance charges, no 401(k), nothing.  Perhaps Warren Buffett's secretary is already so rich with Berkshire Hathaway stock that she doesn't need a 401(k)--but again, this does not seem like a good representative case with which to illustrate the folly of US policy.  To put it bluntly, I don't care if people too rich to need to save for retirement are paying higher taxes than some other absurdly wealthy people.

If we impute the employer half of the payroll taxes to her, as most economists agree that we should, then we can get closer.  The problem is that if we impute the employer half of the payroll taxes to her, then we should impute corporate income taxes to Warren Buffet, at which point he has nothing like a 17.4% effective tax rate; more like a 40+% tax rate.

There are also Nebraska state taxes, of course.  It's really questionable whether we should add these in, both because Nebraska's tax policy is not really a national issue, and also, because I am hard-pressed to see how Warren Buffett's 17.4% rate can possibly include Nebraska state taxes on his capital income, which would be 6.68% according to this table.  Unless he's heavily invested in tax-free munis, which would be contrary to what I know of his personal finances, and also, be the result of something that Buffett is not proposing to change.

In sum, the presentation of these numbers is quite confusing, and I suspect a little bit of cherry-picking to maximize the invidiousness of the comparison.  Ms. Bosanek probably does have a somewhat higher effective federal tax rate than her boss, and it may even be much higher.  But if so, this is because she is a very unusual taxpayer--exactly the opposite of what is implied by comparing Warren Buffett's taxes to those of his secretary.

Update:  apparently, she makes $60K.  So I gather what Buffet is talking about is comparing her federal marginal tax rate, including both sides of the employer tax, to what must be his effective tax rate, since there is no marginal rate of 17.4%.  That comparison is beyond bizarre.

This article available online at:

http://www.theatlantic.com/business/archive/2012/01/how-rich-is-warren-buffetts-secretary/252056/