WASHINGTON, October 11, 2016 — When questioned about his taxes recently, Donald Trump said that due to a large loss in 1995 and due to the current tax laws which allow losses to be carried forward and backward, Trump did not pay any federal income taxes in some years. He said that all wealthy people do this, even Warren Buffett.
Buffett, a life-long Democrat supporter, responded by saying that his tax returns show that he paid taxes every year and did not use the loophole that Trump claimed all wealthy people use. In fact, Buffett argues, anyone who has annual income above $1 million should pay a 30% tax rate.
What Buffett’s returns show, however, is that although he may not have had any losses to carry forward, he did use the loopholes in the current tax law to significantly reduce his tax liability.
Recall that during the 2012 presidential election, Buffett said that it is simply not fair that he paid a lower tax rate than his secretary who earns millions less per year than Buffett. His secretary paid taxes at a 20 percent rate at the time. Buffet stated that his last tax returns showed he had income of $42 million upon which her paid income tax of $6 million, meaning he paid the tax at a 14 percent rate.
As a result, he asserted that the tax code is not right and something like this should not happen. Of course, the question is, “Why did it happen?”
Under current law, with no loopholes or deduction,s a person with an income of $42 million would pay about $16 million in taxes or almost 40 percent. Yet Buffett paid only $6 million. How can this happen?
The reality is that Buffett employs expensive tax lawyers and tax accountants like Trump’s, whose sole responsibility is to minimize his tax liability. What they do is transfer most of his income to the category of capital gains. In 2011, the tax rate on capital gains was 15 percent. Add in a few more deductions and loopholes that the professionals found and Buffett’s effective tax rate dropped to 14 percent.
In other words, while Buffett, as a partisan Democrat, may say things to discredit Trump, he does exactly the same thing regarding his own taxes. In fact, virtually all of us do. Whether we hire a professional or prepare our own returns, we all look to find for every possible deduction to minimize our tax liability. After completing our taxes we all wonder just how large a refund we could actually get, because no one likes to pay taxes.
Buffett’s grandstanding rhetoric may play well with his acolytes in the financial media and it may provide noteworthy talking points for his favorite presidential candidate, Hillary Clinton. But a close examination of his returns would reveal that he takes every possible deduction to minimize his own tax liability, just like everyone else, save for the fact that as a wealthy business executive, he can draw on more deductions than the average taxpayer.
How do we fix this?
For more than 20 years, I have been advocating a plan that would solve all of our tax problems, accelerate economic growth, raise about the same amount in tax revenue in the short term as we raise now and significantly raise tax revenue in the long term.
This proposal would be fair because each American would be treated exactly the same, so that no one individual is favored. The plan also causes absolutely no market distortions.
The Busler Single Rate tax plan would tax all income above a livable minimum of twice the poverty rate, at a single rate of 15 percent. All income would be treated exactly the same whether earned by salary, wages, rent, interest, profit, dividends or capital gains. There would be no deductions for anything. Corporations would be taxed at 15%, but they would pay the entire 12.6% social security on employees rather the 6.2% they pay today.
For a family of four, the first $50,000 earned is income tax-free. Above that for every dollar earned $.15 goes to income tax and the other $.85 to the income earner. This is true for every dollar earned above the livable minimum no matter how high the income.
This plan results in an easy to complete tax return. An individual taxpayer just adds up all income earned, subtracts the livable minimum, then multiplies the balance by 15 percent, and that’s the amount that’s due. The plan is simple, easy-to-understand, raises sufficient revenue, adds to economic growth, and, because tax liability is proportionate to income, it is (arguably) fair.
Maybe Buffett should look at this plan before he makes misleading claims that appear to be inconsistent with his actions.