Tax Rates, Warren Buffett & Progressivity

From Michael Cembalest’s latest, comparing progressively of tax rates in U.S. As he points out, the system ceases being as progressive after $500k in income — but even then, Warren Buffett’s tax rate is an outlier, which doesn’t make for good policy.



  1. That data doesn't square with similar analysis by two other economists, which shows a uniform average federal income & payroll tax effective rate of about 20.x% for each of the top quintile, top 10%, top 5%, or top 1% of taxpayers (i.e. turns from progressive to flat, at best, past ~$250,000 AGI per year).

    And if you examine the top 0.1% income tax returns in detail, effective rates actually fall from 25% at 99.87% (60,000 returns) to 22% at 99.99% (13,000 returns) to 18% at 100.00% (400 returns). (Add 1-2% points for payroll taxes – SS is capped at an insignificant level for these taxpayers). Regressivity for billionaires.

    Finally, there was a widely-read column last week rebutting the Buffet rebutters (can't find right now) noting IRS data that shows that about 1/4 of very high income earners paid a lower effective income rate than 10 million upper middle class households. That is, Warren Buffet's low tax rate is not nearly as rare as the deniers have recently argued.

  2. Buffett has spent his whole life accumulating wealth and influence while minimizng his taxes. It tells us so much about our media that they buy into his shtick while there are investment bankers paying 50%+ marginal tax rates being pilloried. It seems to me it should be the other way around and people should be parading outside Warren's house.

    As the data in the first comment show, for all the focus on rates and matters of principle, the populists are talking about an amount of absolute dollars that amounts to a drop in the bucket relative to the federal spending. In many respects it would be the political class's worst nightmare if rates on the top 1% were to be raised to the level populists demand. Because the gains would be so litle that they would have to truly cut spending or tax a much larger swath of the electorate, and then we'll see real rage.

  3. Anonymouse says:

    Paul, he's only about closing the tax loophole where some of the wealthy pay far less taxes than the rest.

    Mark, he's just following the rules of the game. If you can minimise taxes that way then the rules of the game should be changed.

    It's a drop in the bucket but it's a start. Everyone has to chip in to close the deficit and why not start with the rich who are paying 15% on their taxes?