Finance & Enjoyment Blog

What Brought On The Buffet Rule?

The Buffett rule has been the talk of congress for several months now, but many people don't understand what caused Warren Buffett to have a lower tax rate than his secretary. Many of the tax rules Warren Buffett utilizes are not understood by the most people. All they hear is he pays a lower rate than his secretary, but none of the reasons why are given.

Almost all of Warren Buffett's income is derived from investments which are taxed at a flat 15% rate. His secretary, on the other hand, is taxed at normal income rates that pertain to all non-investment income. For most people, this falls somewhere between 20-30%. In addition to this, his secretary is also taxed on social security and medicare, an additional 5.75%. Social security and medicare tax is typically not associated with income tax, so this added 5.75% is usually not added to the tax rate of news reports.

What the Buffett rule proposes to do is to create some way to make Warren Buffett's tax rate higher than his secretaries. This could be through raising the capital gains rate from 15% to an ordinary income rate, adding a surcharge similar to the AMT that was created in the 1980s, or to lower the ordinary income rate. Nothing is likely to be done until after the November elections, and even then it will be difficult to get a surcharge added or capital gains rate raised due to senate rules forcing a sixty person majority to get anything passed.

Are you located in Metro Denver? KKB, Colorado CPAs, are here to help you plan your taxes and consult on wealth management. We look forward to hearing from you.

Posted in Rules and Regulations »

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