Does this sound fair to you? Warren Buffett's income tax rate is lower than that of his secretary's, and a business school professor's rate is lower than administrative staff's.
Warren Buffett's case is not unique for billionaires either. Nobody has taken away his 1 million dollar bet yet, which means nobody from Forbes 400 pays a higher rate than his/her secretary.
Actually even my poor graduate student's tax rate (around 20%) is higher than Buffett's 17.7%.
Something is not right, isn't it?
I interviewed MM, an expert on tax and investment in our household. According to him, Buffett is actually paying a much higher tax rate than 17.7% because,
1) Buffett's income is mainly from capital gain of long term investment (longer than a year in the US), which is taxed at 15% in the US;
2) This 15% is low because the companies Buffett invested in have to pay corporate tax first, which is normally around 35% in the U.S. This part of money, if distributed to investors like Buffett, would give them higher income.
3) Another layer is inflation. The math here is a bit crazy especially when we consider long-term investment (MM had to use Excel to calculate compounding interest rate). But the bottom line is the real rate is higher than 15% due to inflation.
Another reason that should make a graduate student feel better (unless he/she has a rich dad) is that estate tax rate in the US could be as high as 55%. I am sure there are all sorts of tricks to get around, but still...55% doesn't sound so fair either.
Warren Buffett's case is not unique for billionaires either. Nobody has taken away his 1 million dollar bet yet, which means nobody from Forbes 400 pays a higher rate than his/her secretary.
Actually even my poor graduate student's tax rate (around 20%) is higher than Buffett's 17.7%.
Something is not right, isn't it?
I interviewed MM, an expert on tax and investment in our household. According to him, Buffett is actually paying a much higher tax rate than 17.7% because,
1) Buffett's income is mainly from capital gain of long term investment (longer than a year in the US), which is taxed at 15% in the US;
2) This 15% is low because the companies Buffett invested in have to pay corporate tax first, which is normally around 35% in the U.S. This part of money, if distributed to investors like Buffett, would give them higher income.
3) Another layer is inflation. The math here is a bit crazy especially when we consider long-term investment (MM had to use Excel to calculate compounding interest rate). But the bottom line is the real rate is higher than 15% due to inflation.
Another reason that should make a graduate student feel better (unless he/she has a rich dad) is that estate tax rate in the US could be as high as 55%. I am sure there are all sorts of tricks to get around, but still...55% doesn't sound so fair either.
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