News for January 27, 2012

# Buffett's Faulty Logic

Posted at 12:19 PM by Andrew Roth | Topic: *Crazy Liberals

By now, everyone has heard Warren Buffett complain that he pays less than his secretary does in federal taxes, and therefore, the government should raise his taxes. But he fails to include the taxes that he pays as a shareholder of his company, Berkshire Hathaway. This blogger explains it quite nicely:*Imagine that you are self-employed. Every year, you earn $100,000, pay 35% in taxes and have $65,000 left in your pocket. Now you form a corporation. $100,000 goes into the corporation. There is a corporate tax rate of 25%, so that leaves $75,000 which you pay to yourself as a dividend which are taxed at 15% which leaves you roughly $65,000. So sure, you could say that your tax rate was 15%, but that would be nonsensical. Nothing of significance has changed. What about if you get a partner and the corporation earns $200,000 paying $65,000 to each of you? Well, what changed? Nothing.*

Hat tip: Greg Mankiw

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