Saturday, April 7, 2012

What Warren Buffett's Secretary Tells Us About Obama's Character

Like many independent voters, in 2008 I voted for Obama despite the vagueness of many of his proposals and despite the "soak the rich" rhetoric. I voted for "the end of partisan politics." I didn't get what I voted for, and the past three years have provided many enlightening glimpses into Obama's character. None has been more enlightening than the recent focus on Warren Buffett's secretary and her tax rate.

The Basics

Warren Buffett stated that his secretary pays a federal higher tax rate than he does, and he has asked to have his tax rate raised to be at least as high as his secretary's. According to news reports, Buffet claims his tax rate is 17.4% and his secretary's is 35.8%. This is apparently based on a salary for his secretary of about $60,000.

I want to examine first the problems with the reports of the secretary's tax rate, and then turn to what that tells us about Obama's character.

Buffett's Secretary's Tax Rate

The problem with the secretary's tax rate is that there's no interpretation that makes the claim of a 35.8% tax rate true.

If the secretary files using the least advantageous circumstances possible (i.e., has the highest possible tax rate for her income), she will file as "Married filing separately," claim only herself as an dependent, and take only the standard deduction. She will also not contribute to a 401K or take any other actions that would give her anything but the highest possible tax exposure.

Assuming this worst case scenario, the secretary will pay social security tax on $60,000 of $2,520, Medicare tax on $60,000 of $870, and federal income tax on $50,500 of $8,750. (She pays federal income tax on $50,500 rather than $60,000 because she gets to take a personal exemption of $3700 and a standard deduction of $5800, producing a "taxable income" of $50,500.) Under this scenario, she will pay total taxes of $12,140, or 20.2% of $60,000.

It's important to understand that ANY change in these assumptions will result in lower taxes. If she contributes to a 401K plan, her taxable income will be lower, and her tax rate will also be lower. If she has a home mortgage and deducts mortgage interest, her taxable income and tax rate will again be lower. If she has a spouse or children she can claim as dependents, her taxable income will be lower. So 20.2% is the highest possible effective tax rate she can have with an income of $60,000. Shift a few assumptions slightly, and it's easy to concoct reasonable scenarios in which Buffett's secretary is paying an effective tax rate of less than 15%.

What Buffett's Secretary Tells Us About Obama's Character

Obama has never been one to look a gift horse in the mouth, so when Buffett said he wanted to have his tax rate raised, Obama wasted no time jumping on the bandwagon. He invited Buffett's secretary to his State of the Union address, and even had her sit with his wife.

Following the State of the Union, Obama has been stumping for the "Buffett Rule," a rule that people making over $1 million in income would pay an effective tax rate of at least 30%.

The problem, of course, is that Obama's Buffett rule is based on a lie. Buffett's secretary is not paying an effective tax rate of 35.8% or even 30%. She's paying an effective tax rate of 20.2% -- worst case -- but she's probably paying significantly less.

Even rudimentary due diligence would have told Obama that the claim about Buffett's secretary's taxes could not possibly be true. Obama is a very smart guy, and he undoubtedly had someone on his staff perform that due diligence. Even after doing that, however, he was completely comfortable passing off the lie via his wife and Buffett's secretary at the state of the union. He is also comfortable using the lie as a foundation to justify a policy of "soak the rich," which we can now see has been his goal from the beginning.

As an independent voter, I say, "Fool me once" -- Obama did that to me in 2008. There will not be a "fool me twice" in 2012.