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Warren Buffett, His Secretary, & Fuzzy Math: Do the Numbers Really Add Up?


"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it."

President Obama has been pitching his plan to increases taxes on high earners by using the following example that he has been repeating all over the country:

"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it."

The Buffett secretary comparison has become the go-to talking point for everyone supporting the proposed tax increases. But is it correct?

In order to properly investigate the claim, we contacted accounting professionals in different parts of the country and asked them to "run the numbers" on a secretary making $60,000 a year and a really rich guy.

Career CPA Cynthia L Lebreton has been in the accounting business for more than 30 years in New Orleans… she set up three tax test returns for The Blaze:

“I set up three test returns, one for Mr. Buffet’s secretary at $60,000 as if she is a single person making $60,000 with no deductions which is the most conservative approach and the result is that her effective tax rate is 14.08 percent."

Cynthia's also considered the secretary's income from the perspective of a married woman, sole bread-winner:

The second scenario I set up is if the secretary is married and makes $60,000, assuming her husband doesn’t make anything  then the effective tax rate is 7.6 %

Once again, the actual tax rate is significantly less than that paid by her "boss" Warren Buffett.

The third tax scenario she sets up is for Warren Buffett himself:

“Assuming he’s at $46 million dollars as dividend income which is taxed at 15 percent, so it is true that he is in an effective rate of 15 percent. So I believe what he is stating is true he has hedge fund income that is taxed at 15 percent and probably some other income that brings his effective rate to 17. 7 percent."

Ms. Lebreton  also says:

“I would characterize Buffet’s remark about his secretary as a misrepresentation because she (the secretary) is in a bracket – a 25 percent bracket, but her effective rate because of the way brackets work is only 14.08 percent. And so I would say it’s a misrepresentation it’s spin, it’s not telling the whole story. It’s similar to when I talk to people at a cocktail party and they will say to me ‘well my friend so and so earns 'x number' of dollars and he pays less tax than me,’ and my reply is ‘but you never know the whole story you never know what kind of deductions there are; if they are married, single, what kind of credits they might have, like installing energy saving equipment in your house, or if you restore a historic home. That happens a lot here in New Orleans there’s a credit you can take for historic restoration. So we all know the tax code is very complex unless you sit down and have everybody’s details you cannot compare situations because it’s apples to oranges in most cases not apples to apples.”

Another Louisiana CPA who has been in the business for 25 years, Mary Valigosky with Pedelahore & Co. weighed in on the topic:

“What Buffett said, it’s just a ‘headline.’ I don’t really give it any value. When you hear it as a 30 second sound bite on television it sounds really shocking, but really from my perspective with 25 years as a CPA doing high income multi-state returns for clients, it seems far-fetched. It just seems like something in the picture is definitely missing here. I would love to see her actual return and review it.”

Out west in California, Barry Dolowich a CPA from Monterrey says:

"My personal reaction to the sound bite is it’s probably accurate, but interpreted and presented for spin. One can interpret the numbers to fit their particular agenda. In spite of the effective tax rate, I bet Mr. Buffet paid just a few more dollars in tax than his secretary! As an investor, Warren Buffet receives much of his income in the form of dividends and long-term capital gains, both taxed at a preferential maximum rate of 15%. It is not surprising that his effective tax rate would approximate 17%. His secretary, on the other hand, may have only ordinary income in the form of wages taxed on a graduated scale up to 35%."

Michael Goldsmith – Financial Consultant with LPL Financial based in Massapequa, New York adds:

“ I’m more shocked that he pays so little, compared to how much she pays. You would expect the more somebody earns, the more they would pay in taxes but Warren Buffett as a business owner gets big deductions on donations. And, the “qualified dividends” which he receives from stocks carry little or no tax obligation. Donations also play a significant part in his lower tax rate.”

Different accounting professionals from all across the country have looked at the example being used by President Obama to bolster his case for changing the tax rates for people earning more that $250,000/year. Each and every single accountant we spoke with saw obvious flaws in this argument. It simply is not factual.

The lack of facts to back up the Buffett statement has not stopped the folks at MoveOn.org from creating an ad trying to fan the flames of class warfare:

[youtube http://www.youtube.com/v/RRl-AzugWSs?version=3&hl=en_US&rel=0 expand=1]

The President has stated that this is "not class warfare, it's math." Well, we had licensed professionals look at the math and they all seem to agree on one thing, the numbers just don't add up.

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