Buffett’s Secretary, Romney’s Return, and the Crushing Double Taxation on Investment Income

But as my colleague Trey Kovacs and I pointed out in a Wall Street Journal op-ed this week, these “low” tax rates are a charade. This is because “our tax code layers taxation of dividends and capital gains on top of a top corporate tax rate of 35%—which even President Obama acknowledges [he, in fact, did so in the State of the Union] is one of the highest in the world … The law taxes corporations as if they were separate beings from the shareholders who own them and then levies a separate tax on shareholder payouts and gains. This double taxation brings the effective tax rate on investment income to as much as 44.75%.” In fact if you factor in the estate tax or “death tax,” the rate goes to 64 percent on this income. And that doesn’t even include state and local taxation.

As we note in the op-ed, “The most popular tax reforms—from the “9-9-9 plan” of former candidate Herman Cain to flat tax proposals—all have in common the reduction or elimination of double taxation on investment.”

My friend and mentor the late Richard Nadler found a few years back that polling showed that middle-class investors had “internalized their new role as capitalists” and “display favorable attitudes toward programs that reduce taxes on savings and investment.” New research seems to confirm this middle-class savers still retain these views even after the financial crisis.

As for Buffett’s secretary, Debbie Bosanek, there has been some interesting speculation on what she actually pays and/or makes. A few months back on OpenMarket, I had suggested that if Buffett were really concerned about his secretary’s well-being, he could simply raise her salary. I noted that that the secretary of Jack Welch was reported to have made six figures while he was CEO at GE.

Well, now there has been some analysis arguing that if  Bosanek really paid the 35.8 percent rate she told ABC News she paid, she would indeed have to be making six figures. Atlantic magazine economics blogger Megan McArdle noted that even with income and payroll taxes combined, she would have to be making $110,000 a year to be taxed at this rate. Buffett, however, still insists Bosanek is paid $60,000, so the only way she could pay the 35.8 percent rate is if both the employee and employer side of the payroll taxes were counted, a calculation McArdle says is “beyond bizarre.”

So my revised advice to Buffett is give Bosanek a raise, help her build an investment portfolio, and then fight to lower — not raise — the double tax on his and his secretary’s investment income.