2012: What taxes should very high earners pay?

CAROL LOOMIS: Well, talking about not offending, “The talk of the “Buffett Rule” is all over newspapers and TV.

“But I believe your concept of what should happen to taxation of very high earners is different from what is now promulgated as the ‘Buffett Rule.’

“Could you clear us up on this?” This is a question from Leo Slazeman (PH) from the Kansas City metropolitan area.

WARREN BUFFETT: Yeah. I would say this: it has gotten used in different ways.

I think, intentionally, in some cases, because it was more fun to attack something that I hadn’t said than try to attack what I had said.

Basically the proposal is that people that make very large incomes pay a rate that is commensurate with what people think is paid by people of those incomes.

I mean, I think most people believe, when they look at the tax rates and all that, that if you’re making 30 or 40 or $50 million a year, that you’re probably paying tax rates in the 30 percent area, at least. And many people are.

But the figures are such that if you look at the most recent year, and you aggregate both payroll and income taxes, because they both go to the federal government on your behalf, if you take the 400 largest incomes in the United States, they average $270 million each.

That’s per person, 270 million each. 131 of those 400 paid tax rates that were below 15 percent. Now — counting payroll taxes, too.

In other words, they were paying at less than what the standard payroll tax was — up till we’ve had this giveback here recently — but payroll tax was 15.3 percent for most of the last decade.

So, under the “Buffett Rule,” we would have a minimum tax — only for these very, very high earners — that, essentially, would restore their rate to what it used to be back in 1992.

When the average income of the top 400 was only 45 million, there were only 16 of the 400 that were at 15 percent or below. But now there’s 131.

There’s still plenty of them that are paying in the 30s. I wouldn’t touch them.

But I would say when we’re asking for shared sacrifice from the American public, when we’re telling people that we formally told — were given promises on Social Security and Medicare and various things — and we’re telling them we’re sorry but we kind of overpromised so we’re going to have to cut back a little, I would at least make sure that the people with these huge incomes get taxed at a rate that is commensurate with the way they used to be taxed not that long ago and probably — and is commensurate also with the way that two-thirds of the people in that area get taxed at higher rates.

So it’s gotten butchered a little bit, but it would affect very, very, very few people. It would raise a lot of money. (Applause)

CHARLIE MUNGER: Warren, isn’t the suggestion that you can give about half of a 30 percent to charity instead of the government?

WARREN BUFFETT: Well, but the tax rates, still, after the charitable deduction, after the charitable deduction, you have to give — if you’re going to give 50 percent and get a deduction — it has to be all cash. If you start giving appreciated securities —

And then if you give to a private foundation, you’re down to 20 percent. Yeah. But —

CHARLIE MUNGER: But there is some exception in this proposal now isn’t it — Obama’s proposal — that charitable contributions help you?

WARREN BUFFETT: Well, there is a — there’s a bill, actually, by Senator [Sheldon] Whitehouse of Rhode Island. I mean, that is the only actual bill. That was voted on, and it did not get the vote. It got 51 votes in the Senate and needed 60. I can’t tell you the exact precision on what it included there.

I don’t have any — you know, there can be all kinds of other ways of getting at the same proposition. I just think that people like me that have huge incomes — and I have no tax planning, I don’t have any gimmicks, I don’t have Swiss bank accounts, I don’t have any of that kind of stuff.

But when I get all through, you know, I’ve made the calculation four different — three different times — 2004, 2006, and 2010 — and in all three of those years, when my income was anywhere from 25 to 65 or so million, I came in with the lowest tax rate in our office. And we had maybe 15 to 22 or so people in the office at different times, and everybody in the office was surprised.

They were all in the 30s. And I was, several times, you know, in this area of 17 percent, and that’s because the tax law has gotten moved over the years in a way to favor people that make huge amounts of money.

Imagine having 270 million of income and there were — I believe there were — 31 of the 400 that were below 10 percent on tax rates, and that counts payroll taxes as well.

And like I say, you know, my cleaning lady — incidentally, I’ve been asked to explain — I keep talking about my cleaning lady.

Well, my wife wants it very clear, she doesn’t have a cleaning lady. This is the cleaning lady at the office, Mary that I — (laughter) — my wife has gotten very — she does not have a cook, she does not have a cleaning lady, and she got a little tired of me implying that she had one.

So it’s my cleaning lady at the office has been paying 15.3 percent on Social Security taxes, at the same time that an appreciable number of people making hundreds of millions of dollars a year are paying less than 10 percent.

I think it’s time to take a look at that. OK — (applause)