Would You Tax this Ukulele Player as Much as His Secretary?

President Barack Obama says he wants to tax billionaire Warren Buffett as much as his secretary Debbie Bosanek. But can she play the ukulele? By the way, Mr. President, Deb prefers to be called assistant, not secretary.



Warrens says he has surveyed his staff and they pay between 33% and 41% in combined federal income tax and payroll taxes, whereas he pays just 15% on much of his income.



Deb probably does quite well, and if any of her compensation has come in Berkshire Hathaway stock, she may well be a millionaire or multi-millionaire.

So the Buffett Rule question comes down to this: Should the very rich pay tax rates that are substantially lower than those who are merely very well off? No, they shouldn't. But is the answer to raise the tax rates on the very rich, or to lower the tax rates on everybody else?

The 15% tax rate on capital gains and qualified dividends is what's at issue. President Reagan's 1986 tax reform law put that rate at 28%, the same as ordinary income such as wages. But since then the top tax rate for high earners of wages and business profits has been pushed up to 35%, while the tax rate for capital gains and qualified dividends has been dropped to 15%.

There is another side to this, which involves payroll taxes. Ordinary wage earners pay into social security and that can be as much or more than their income taxes for some lower income taxpayers. High earners pay into social security too on their wages, but not on their investment earnings. Only their wages are counted for social security benefits, so that should even out, except that social security is a not a very good deal.