Buffett's Bet

November 18, 2007
Posted by Jay Livingston

Often, a simple example is the best way to get a point across.

For example, the US tax system is incredibly complicated. To illustrate the idea that it also favors the wealthy, Warren Buffett (the second richest man in the country) has said that he pays a lower rate of income tax than does his secretary. Buffett’s income was about $47 million last year, and he paid about 18% in federal income taxes. His employees, whose incomes ranged from $60,000 to $750,000, paid an average of 33%.

It’s anecdotal evidence of course, so Buffett has extended it to the Forbes 400 – Forbes Magazine’s list of the 400 wealthiest Americans. He’s offered to bet any of them one million dollars that they paid a lower income tax rate than did their office secretaries and receptionists.

A few of them have responded, and Forbes online prints what they have to say.

• Philip Ruffin ($2.1 billion) said that Buffett is “senile.”
• Kenneth Fisher ($1.8 billion) said, “He should stick to his area of expertise. It’s a little late to be trying to learn and teach social policy.”
• Randal J. Kirk ($1.6 billion) said, “His thesis here seems grossly simplistic.”

As my father said many years ago as we listened to some politician’s “denial” of some charge made by an opponent, “He called him a son-of-a-bitch, but he didn’t call him a liar.”

These guys called Buffett names (senile, simplistic), but none of them took Buffett’s offer of the million-dollar bet.

John Catsimatidis ($2.1 billion) said, “The numbers can fool you . . . . I have a complex business . . . I own real estate, stocks and bonds, and so I have depreciation and write-offs.” Which is precisely Buffett’s point. The tax system favors rich people for the way they make their money, and it punishes people who work for a weekly paycheck.