Warren Buffett’s View on Taxes vs. What He Actually Pays
Written by
G. Brian Davis
Edited by
Jenna Klaverweiden
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In a 2007 interview reported by The Guardian, Warren Buffett famously opined that the rich should pay more in taxes. “The taxation system has tilted towards the rich and away from the middle class in the last 10 years. It’s dramatic; I don’t think it’s appreciated and I think it should be addressed.”
How much does the Oracle of Omaha actually pay in taxes? How do the wealthy pay lower effective tax rates? Most importantly, how can you do the same?
How Much Warren Buffett Pays in Taxes
In his interview, Buffett went on to explain an informal office survey he took at Berkshire Hathaway. His office staff paid an average effective tax rate of 32.9%, while he paid 17.7%, per The Guardian.
“There wasn’t anyone in the office, from the receptionist up, who paid as low a tax rate and I have no tax planning; I don’t have an accountant or use tax shelters,” Buffett said.
Activist newsroom ProPublica got ahold of Buffett’s tax returns from 2014 to 2018 and wrote that he paid a total of $23.7 million in federal income taxes during that five-year stretch. They argue that it represented just 0.1% of the growth in his net worth over that period.
That doesn’t mean he paid an effective tax rate of 0.1%, however. The IRS taxes your income — not changes to your net worth, which fluctuates moment to moment throughout any given day as financial markets gyrate.
“Most of Buffett’s income comes from dividends and capital gains taxed at a 23.8% rate,” said Annette Nellen, CPA, professor at San José State University. That includes a 20% tax rate for capital gains and qualifying dividends, plus 3.8% for net investment income tax.
“In contrast, the tax rates for ordinary income such as wages and business income for individuals range from 10% to 37%,” Nellen said. She added that for 2024, a single taxpayer reaches the 24% IRS bracket at $100,526 and 32% above $191,950.
How Billionaires Pay ‘Lower’ Tax Rates
The wealthy do, in fact, pay the overwhelming majority of federal income taxes. The top 5% of earners pay 61% of all income taxes collected by the IRS, according to the Tax Foundation. The top 25% of earners pay 87.2% of all income taxes.
Still, some of the wealthiest do pay lower effective tax rates, relative to their income. As Nellen pointed out, the IRS taxes capital gains and qualifying dividends at lower tax rates than regular income.
So why does the government structure the tax code that way? Vince Porter, CPA, president and CEO of Porter & Company CPAs, offered an explanation.
“Tax policy is one of the most powerful tools the government has to shape the economy,” he said. “Want cleaner air? Offer energy credits for clean electricity. Want to reduce dependence on foreign oil? Provide tax incentives for investing in domestic oil and gas. Want to influence the real estate market? Allow mortgage interest deductions, property tax write-offs, tax-free exchanges and depreciation benefits that reduce taxable income.”
Tj Binkowski of Narrow Road Financial Planning added that the wealthy can minimize their taxable income by borrowing against their investments. It works as long as their investments grow faster than their debts.
“Some call it ‘unfair,’ but do we want the government taxing our loans as income? Do we want the government to tax unsold stock as it bounces around in value? We the little guys benefit from this stable tax system as well,” he said.
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