In: Accounting
Warren Buffett stated that he paid an effective tax rate that was lower than his secretary. This assertion is probably true. Why? Will that assertion remain true after the full implementation of the December tax reform law? Please provide references if you copy anything.
In 2011, as reported by NYT, Buffet paid just 17.40% effective income tax rate while his employees were paying on an average 36% income tax rate. The reason for the parity is the differnce in taxation rules for salary employee and for investment income. IRS tax rules provide for prosgressive income tax for salary employees whereas for investments, capital gain tax is levied. Capital gain is also short term and long term where short term attracts high income tax rate whereas long term (more than a year of holding) attracts lesser income tax. Since Warren Buffet is known for long term investments, he attracts lesser income tax rates only. (https://www.fool.com/investing/general/2016/02/21/billionaire-warren-buffetts-secret-to-paying-a-low.aspx)
The new tax rules has not changed the way capital gain as well as dividend is taxed keeping it still the effective money making mode(https://www.corporatemonkeycpa.com/2018/02/22/taxes-on-dividends-and-capital-gains-under-the-tax-cuts-jobs-act/)