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In: Accounting

Warren Buffett stated that he paid an effective tax rate that was lower than his secretary....

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 2017 tax reform law?

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Warren Buffett stated that he paid an effective tax rate that was lower than his secretary. This assertion is probably true. Why?

This assertion is true because of Warren Buffett's income is from capital gains, but his secretary needs to pay tax on wages. In fact, he enjoys less tax rate compared to all employees in his office. Warren Buffet mentioned this in an interview with CNBC. The main reason Buffet mentioned this point is that the tax rate for capital gains less than the tax rate for wages.

Will that assertion remain true after the full implementation of the December 2017 tax reform law?

This assertion may change considering the many deductions an individual can enjoy after full implementation of the December 2017 tax reform law. The tax rate for individuals have been reduced to 10%, 12%, 22%, 24%, 32%, 35% and 37%. The standard deduction is also increased from $6,350 to $12,000; for married couples, it's increased from $12,700 to $24,000. Other tax credits are child tax credit has been increased to $2000 and non-child dependents can claim temporary credit for $500. The December 2017 tax reform law brings other deductions as well. These are beneficial for individuals who have a dependent child and income earned from wages. Since Warren Buffett's major income is from the capital gains he may not enjoy these exceptions like other salaried individuals, this will change the assertion that "Warren Buffett pay an effective tax rate that was lower than his secretary".


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