I'm sure his statement includes FICA, but you wouldn't know that from the ABC story. The ABC story makes it seem like the hearing was about general tax policy, when it was specifically about the estate tax...

I base my supposition that Buffett's including FICA, etc., on the [link|http://www.cnbc.com/id/21791804/site/14081545/|transcript] of his opening statement:

[...]

Here's a suggestion: Keep the estate tax and its $24 billion, reshape it if you will, but keep the estate tax and its $24 billion. Then take a look at the bottom fifth of America. There are 23 million households in the United States with $20,000 or less of income. Many are paying payroll taxes that now total 15.3 percent. That 15.3 percent alone is more than the rate on dividends or capital gains and more than the rate on carried interest.

Let's give those 23 million households a $1000 annual credit. Every dollar of such a credit would affect real change in the lives of the 50-million-plus people residing in the 23 million households. Yet the cost of this would be less than getting rid of the tax on the 12,000 estates.

50-million people would be helped in a material way. The beneficiaries of the 12,000 estates would still receive what looks like a fortune to almost all Americans.

[...]

I haven't found a transcript of the hearings yet, though there are some video clips, including at the [link|http://finance.senate.gov/sitepages/hearings.htm|Senate Finance Committee] itself.

FWIW.

Cheers,
Scott.

Economists often regard the employer-paid half of FICA as effectively coming out of the employee's pay.

The [link|http://en.wikipedia.org/wiki/Payroll_tax_in_the_United_States|FICA income limits rise annually], but at a rate that will still make the tax regressive for the top 1%-10% or so.

The actual income tax code is clearly progressive.

Some animals are more equal than others.

The income tax code is progressive up to a point. It's not progressive, e.g., for those who can claim their income is capital gains rather than ordinary income. But people in the bottom 20% of income don't care that the income tax system is progressive, they care that 1/3 of their pay is lost in taxes and FICA while the [link|http://en.wikipedia.org/wiki/The_Bonfire_of_the_Vanities|MotU] twist the system with [link|http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1193994243659|carried interest] tricks so that they pay a much lower rate. It's the total federal tax burden (an honestly, the total tax burden) that matters to people. Comparing aggregates obscures the issue, IMO.

I found another [link|http://www.guardian.co.uk/business/2007/oct/31/usnews|article on Buffett's testimony]:

During an interview with NBC television, Mr Buffett brandished an informal survey of 15 of his 18 office staff at his Berkshire Hathaway empire. The billionaire said he was paying 17.7% payroll and income tax, compared with an average in the office of 32.9%.

"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. I just follow what the US Congress tells me to do," he said.

I see where you're coming from, but there are aspects of the tax system outside of FICA that are broken. IMO, there are too many ways to game the system by trying to give preference to different types of income (for sometimes noble reasons). All income should be taxed equally. There's nothing more noble about sitting back and collecting a dividend or interest check than busing tables or digging ditches. All 3 types of activities are needed in the economy and the simplest, fairest, and least subject manipulation system is to tax them equally with the rate dependent on the total income.

Similarly with the estate tax. There should be a threshold, and I don't yet have an opinion on paying it annually versus at death, but there needs to be a tax on estates. (I've been through my thinking on that before...)

My $0.02.

Cheers,
Scott.

My take on this thread is that Warren Buffett was talking about the federal payroll taxes on individuals in a hearing on the estate tax. He was saying that the estate tax is an important source of revenue (in addition to being a social good), and that it would make much more sense to reduce the total federal tax burden on the bottom 20% than to eliminate the estate tax and give a windfall to billionaires like himself.

I'm including FICA because Buffett was including FICA. As a general principle, someone who sees 30% of her paycheck disappear in taxes before she gets the money doesn't really care if some/most of it is going to SSA, Baltimore, MD 21235 or IRS, Washington, DC 20221. It's still money that she won't see again for a long time (if ever - lots of poor people die before they can collect benefits).

Allowing people to opt out is a bad idea because it weakens the insurance system. (What happens if Warren's billions go up in smoke? Saying tough luck won't cut it - we decided in the 1930s there needs to be some baseline income insurance for elderly people.) Means testing is a good idea because it helps to ensure that the benefits go to those who most need them.

Cheers,
Scott.