Does Warren Buffett really have a lower tax rate than his secretary?
"The scenario you mention regarding capital gains is pretty much the core of the issue. Here's a run-down from PolitiFact.com that explains it a bit. It's important to focus on it being the tax rate, not the tax amount (which I think you get, but I want to reinforce that for other readers).  Basically, most of Buffett's income comes from capital gains and   dividends, income from investments he makes with the money he already   has. Income earned by buying and selling stocks or from stock   dividends is generally taxed at 15 percent, the rate for long-term   capital gains and qualified dividends. Buffett also mentioned that some of the ""mega-rich"" are hedge fund   managers ""who earn billions from our daily labors but are allowed to   classify our income as 'carried interest,' thereby getting a bargain   15 percent tax rate."" We don't know the taxes paid by Buffett's secretary, who was mentioned   by Obama but not by Buffett. Buffet's secretary would have to make a   high salary, or else typical deductions (such as the child tax credit)   would offset taxes owed. Let's say the secretary is a particularly   well-compensated executive assistant, making adjusted income more than   $83,600 in income. (Yes, that sounds like a lot to us, too, but   remember: We're talking about the secretary to one of the richest   people in the world.) In that case, marginal tax rates of 28 percent   would apply. Then, there would be payroll taxes of 6.25 percent on the   first $106,800, money that goes to Social Security, and another 1.45   percent on all income, which goes to Medicare. The secretary’s overall   tax rate would be lower than 28 percent, since not all the income   would be taxed at that rate, only the income above $83,600. Buffett, meanwhile, would pay very little, if anything, in payroll   taxes. In the New York Times op-ed, Buffett said he paid 17.4 percent   in taxes. Thinking of the secretary, it gets a little complicated,   given how the tax brackets work, but basically, people who make   between $100,000 and $200,000 are paying around 20 percent in federal   taxes, including payroll and income taxes, according to an analysis   from the nonpartisan Tax Policy Center. So in this case, the secretary's rate is higher because so much of   Buffett's income comes from investments and is taxed at the lower   capital gains rate. Here's Buffet's original Op-Ed in the NYT for those of you that aren't familiar."
Ev_Ehrlich &gt; Dr. Everett M. Ehrlich is one of the nation's leading business economists. His firm, ESC Company, combines economic analysis, business development, and communications skills to solve a wide range of business problems. ESC's diverse clientele have included leading firms in the financial, accounting, pharmaceutical, automotive, and other industries, and such diverse organizations as the Pew Center for Global Climate Change and the Major League Baseball Players Association. He also recently served as Executive Director of the CSIS Commission on Public Infrastructure under co-chairmen Felix Rohatyn and Warren Rudman; a bipartisan bill to enact their recommendations was introduced in the 110th Congress.  &gt;Dr. Ehrlich served in the Clinton Administration as Under Secretary of Commerce for Economic Affairs, the principal economic policy official for Commerce Secretaries Brown and Kantor and chief executive of the nation's statistical system. As such, he led the first comprehensive strategic review of the nation's economic statistics in four decades, leading to a major modernization of featured measures of the economy. He supervised the redesign of the 2000 decennial census. He co-chaired the White House working group on the restructuring of the U.S. economy in the face of information technology, was a leader in the U.S.'s planning effort of the two G-7 AJobs Summits, and oversaw the Administration's economic analysis of global climate change.  &gt;Prior to his service as Under Secretary, Dr. Ehrlich was Vice-President for Economic and Financial Planning, and for Strategic Planning, of Unisys Corporation, from 1988 to 1993. As such, he had responsibilities concerning corporate development and finance, formulating business strategy, and economic forecasting. He reported directly to two chairmen of the company. He has also been the Senior Vice-President and research director of the business-based think tank, the Committee for Economic Development.  &gt;Dr. Ehrlich earlier served as Assistant Director of the Congressional Budget Office, where he directed the CBO program in trade and technology, infrastructure and space transportation, energy and the environment, and agriculture. He joined CBO in 1977, after having served as a Legislative Aide to Congressman John Conyers, Jr., and having briefly taught economics at the university level.  &gt;Dr. Ehrlich is the author of two critically-acclaimed novels: Big Government (1998), and Grant Speaks (2000), both by Warner Books. He was, for eight years, a regular economics commentator on National Public Radio's Morning Edition, and his writings have appeared in The Financial Times, Investors Business Daily, The Christian Science Monitor, The Washington Post, The International Economy, and other publications.  &gt;Dr. Ehrlich was born in New York City in 1950 and is a product of its public schools. He received a B.A. in 1971 from S.U.N.Y. Stony Brook and a Ph.D. in economics in 1975 from the University of Michigan. He lives with his family in Bethesda, Maryland, where he has coached little league, acted in children's theater, been wardrobe master for the high school chorus, and waits for the Washington Nationals to win the World Series.  Bio from [website](http://www.evehrlich.net/about-ev-ehrlich/) "This kind of investment is called ""sweat equity"".  It is sometimes taken into account by lenders and other investors.  Such investors look at the alleged value of the input labor with a very skeptical eye, but they often appreciate that the entrepreneur has ""skin in the game"". The sort of analysis described by the original poster is useful for estimating ""economic profit"" -- how much better off was the entrepreneur than if he had done something else with his time.  But this sort of analysis is not applicable for tax purposes for most small businesses in the United States. It is usually not in the entrepreneur's interest to use this method of accounting for tax purposes, for three reasons: It requires setting up the business in such a way that it can pay him wages or salaries for his time.  The business might not have enough cash resources to do so.  Furthermore, setting up the business in this way requires legal and accounting expertise, which is expensive. If the entrepreneur does set up the business like this, the wages and salaries will be subject to tax.  Wage and salary tax rates are often much higher than capital gains tax rates, especially when one considers taxes like Social Security taxes, Medicare taxes, and Business & Occupation taxes. If the entrepreneur does set up the business like this, the taxes on the wages and salaries would be due long before the hoped-for sale of the company.  The sale of the company might never happen.  This results in a time-value-of-money penalty, an optionality penalty, and a risk penalty." "Those who say a person should invest in riskier assets when young are those who equate higher returns with higher risk. I would argue that any investment you do not understand is risky and allows you to lose money at a more rapid rate than someone who understands the investment. The way to reduce risk is to learn about what you want to invest in before you invest in it. Learning afterward can be a very expensive proposition, possibly costing you your retirement. Warren Buffet told the story on Bloomberg Radio in late 2013 of how he read everything in his local library on investing as a teenager and when his family moved to Washington he realized he had the entire Library of Congress at his disposal. One of Mr. Buffett's famous quotes when asked why he doesn't invest in the tech sector was: ""I don't invest in what I do not understand."". There are several major asset classes: Paper (stocks, bonds, mutual funds, currency), Commodities (silver, gold, oil), Businesses (creation, purchase or partnership as opposed to common stock ownership) and Real Estate (rental properties, flips, land development). Pick one that interests you and learn everything about it that you can before investing. This will allow you to minimize and mitigate risks while increasing the rewards." /u/Dexter0_0 - Additionally, nominal dollars should be adjusted for inflation using the [core PCE price deflator](https://fred.stlouisfed.org/series/DPCCRG3A086NBEA). For instance, $5,000 in 1944 (when Mr. Buffett was 14), would feel like $48,000.  /u/jaasx - the trailing off in the later years is more likely do to the difficulty of earning high rates of returns on large piles of money (i.e. diminishing marginal returns). [Here are Mr. Buffett's own words](https://valuebin.wordpress.com/2011/01/27/warren-buffett-on-investing-small-sums-of-money/), and can be seen in the stock price of Berkshire Hathaway (appreciating more slowly in recent decades than in the '70s &amp; '80s). Looking at taxes on earned income vs. investment income, you'll see a huge difference. Nearly all super rich people earn most of their income from investments, eg see Buffet - that's why his secretary pays more in taxes.  Plus, there's plenty of other legal ways to legally lower tax obligations, eg deferred carry forwards on losses, etc.  TLDR: duh Isn't their lower effective rate due to their growing deferred tax assets?  They also had a loss carryforward from a few years back, which would lower the effective rate even further.  These accounting principles can be used to lower effective tax rates for small businesses, too. You say that like they won't hide money if we tax them more.  We had much higher tax rates from the New Deal to the 80's and that's when we saw the middle class grow.  Tax rates go down, money leaves the system, middle class goes away.  Automation is destroying more and more jobs and will continue to do so.   I'm all for lowering the corporate tax rate to attempt to encourage wage increases.  Somehow I doubt it will work.  Until it does.  Just gotta keep taxing the 0.1% since they have 80% of the wealth. I will ask again since you are an expert in economy:  &gt; Explain me why Bezos, a retail and technology guru would waste his time on WaPo, and old-fashion media? Is it to make money? Yes or no?  Yes, you reduce your tax bill if your profits go down due to a losing business. It's not debatable.