First, I applaud the notion that Warren Buffet's secretary ought to reveal her tax return - if Joe the Plumber can be put under the microscope for asking Obama a question about taxes, a woman who volunteers to serve as a State of the Union prop can answer a few questions.
However, I would treat with great caution this claim that Warren Buffet's secretary is probably making $200,000 to $500,000 a year if her average [Federal income] tax rate is above 15%. [but in a major UPDATE, we learn that she has an effective rate of 35.8%, presumably including her full share of Social Security and Medicare - that suggests an income of $240,000 for a married woman filing separately with the standard deduction and exemption. Factoring in the AMT brings that income down to $190,000. Release the returns].
Using the handy-dandy H&R Block tax calculator for 2011, I glean that a single woman taking the standard deduction and personal exemption with income of $62,000 will owe taxes of $9,250, which is an effective tax rate of 14.9%. That same income/deduction mix for 2010 (the year in question with Romney, with slightly lower brackets) results in a 15% effective rate, if I can trust Excel. This should represent a plausible minimum for her income if she has an effective rate of 15%.
As to her actual tax situation, who knows? Depending on deductions, her actual income may be higher, and $62,000 isn't chump change, but there is an excellent chance she isn't knocking on the door of the 1%.
BATTLING SPRAWL: I have slimmed down the calculations in a follow-up post. My "most plausible" income is about $200,000. There is a subtle flaw in the calculation but it is likely to have been made by Team Buffett; the "strictly speaking" result with no errors I can discern (but feel free to pile on!) is $475,000; a low estimate of $115,000 relies on ignoring the Social Security cap.
DEEPLY BAFFLING: Speaking of BS, how could I overlook the Social Security and Medicare taxes? Those are 6.2% and 1.45% directly, and many would argue that the worker bears the employers share as well (see CBO, which claims to be following "most economists", as quoted somewhere below). In that case, her FICA taxes equal 15.3% of her gross wages up to the Social Security cap of $106,800 for 2010; add her federal taxes, and she has an effective tax rate of roughly 30%. Is it merely conicidence that Obama's "Buffet Rule" minimum tax rate for millionaires is 30%? Release the returns!
TROUBLING: Michael Patrick Leahy of Broadside Books relays an ABC News report that Ms. Bosanek, the secretary, claims an effective rate of 35.8%. That surely includes her imputed share of the full FICA.
But what income level might that represent? Mr. Leahy heads in the wrong direction:
Since the top marginal rate on taxable income (which kicks in when taxable income exceeds $379,150) is 35%, it’s impossible that Ms. Bosnak’s claim that she pays a tax rate of 35.8 % applies to her taxable income. Since taxable income is always less than total gross income, the claim is even less credible for that measure.
Well, hmm. A quick calculation tells me that a gross income of $100,000 with the simple deduction/exemptions and a 15.3% FICA rate yields an effective total tax rate of 34.1%. If her wages are at the Social Security cap of $106,800, her average overall rate is 34.9%. However, the marginal rate on the next dollar will be 25% Federal income tax and 2.9% for Medicare, so the average rate is going to start falling. Suddenly 35.8% has receded to the far horizon. The next bracket change is to 33% at $171,850 for singles, and the 35% bracket kicks in above $373.651. Add in the 2.9% for the full Medicare, and those are marginal rates barely above her average rate of 35.8%.
On the other hand, she is married. For married filing separately, the 33% threshold is at $104,626. Maybe the marriage penalty should be brought into play - let me redo this with the "Married Filing Separately" brackets.
DOES CROW HAVE A PLACE IN A LOW-CARB DIET? Per my dirty calculations for 2010, which roughly jibe with H&R Block for 2011, a woman married and filing separately with gross income of $240,000 and the standard deduction/exemption would have a Federal income tax liability of $65,829 (using the 2010 brackets, I hope...). Add in her max imputed Social Security of $13,243 and her uncapped Medicare of $6,960, and her total imputed tax bill is $86,032 for an average effective rate of 35.8%. Release the returns!
IN A PATHETIC BID FOR REDEMPTION... I don't get the impression from the ABC clip that Mr. Buffet deployed a team of accountants to survey his office and calculate their taxes. If in an attempt to keep it simple he got stupid, he may have simply added a 20.5% average Federal income tax rate to a 15.3% FICA rate and mishandled the effect of the Social Security cap (that cap does not enter his thoughts often, I suspect.)
To get an average Federal rate of 20.5% takes an income of $114,000 for a married person filing separately. Still, this is confusing enough that we ought to see the returns.
THE CBO QUOTE:
The burden of taxes levied on businesses actually falls on households. In line with most economists, CBO assumes that the employer's share of payroll taxes falls on employees and thus assigns those payments to employees both as income and taxes paid.
Upon booth review, I realize that in addition to neglecting the AMT (which mysteriously appears and disappears) I have added the employer's share to Ms. Bosanek's taxes but not her income. That is a problem unless Team Buffett made the same error. Adding back the imputed FICA taxes to her $240,000 raw income drops her average rate from 35.8% to 34.4%. Now to get her back to 35.8% we need an income of $440,000. Does anyone out there still believe this is not deeply murky? Release the returns!