We are hearing a lot about tax rates particularly millionaires’ tax rate vs. their secretaries’.   It is suggested that if a “fairness factor” can be applied to Mr Buffett and his secretary that all will be well with the world.  If only it were that simple.  Warren Buffett oversees a financial empire, an empire that provides employment for a very large number of people.  This is a logical misdirection that represents a very shallow and simplistic view of taxation and economic growth.

This view leverages the tension between employees and employers all for the benefit of the political kingdom.  If we take a look at the net worth of lifelong federal level politicians and you will observe a group of individuals that regardless of party affiliation use the same process to improve their net worth.  One of the most amazing things I have observed in life is a politicians ability to publicly, and verbally, denigrate a group of people and them request for and receive a “donation” from them.  

I have found out that if you want a friend to give you something, you don’t preface your request by telling that friend they have bad breath and need to bathe more often.  This is exactly the approach used in the political process. The public does not recognize it as a great theatrical performance.    

The politicians are interested in solving problems.  In many situations, solving problems they created.  Tax rates can easily be changed.  Would it surprise you to understand that most truly wealthy individuals are not required by law to list their entire income?  A simple example.  Mr Big Bucks owns a significant stake in an international corporation.  That corporation derives the majority of its income from business activities conducted entirely offshore.  Monies earned offshore are not returned to the United States.  That money never becomes part of the tax base and is not taxed.  

In the case of the electronics industry, products manufactured in say China enjoy significant tax advantages and when exported from China may never enter the US, minimizing the impact on Mr Big’s Tax base.   Items imported into the US for domestic sale will enjoy the benefit of a low cost Chinese production environment.

Manufacturing investment overseas escapes taxation in the US.   A large part of Mr Big Buck’s empire never becomes a part of his tax base.   

Never believe that we have the entire income picture for Mr Buffett’s secretary.  It is not uncommon for individuals in such positions to work with their employers to maximize their compensation to ensure their employer gains the absolute maximum in loyalty.  The secretary, after taxes, nets the maximum income.  For Mr Buffett and his secretary the game is to keep their dollars out of their tax base.   Dollars not in the base receive the most favorable tax rate, zero.

Great theater from the nation’s royalty in Washington!