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warren buffett
The Tax Foundation’ Misleading Math Overstates How Much Billionaires Really Pay
By taking into account corporate taxes while ignoring corporate income, the foundation’s methodology drives up effective income tax rates for the super rich only because these rich happen to own a massive amount of corporate stock.
Mar 04, 2025
An income tax rate of over 100% would be hard for anyone to sustain. At a rate a smidge over 100%, our deepest pockets might be able to get by if they drew down their wealth or borrowed against it. But keeping up, year in and year out, with an income tax rate of over 1,000%, 10 times income? That seems, on its face, totally implausible.
Yet the Washington, D.C.-based Tax Foundation would have us believe Warren Buffett did just that for at least five years running, all while enormously growing his own personal wealth.
This conclusion about Buffett’s tax situation emerges inescapably out of the claims the Tax Foundation makes in a research paper published just after last year’s November election. The paper’s title—America’s Super Rich Pay Super Amounts of Taxes, New Treasury Report Finds—could hardly lay out the Tax Foundation’s case more starkly.
Shareholders don’t pay corporate income tax obligations. Corporations do, from their corporate income.
But did the U.S. Department of the Treasury report the Tax Foundation paper references actually make such a finding? No, not even close.
The Treasury report does analyze the total tax payments of rich and ultra-rich taxpayers relative to their wealth. The report’s writers, all highly respected economists, took into account every tax that impacts a person’s wealth, directly or indirectly. One example: A corporate shareholder bears no personal responsibility for the payment of a corporation’s income tax. But the Treasury report attributes a proportionate share of that corporate tax to shareholders since corporate taxes reduce the value of shareholders’ holdings and, consequently, their wealth.
The Tax Foundation took this Treasury analysis of total tax payments by wealthy taxpayers and proceeded to blindly compare those payments to these taxpayers’ adjusted gross incomes. That comparison enables the Tax Foundation to insist, among other claims, that the nation’s richest 0.0001% of taxpayers are paying 58% of their adjusted gross incomes in taxes.
I didn’t find this specious Tax Foundation logic particularly surprising, given that I’ve commented in the past on the specious logic that runs through other Tax Foundation studies. But this new Tax Foundation paper vividly exposes how accepting the foundation’s logic and applying that logic to real life produces results so absurd that they demand some in-depth illumination.
Which brings us back to Mr. Buffett. Thanks to reporting by the independent news outlet ProPublica and publicly available information on the income tax payments of Berkshire Hathaway, Buffett’s corporate investment base, we have considerable data on Buffett’s adjusted personal gross income, his ownership interest in Berkshire Hathaway from 2014 through 2018, and the income tax payments Berkshire made in each of those years.
We don’t have full information about Buffett’s other tax obligations, but let’s assume those obligations amounted to zero, since any additional payments would only have driven Buffett’s effective tax rate, according to the Tax Foundation’s methodology, even higher.
Warren Buffett’s ownership interest in Berkshire Hathaway—as reported in SEC filings for the years 2014, 2015, 2016, 2017, and 2018—amounted to 20.5% that first year, 19.6% the next, and then 18.7%, 17.9%, and 17.2% the last three.
According to the data service macrotrends, Berkshire Hathaway’s income tax payments minus refunds for those years totaled $7.9 billion in 2014, $10.5 billion in 2015, and $9.2 billion in 2016 before sinking into refund territory in both 2017 and 2018, with $21.5 billion in refunds the first of those two years and $321 million the second.
Applying the Tax Foundation’s methodology would attribute to Buffett a share of Berkshire’s taxes paid—and refunds received—by multiplying his ownership stake in the corporation for each of the years by the corporate tax payment made or refund received for that year. Doing the math, Buffett ends up with a personal tax liability from Berkshire of over $1.5 billion.
That figure tops by more than 10 times Buffett’s adjusted personal gross income of $125 million for that same period, according to a ProPublicareview of IRS records. The bottom line: All these numbers that we get applying the Tax Foundation’s methodology bring Buffett’s effective personal income tax rate to just over 1,200%.
And Buffett would end up having paid taxes at that rate, according to the Tax Foundation methodology, at a time when Berkshire’s income tax payments, net of refunds, were running relatively low. In 2017, the massive hurricanes Harvey, Irma, and Maria had Berkshire’s insurance businesses incurring huge losses. Without those losses, and the tax refunds resulting from them, Buffett’s effective personal tax rate—according to the Tax Foundation methodology—would have topped over 4,000%!
Impossible? Of course. So what sleight of hand is the Tax Foundation playing here? Corporate income tax payments do reduce the wealth of their shareholders. Attributing a share of those tax payments to shareholders, as the original Treasury Department study does, makes eminent sense. But shareholders don’t pay corporate income tax obligations. Corporations do, from their corporate income. The Tax Foundation, for its part, doesn’t attribute corporate income to shareholders. It only attributes corporate tax.
By taking into account corporate taxes while ignoring corporate income, the Tax Foundation’s methodology drives up effective income tax rates for the super rich only because these rich happen to own a massive amount of corporate stock. We can better understand the dynamics at play here by considering the tax situations of business owners far from billionaire status.
Consider this comparison: Taxpayers A and B each own a profitable business that generates $49,999 of income in 2025. They each reinvest all business profits in their businesses, living off the savings they have sitting in tax-exempt bonds. A and B each have $1 of other income. A, who owns his business directly, reports the profits on his personal tax return, along with his dollar of other income, and pays $10,500 in tax. His effective tax rate is 21%.
B, who owns her business through a corporation, reports the profits on the corporation’s tax return, and the corporation pays $10,500 in tax. Since B’s own adjusted gross income is just one dollar, B’s effective tax rate according to the Tax Foundation would be 1,050,000%, 50,000 times A’s effective tax rate.
In its reporting, ProPublica also considered Warren Buffett’s effective income tax rate. Taking his personal federal income tax payments as a percentage of his true economic income, including the $24.3 billion increase in his wealth between 2014 and 2018, ProPublica determined his effective income tax rate to be 0.1%. Quite a far cry from 1,200%.
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The Super Rich Are Getting Richer
Despite a decline in the total number of U.S. billionaires, the total wealth of the exclusive nine-figure-club grew by $500 billion over the last five months.
Sep 18, 2024
There are now 801 billionaires based in the United States with a combined wealth totaling $6.22 trillion, according to an Institute for Policy Studies analysis of the Forbes Real Time Billionaire List.
The total number of billionaires is down 11 people as of September 13, 2024 from April when Forbes published their 38th annual World’s Billionaire List. Despite that decline in the number of billionaires, the total wealth of the exclusive nine-figure-club grew by $500 billion over the last five months.
The top five billionaires and by individual wealth are:
- Elon Musk of Tesla/X and SpaceX with $252.5 billion
- Jeff Bezos of Amazon with $204.8 billion
- Larry Ellison of Oracle fame moving into number three spot with $197 billion, surpassing Marc Zuckerberg
- Mark Zuckerberg of Meta with $182 billion
- Warren Buffett of Berkshire Hathaway with $141 billion
There are now a total of 12 billionaires with more than $100 billion each. For context, the first person to cross the $100 billion personal wealth threshold—Jeff Bezos—only did so in 2018.
When Forbes started tracking wealth in 1982 there were only 13 billionaires on the Forbes 400 list and it took $75 million to join the list. Today, a person needs have a minimum of $3.2 billion to make the cut.
Among the wealthiest families on the Forbes list:
- Walton: Six members of the Walton Family have a combined wealth of $349.3 billion
- Mars: Six members of Mars family have combined wealth of $142.7 billion
- Koch: Two members of Koch family have a combined wealth of $141.6 billion
Many top billionaires have seen their wealth surge since the onset of the Covid-19 pandemic.
On March 18, 2020, Elon Musk had wealth valued just under $25 billion. By the start of the next year he became the richest person in the world with a net worth of $185 billion.
After a decline of his assets from the acquisition of Twitter (now X) and falling Tesla valuations, Musk’s wealth has almost reached its 2022 peak with $252 billion.
Jeff Bezos saw his wealth rise from $113 billion on March 18, 2020 to $204 billion in the September 13, 2024 survey.
Three Walton family members—Jim, Alice, and Rob—saw their combined assets increase from $161.1 billion on March 18, 2020 to $286 billion this September.
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Why Warren Buffett Is Wrong and Joe Biden Is Right About Stock Buybacks
Companies don't get better because of buybacks. Shareholders only get richer.
Mar 06, 2023
Warren Buffett, one of the richest people in America, defended stock buybacks in his highly anticipated annual letter to Berkshire Hathaway shareholders, released a few days ago.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
Buffett may be correct about buybacks being good for shareholders, for the simple reason that each remaining outstanding share has more corporate profit behind it.
But the Oracle of Omaha is dead wrong about buybacks being good for the country. They merely enrich people who own shares of stock (the richest 10 percent of Americans own 92 percent of the stock market) rather than add to the productive capacity of America.
Many pundits (including Andrew Ross Sorkin of The New York Times’s DealBook) are failing to draw the distinction — assuming that if stock buybacks are good for corporations and their shareholders, they must be good for America.
Rubbish.
To take but one recent example: Last year, the Norfolk Southern Railway enjoyed record revenue and operating income — $3.2 billion in the fourth quarter alone, a remarkable 13 percent year-over-year increase.
How did the railroad accomplish this? By cutting nearly 10,000 jobs — reducing its workforce by a third while running fewer, longer trains. Some trains now stretch longer than 2 miles. It made these changes despite warnings that they worsened safety risks.
The corporation also refused to provide its remaining workers with sick leave. And it failed to invest in improved safety equipment. (As I noted last week, the railroad mounted a major lobbying blitz against stronger safety regulations.)
And what did Norfolk Southern do with all the money it saved from cutting its workforce, running longer trains, refusing sick leave, and scrimping on safety?
Over the past two decades, it has boosted shareholder payouts by 4,500 percent (along the way enriching Warren Buffett and other investors).
Specifically, it has spent billions on stock buybacks — hitting a record $4.7 billion in buybacks and dividends last year.
Then it went off the rails, literally, releasing a toxic plume over East Palestine, Ohio.
On Saturday it went off the rails again, near Springfield, Ohio, although thankfully this Norfolk Southern train wasn’t carrying hazardous materials.
Companies don’t get better because of buybacks. Shareholders only get richer. While railroads spent more on stock buybacks than rail safety, Warren Buffett’s wealth increased by $42 billion.
Researchers at Deloitte point out that buybacks and dividends have soared as a share of GDP, while corporate investments in equipment and infrastructure have stagnated. Many of the social costs of this failure to invest have been shifted to the public-at-large, as we saw in East Palestine.
Stock buybacks don’t create more jobs. They don’t increase wages. They don’t grow the economy.
Before 1982, it was illegal for corporations to purchase their own stock to artificially prop up share prices. Then Ronald Reagan’s SEC adopted a rule protecting corporations from being charged for this kind of stock manipulation.
Jump ahead to 2017 and the Trump-GOP tax cuts added fuel to the fire. Since then, stock buybacks have more than doubled, reaching a record high $1.2 trillion in 2022 alone.
That’s $1.2 trillion that did not go into improving quality of life for American workers or building the American economy. It just went straight into the pockets of already-wealthy shareholders and CEOs.
Once again, Wall Street gains at the expense of working families.
Which is why the Inflation Reduction Act imposes a 1 percent tax on buybacks. And why Biden wants to raise it to 4 percent. The Stock Buyback Accountability Act of 2023, introduced by Senators Sherrod Brown and Ron Wyden, would do just this.
From the standpoint of America as a whole, Biden is exactly right about stock buybacks. Buffett is utterly wrong.
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