President Obama’s use of Warren Buffett’s secretary — Debbie Bosanek — during his State of the Union address on Tuesday night raised interesting questions that deserve to be followed up. Obama used Ms. Bosanek as a prop to argue for higher taxes on the rich or, as they have lately come to be known, the 1 percent. In liberal mythology, “the rich” are never paying “their fair share,” whatever that is. Whatever they’re paying, it isn’t enough.
According to President Obama, that includes Obama himself. So why doesn’t he do the right thing on his own? He could set a good example.
One of the questions raised by Ms. Bosanek’s appearance was her status. Is she a hero or a victim? The tradition since President Reagan recognized Lenny Skutnick is to accord praise to heroes. Ms. Bosanek presents as a sort of victim, or chump.
In his speech Obama stated that Ms. Bosanek pays a higher tax rate than her boss. So how much does she makes and at what rate does she pay the federal income tax? Obama didn’t say.
Assuming Buffett pays federal income tax at the capital gains tax rate of 15 percent (Buffett says he pays at a rate slightly north of that), Paul Roderick Gregory uses IRS tables to estimate that Ms. Bosanek must earn between $200,000-500,000 in order to pay at an average rate of 19 percent. According to the IRS tables, he concludes Ms. Bosanek must earn in excess of $200,000.
Over at Broadside Books, Michael Patrick Leahy digs a little deeper to try to fine tune the analysis, drawing on this ABC puff piece (watch the whole thing here). Still the details are hard to get straight:
The Obama campaign communications team – in this case, ABC News – teamed up this evening with Warren Buffett and his secretary, Debbie Bosanek, to selectively release some information about their personal tax returns. Note that neither Mr. Buffett nor Ms. Bosanek took the transparent approach of releasing their complete tax returns for the past four years for review by the entire public, as I called on them to do yesterday.
Here’s what they claimed in the ABC report: “Bosanek pays a tax rate of 35.8 percent of income, while Buffett pays a rate at 17.4 percent.”
It’s hard to interpret this statement without additional information. Do they mean “effective tax rate” or “marginal tax rate”?
When they say “income,” do they mean total gross income or taxable income?
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.
Despite these factual inconsistencies, Bosanek doubled down, putting herself forward as the face of Obama’s tax inequality mantra:
“I just feel like an average citizen. I represent the average citizen who needs a voice…Everybody in our office is paying a higher tax rate than Warren.”
If she’s really paying a marginal rate of 35%, she’s earning over $379,150 per year in taxable income, which places her in the top 1% of income earners nationally. If this is true, Ms. Bosanek is anything but an average citizen. An average citizen – say someone who earns the median salary of a secretary to a CEO, which is $67, 791, according to a 2011 survey conducted by Certified Compensation Professionals – pays a much lower effective tax rate on taxable income than Ms. Bosanek. Assuming this average citizen took about $15,000 in deductions, she would pay an effective tax rate of 17% on taxable income of $52,791, the same rate Mr. Buffett claims to be paying.
Is Ms. Bosanek a 1 percenter? Leahy observes: “Whether Ms. Bosanek is in fact in the top 1% of earners, or her claims, along with those of Mr. Buffett, are simply not correct is something no one will know for sure until both Ms. Bosanek and Mr. Buffett release their personal tax returns for the last four years.” He comments: “In either case, as the story continues to unfold it will be painfully obvious to most voters that the Obama Campaign’s attempt to portray Ms. Bosanek as the sympathetic face of tax inequality has backfired badly.”
Despite her tax burden, incidentally, Ms. Bosanek just bought a second home in Arizona.
But we may have been misled by taking all this at face value. Something’s happening here. Watching the entire ABC interview with Buffett and Ms. Bosanek — you really should watch the whole thing — it appears that they have included payroll taxes in the calculation of her income tax rate. Buffett emphasizes that “Debbie pays plenty of payroll tax” and lumps the payroll taxes (both employer and employee shares?) in with her federal income tax. The ABC interviewer’s lack of interest in the details is astounding. Tom Maguire takes account of the question of payroll taxes here.
I’m posting the complete interview below. Analyze this!
UPDATE: It turns out that Ms. Bosanek reportedly makes about $60,000 a year. So Obama and Buffett are apparently taking her federal marginal tax rate, adding both sides of the payroll taxes tax, and comparing it to what must be Buffett’s effective tax rate. Megan McArdle observes: “That comparison is beyond bizarre.” It is a farcical mistake to take anything these folks say at face value.