In recent years, Warren Buffett has become a hero to American progressives by virtue of his insistent, frequent calls for increasing the tax burden on high earners.

Many people collapse the distinction between high earners and the asset-rich, in part because there is, as you might expect, substantial overlap between those two groups. But the overlap isn’t perfect. Wage and income dispersion in the United States is not as great as wealth dispersion, which reflects varying proclivities towards saving and consuming, inherited wealth, etc. The economist Michael Clemens recently observed that Sweden is the country with the lowest income inequality and the highest wealth inequality among the countries surveyed by the Luxembourg Income Study. There are, to be sure, a number of data compatibility issues, but this finding is nonetheless illustrative of a larger phenomenon: a policy mix aimed at mitigating post-tax-and-transfer income inequality might not have as powerful an impact on wealth inequality.

I raise this distinction because Warren Buffett has arguably painted a misleading picture of his actual tax burden in a recent call for raising taxes on high earners:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.
To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

As Greg Mankiw explained in 2007, however, there is more to the story:

At a recent fund-raiser for Hillary Clinton, the billionaire investor Warren E. Buffett said that rich guys like him weren’t paying enough. Mr. Buffett asserted that his taxes last year equaled only 17.7 percent of his taxable income, compared with about 30 percent for his receptionist. …
One might wonder how Mr. Buffett gets away with a tax rate of only 17.7 percent, while a typical millionaire is paying so much more. Most likely, part of the answer is that Mr. Buffett’s income is made up largely of dividends and capital gains, which are taxed at only 15 percent. By contrast, many other top earners pay the maximum ordinary income tax rate of 35 percent on their salaries, bonuses and business income.
The distinction is crucial for understanding how much the rich pay. Indeed, the share of top incomes coming from capital is much lower now than it has been historically. According to Emmanuel Saez, an economist at the University of California, Berkeley, for the richest Americans — those in the top 0.01 percent of the distribution — the percentage of income derived from capital fell to 25 percent in 2004 from 70 percent in 1929. …
Another piece of the puzzle is that Mr. Buffett’s tax burden is larger than it first appears, because he is a major shareholder in Berkshire Hathaway.
When the C.B.O. studies the tax burden, it includes all federal taxes, including individual income taxes, payroll taxes and corporate income taxes. In its analysis, payroll taxes are borne by workers, and corporate taxes by the owners of capital. For the richest 1 percent of the population, 9.3 percentage points of their 31.1 percent tax rate comes from the taxes that corporations have paid on their behalf. The corporate tax would undoubtedly loom large if the C.B.O. were to calculate Mr. Buffett’s effective tax rate. [Emphasis added]

The corporate tax is far more important for Warren Buffett’s bottom line than it is for most U.S. taxpayers. I would argue that the CBO should not impute all of the burden of corporate taxes to the owners of capital — at least some of it is borne by labor, with estimates ranging from 40 to 75 percent — but there is no question that the corporate tax has an enormous impact on those who own a lot of corporate capital. Stephen Moore has raised this point more recently, and he adds an additional wrinkle:

Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called “unrealized capital gains.” Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.
The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn’t include state and local taxes.
To his credit, Mr. Buffett has criticized President Obama’s near-obsessive calls for higher taxes on corporate jets. As Mr. Buffet correctly noted, the writeoffs companies take for capital expenditures such as jets are legitimate business expenses. [Emphasis added]

So let’s think about this for a moment. Warren Buffett is calling for hiking income taxes, yet he “has criticized President Obama’s near-obsessive calls for higher taxes on corporate jets” and he has defended “writeoffs companies take for capital expenditures such as jets are legitimate business expenses.”

Let’s put on our cynical hats for a moment. Recall the following passage from the president’s speech:

I am also — I’m also well aware that there are many Republicans who don’t believe we should raise taxes on those who are most fortunate and can best afford it. But here is what every American knows: While most people in this country struggle to make ends meet, a few of the most affluent citizens and most profitable corporations enjoy tax breaks and loopholes that nobody else gets. Right now, Warren Buffett pays a lower tax rate than his secretary — an outrage he has asked us to fix. (Laughter.) We need a tax code where everyone gets a fair shake and where everybody pays their fair share. (Applause.) And by the way, I believe the vast majority of wealthy Americans and CEOs are willing to do just that if it helps the economy grow and gets our fiscal house in order.
I’ll also offer ideas to reform a corporate tax code that stands as a monument to special interest influence in Washington. By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world. (Applause.) Our tax code should not give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs right here in the United States of America. (Applause.)

Let’s really think about this passage. The president cited one of America’s wealthiest men by name as an authority on why he thinks it is right and appropriate to raise income taxes on people who earn a large amount in any given year — it’s worth noting that while some people consistently earn stratospheric incomes, there are others who achieve earnings peaks that cross the threshold in some years but not others — and in the next passage he advocates reform of the corporate tax code that lowers rates and selectively eliminates “loopholes and deductions.” Among the “loopholes and deductions” the president has targeted are “tax loopholes for oil companies,” in a mannerthat, according to Tim Carney of the Washington Examiner, has been suspiciously selective:

The biggest tax break benefiting the oil industry is the domestic production tax credit. As far as subsidies in the tax code, this one is fairly broad. You get this tax break if you manufacture anything in the United States, or harvest timber, grow crops, mine for coal — or pull oil or gas out of the ground. Obama and congressional Democrats haven’t proposed a repeal of the domestic production tax credit (which would actually advance tax neutrality). They’re instead fighting to exclude the big five oil companies from it. Coal companies would still get this subsidy under the Democrats’ proposals, as would oil companies producing no more than 499,999 barrels a year.
Obama’s and Menendez’s other targeted provisions are matters of interpretation regarding how U.S. tax law should pertain to the particularities of the oil and gas industry. For instance, should oil companies get the foreign tax credit for the taxes they pay petro-states, or should those taxes be treated — at least in part — as royalty payments, which do not get the tax credit? There are fair arguments on both sides of this particular question. The Tax Foundation says all foreign taxes should be treated as taxes. Some liberals say they should be treated partly as royalties.

Is it reasonable to assume that Warren Buffett might gain considerably from a “reform” of the corporate tax code that treats his assets somewhat more favorably than at present? As Howard Gleckman has explained, there will be winners and losers from corporate tax reform:

Corporate tax reform is a good idea and long overdue. But it won’t take much time before the concept crashes into a seemingly-immovable political barrier. The problem is that the current tax code creates so many winners and losers that any broad-based reform will inevitably do the same. …
Courtesy of Marty Sullivan over at Tax Notes, here are the average effective rates that some of the firms represented at Geithner’s meeting reported paying over the past three years. Keep in mind the statutory tax rate in the U.S. is 35 percent, but companies can often lower their bill thanks to dozens of deductions and credits. At one end were the winners: Cisco reported an effective income tax rate of 19.8 percent, Johnson & Johnson 22 percent, and GE just 3.6 percent. At the other end: Wal-Mart paid 33.6 percent, and Disney paid 36.5 percent–more than the statutory rate.

Will the firms owned by Berkshire Hathaway, and thus indirectly owned by Warren Buffett, wind up in the winners’ circle or the losers’ circle? Might Warren Buffett’s timely political interventions have some small impact on the shape of a corporate tax reform effort that might help determine whether various investments he has painstakingly made prove successful or not?

When Warren Buffett defends tax breaks for corporate jets, does he not have somewhat more credibility because he has called for higher taxes on his labor income in any given year? My sense is that the answer is yes.

I can’t really speak to Warren Buffett’s motivations. I imagine that he thinks of himself as a public-spirited, broad-minded person who believes that it is vitally important to defend tax tax breaks for corporate jets because doing so advances the interests of all Americans, including the least among us. Yet when Buffett and his allies impugn the motivations of others, I can’t help but think about his shrewdness as an investor and as a kind of public intellectual, who has managed to convince many otherwise sensible people that he is above the political fray — that he really is a disinterested party. Having donated vast sums of money, and having done so in an impressively humble and intelligent way, I’m willing to accept that Buffett doesn’t primarily care about preserving and expanding his fortune, though of course that does raise questions about how he has spent most of his waking hours as an adult. It does seem plausible, however, that Buffett cares about his “legacy” as an investor, which of course would suggest caring about the fate of the corporate tax code.