Warren Buffett’s Secretary – An Open Letter

by Sean Purcell

Real Estate Renaissance Man

Author website

Dear Ms. Warren Buffett’s Secretary,

First, and on behalf of everyone who feels as I do, please accept our heartfelt condolence that you have been thrust onto the stage of national demagoguery and class-warfare.  I can’t imagine being constantly referred to as: “Warren Buffett’s Secretary” on the national news and in speeches by the President of the United States of America.  Having your personal income tax rate not only held up for scrutiny, but co-opted as the basis for raising taxes on someone else (someone who’s done you no harm that you are aware of), must also be an uncomfortable position indeed, made all the more so by the fact that your own boss put you there.  Having said that… I feel compelled to answer the question that has thrust you into the hot spotlight of public scrutiny and in so doing, I hope to stop this before you become, like Farrah Fawcett before you, the poster child of prurient interest.

The question: Why do you, Warren Buffett’s Secretary, pay a greater tax rate than your boss Warren Buffett?

This was less than ably restated by the President of the United States of America today in his speech on raising taxes… I mean taming the deficit: “Warren Buffett’s secretary should not pay more in taxes than Warren Buffet.” You see, this is how demagoguery can get out of hand and the next thing you know, you are thumbtacked on bedroom walls all over the nation.  So, before we can explain why you pay a higher rate than your boss, we must first help POTUS understand the different between a tax rate, and taxes paid.  Mr. President, Warren Buffett’s Secretary pays a higher rate (a higher percentage) of her income in income taxes.  This in no way suggests she pays more… as a matter of fact, Warren Buffett pays a great deal more taxes than his Secretary does; he just pays a lower combined rate.

To answer the specific question then: You, Warren Buffett’s Secretary, pay a higher rate of tax on your income because you, even being the hard working and integral part of Warren Buffett’s operation that you most assuredly must be, are trading time for money… That is to say, you show up each day willing to trade a certain number of your hours working for Warren Buffett, in exchange for money.  If anyone hears a negative connotation in that statement, you are mistaken.  There is absolutely nothing negative about working for a salary or on an hourly basis and, as it so happens, it’s quite necessary: one person may figure out a new sprinkler system that saves substantial water, but it means nothing if there isn’t someone else to dig the ditches.

In your specific case, Ms. Warren Buffett’s Secretary, you are taxed for collecting a salary.  (The validity and morality of that coerced confiscation of your income by the government is another conversation altogether.)  Mr. Buffett, on the other hand, is taxed for collecting a profit on an investment (again, we’ll leave the validity of that confiscation alone for purposes of this discussion), and that tax rate is lower.  This is beginning to make sense now, right?  The tax rate for return on investment is lower than that on ordinary income because investment is what creates our economic engine.  When a person is willing to trade their time for money, they are taxed one rate.  But if a person is willing to trade their capital and their expertise… if they are willing to risk that which is theirs, and invest in creating more, they merit a lower tax rate.  You see, to the degree that tax policies are used to influence behavior, one wants to incentivize entrepreneurs over income collectors.  Put another way: those who take risk are wealth producers, whereas everyone else (e.g. salaried employees) are… overhead.  As a matter of smart economic policy, we encourage production and note its impact on the economy as superior to that of overhead.  (Present administration excepted…)

I hope this letter has helped you understand why you, as Warren Buffett’s Secretary, pay a higher income tax rate, but much less in actual taxes.  And if despite this explanation, you do find yourself trapped in the class warfare demagoguery being advanced by the President, remember to wear a red bathing suit… it worked for Farrah Fawcett!