Newsflash: An American billionaire today did not endorse Labour’s tax package

Before New Zealand’s socialists get too excited about Warren Buffett’s call to stop coddling the super rich, I thought I should point out that what Buffett is advocating has no relevance to the New Zealand debate, and is not an endorsement of Labour’s taxation package.

The US tax code is vastly more complicated than New Zealand’s with many more exemptions and special treatments built into it. As such, because of how Buffett generates his income he pays only 17.4% tax on his declared taxable income. Buffett isn’t confessing here to hiding his income and dodging tax – he is pointing out that, because of the way the US tax code is structured, he is only being taxed at 17.4% on declared income.

No such situation exists in New Zealand. Our tax code is, by contrast, a paragon of simplicity. Anyone declaring a personal income in New Zealand of $39,877,839 (which is what I calculate Buffett’s declared income to have been) would pay $13,150,606.87 in income tax regardless of the source of that income. That is nearly double Buffett’s $6,938,744. Buffett’s rate is so low because income from capital gains in the US is taxed differently to income from labour. In New Zealand, if you are using capital gains as a form of income, it is taxed at precisely the same rate as any other form of personal income.

Buffett also points out that he and his super rich friends are paying a smaller proportion of their income in tax than those much less wealthy than themselves. Again, no such situation exists in New Zealand unless you dodge taxes. Note that farmers and sole traders counting their expenses against their income is not a tax dodge unless they’re padding their expenses. I’m sure this happens, but it is illegal and would have to be undertaken on a grand scale to reduce one’s personal tax on nearly $40 million to 17.4% from 33%.

So, once again, whatever Labour, the Greens or their supporters say on the matter, this is certainly not an endorsement from Warren Buffett of a personal income tax of 39% on income over $150,000 a year. Nor is it an endorsement of Labour’s capital gains tax proposals.

NB: I wrote this over lunch and had hoped to post it earlier. Alas, The Standard has beaten me to it, declaring the Buffett is calling for the rich to stop the class war, and have indeed suggested that Buffett’s comments should be taken into account in November when we “grapple with the issue of tax reform”.

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