Why isn't it fair that they pay the same tax rate? That's called a flat tax rate and I'm actually in favor of it because of its simplicity.
I think all income, regardless of source, should be taxed at a flat rate. It's how it works for tithing in a lot of churches, and it's a very simple but effective system.
> Why isn't it fair that they pay the same tax rate?
As Buffett points out, they don't. Buffett's is lower, because capital gains are privileged with a substantially lower rate, because the mega-wealthy largely benefit there.
Income taxes are paid on income earned in a given year. That is, real dollars. Long-term capital gains are paid on growth spanning multiple years. The cost basis is not inflation-adjusted. The latter therefore taxes inflation on assets. The capital gains rate should be lower than the income rate as a consequence. How much lower I take no position on.
Ah, I misunderstood. I think it's a little bogus that the income source determines the tax rate, because then the rich just manipulate their income to use the source with the lowest rates which is a luxury the poor can't afford.
Are the societal effects of a flat tax worth the simplicity?
If you optimize for simplicity, but at some greater cost to having a society that functions for all its citizens and residents, is it worth focusing on simplicity?
The practical burden of a flat tax rate is much greater, the lower your income. Someone earning $10k/year who pays $1,500 is going to miss those tax dollars a lot more than someone earning $10M/year is going to miss $1.5M. Flat taxes are viciously regressive.
As I've already been downvoted for this, I'll explain: the lower your income, the greater the proportion is spent on straightforward living expenses, generally. If you earn $10k/year, all of that will be going on basic necessities, so $1,500 a year in income tax (15%) is $1,500 straight out of your daily/monthly budget paying rent, food, transportation, etc.
The higher you go in income, the greater the proportion goes to things like retirement, investments, entertainment, etc. Millionaires (i.e., earning > $1M/year) paying 15% don't worry about eating well or enough, or being cold at night or losing their job because their car breaks down, or even whether they can pay for college for their kids.
This is why flat taxes are regressive, and if you propose a bottom line exemption (e.g., < $20k/year pays no tax, or less tax), it's not a flat tax anymore, it's a progressive tax, and we're just haggling over the details.
If Buffett's secretary pays $20k in taxes, and Buffett pays $21k, is that fair because he's still paying more?
How much lower can his tax rate go versus his secretary's rate before it's unacceptable?