Obamacare raises health insurance premiums, especially for the young

[Karee 4,190]

To show how you are wrong I have come up with an example similar to your reference to Warren Buffet and his secretary. In my example you have two friends who are electricians. One of them works for an electrical contractor and is treated as an employee. The other friend has his own business that he treats as a sole-proprietorship for tax purposes. To keep things simple we will assume that they both are single, have no dependents, do not itemize deductions, and the earnings from their jobs is their only source of income. Here is their tax return data for Form 1040 for 2012 assuming they both made $70,000.

Employee Self-Employed

Income

Line 7 – Wages $70,000 $0

Line 12 – Business Income / Profit 0 70,000

Line 22 – Total Income 70,000 70,000

Adjusted Gross Income

Line 27 – Self-employment tax deduction 0 4,945

Line 37 – Adjusted Gross Income 70,000 65,055

Tax and Credits

Line 40 – Standard Deduction 5,950 5,950

Line 42 – Exemptions 3,800 3,800

Line 43 – Taxable Income 60,250 55,305

Line 44 – Tax 11,086 9,861

Other Taxes

Line 56 – Self-Employment Tax 0 8,598

Line 61 – Total Tax 11,086 18,459

FICA 4,130 0

Medicare 1,015 0

Total Federal Taxes 16,231 18,459

I think Gary is confusing long-term capital gains with regular income. I might be wrong though.

[CarlosAndSveta 808]

I think Gary is confusing long-term capital gains with regular income. I might be wrong though.

Yes he is. Warren Buffett pays a lower effective tax rate than his secretary because he is able to structure the income reported on his personal return so that it consists mainly of capital gains and losses and income from carried interests both of which are taxed at very low rates. Buffett also is able to claim deductions and credits to help reduce his effective tax rate.