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Schwarzman Takes Aim at Buffett on Taxing the Rich


Steve Schwarzman

In an interview on CNBC yesterday, the CEO of Blackstone Group was asked about Warren Buffett’s claim that the rich pay lower tax rates than everyday workers. Buffett’s oft-repeated anecdote, made again in the New York Times op-ed, is that he pays a federal income-tax rate of only 17%, while his office workers pay between 20% and 36%.



Schwarzman’s broader point is wealthy people like him pay at or near the maximum tax rates, rather than the rock-bottom discounts paid by Buffett. He said his 53% rate is “one of the highest in the world” and that our  tax code needs to be simplified with a flat tax or flat tax with “one or two tiers.”

Yet the 53% number is worth examining, since the average effective federal-income tax rate (i.e. the taxes actually paid) for people making $1 million or more is only 29%, according to the Roberton Williams at the Tax Policy Center.

Let’s just consider Schwarzman’s statement about the 36%. He specifies that the percentage is against his “taxable income.” This qualifier raises the tax rate, since “taxable income” subtracts deductions like charity and mortgage interest. Schwarzman gives millions to charity so his deductions are likely large. The rate on his total income would be lower.

In fairness, Buffett also used taxable income as his measurement. But that only strengthens Buffett’s point, since the tax rate against his total income would also be lower.

But what about investment income?

Most rich people have significant income from their investments, which get taxed at a much lower rate. Buffet’s income from capital gains and dividends — taxed at 15% — are the reason he pays such a low rate. The higher you go up the income ladder, the greater share of income comes from investment income.

The top federal-income tax rate on ordinary income is only 35%. In order for Schwarzman to pay 36%, virtually all his income would have to be ordinary income. Adding in payroll taxes would get him to 36%.

Schwarzman’s published salary as CEO is a measly $350,000.  He makes much more than that, of course. Much of his income comes from dividends from Blackstone, since he owns 23% of the firm. And Blackstone reported net income of $1.4 billion last year.

Yet since those dividends likely flow to him as a distribution from the company, they would probably  be reported and taxed as ordinary income. So that supports his case.

As for his investment portfolio, he surely has investments outside Blackstone. But it’s possible that those investments could be tax-free New York muni bonds (which don’t count as taxable income) or other alternative investments that get taxed at a higher rate.

Despite all of that, several accountants said Schwarzman’s 36% rate was highly unusual — especially in the private-equity world.

Michael Oates, the head of the national tax practice Rothstein Kass, and one of the leading accountants to private-equity and hedge-fund chiefs in New York,  said it’s rare for private-equity clients pay an effective federal tax rate of 36%.

“Not if they’ve done the right planning,” Oates said. “It’s possible I guess. But it would be very unusual.”

Maybe Schwarzman is a special case. Or maybe he just needs a better accountant.

Do you think the super-wealthy pay a rate that’s higher or lower than yours?

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    • I always enjoy an argument that lacks all the tangibles. I read 1/2 of the replies until I wanted to vomit. When you are going to logically debate anything economics throw out all the variables. Almost everyone here only represents one side of the equation. Sure 50 percent of Americans don't pay income taxes (don't forgot all those other taxes they do play please) but 1 percent of Americans control 35 % of the nations wealth, the following 19% control 45%, and that leaves 20% of US wealth in the hands of 85 % of Americans. Now what is left for that meager percentage of the 80% is constituted by the value of their house-this value has plummeted and the gap will certainly increase. Economies are creations for the people, not for 20 % of the people, but for all of the people. This economy is no longer representative for the masses. And please before anyone gets on their soap box and shouts to the heavens that the wealthy are burdened by the poor and their entitlements, or throws out some talking head sound bite about socialism, or is just mad that other people think and believe in equal democratic/economic participation stop yourself and actually educate yourself to the realities of the now.

    • @ Tonto -- there is not enough money that can be taxed to pay for the out of control entitlements that are now in existence. Spending has to be cut across the board. The government is not a charity and needs to stop trying to be one -- they suck at it. You could take all of the money of all of the wealthy in the US and it would not make a dent in the deficit. It would also destroy the economy. I have no problem paying more taxes, but not until someone in the government passes a balanced budget amendment -- and no, Bill Clinton did not balance the budget -- deficit went up $550 Million/Day during his presidency.

      You need to do some research on the military spending -- not even close to a Trillion -- you are drinking to too much liberal Kool AIde

    • To all those who want to reduce the federal income tax:
      How are you going to pay for the trillion dollar wars in Afghanistan and Iraq that were started and paid for with BORROWED money, and the reduction in tax rates on the higher incomes that was paid for with borrowed money, and the bailouts to the rich investment bankers and corporations? What expenses exactly are you going to cut? Are you going to take it out on the poor and the vulnerable and medicare and social security when Congress gets a lifetime pension for one term of service and has a lucrative health plan? Are you going to eliminate aid to Pakistan, subsidies to cotton farmers, subsidies for ethanol, reductions in defense spending, or what? Will all those reductions in expenses be ENOUGH, or do we need to go back to higher tax rates ALSO? I think we need to do both or it will be a long time in hell before this country is back on solid footing and free from predators and parasites.

    • He may be telling the truth but we would have to see his actual federal and state returns for the last two years. Figures don't lie but liars can figure. Just a possibility, or else he needs some better planning. He may not be including his dividends and capital gains in that scenario.

      To: Rosanna
      A consumption tax would be regressive on the lower income classes who have NO discretionary income. I will read the site.

    • The guy made $1.4 BILLION DOLLARS, and he's complaining cause he only brought home $896 MILLION. Give me a break! Maybe he should find a few charities. I'd say tax him the MAXIMUM! We have bills to pay!

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