More than a decade ago, Warren Buffett made a statement that sparked national outrage—and a persistent debate about fairness in America’s tax system. “I pay a lower tax rate than my secretary,” he said, describing what he believed to be a structural flaw in the U.S. tax code. For many Americans, that sounded like an indictment of a system where the wealthiest escape the burdens shouldered by middle-class workers.
Buffett, the chairman and CEO of Berkshire Hathaway and one of the richest individuals in the world, didn’t say it as a boast. It was, in fact, a call to action. But more than ten years later, little has changed. His comment still resonates because it’s still true—for him and for many other wealthy Americans whose income comes not from a paycheck but from investments.
Two Incomes, Two Systems
At the core of the issue is the difference between how labor income and investment income are taxed in the U.S.
Most working Americans—Buffett’s secretary included—earn wages or salaries that are taxed as ordinary income. Depending on how much they make, they can be taxed at marginal rates of up to 37%. Add in payroll taxes for Social Security and Medicare, and their effective tax rate climbs even higher.
Buffett, however, earns most of his money from capital gains and qualified dividends—types of income that are taxed at preferential rates: 0%, 15%, or 20%, depending on total income. For someone in his financial stratosphere, that typically means a 20% top rate, far below the highest rates on wage income.
In an op-ed published in The New York Times in 2011, Buffett disclosed that he paid just 17.4% in taxes on his $39.8 million in income. Meanwhile, his employees—secretaries and administrative staff—paid tax rates ranging from 33% to 41%. “There wasn’t anyone in the office, from the receptionist on up, who paid a lower tax rate than mine,” he wrote.
Why the Wealthy Often Pay Less
The disparity isn’t a loophole or a cheat. It’s the result of how the tax code is designed.
1. Capital Gains Are Favored
Investments held for over a year qualify for the lower long-term capital gains tax. Most of Buffett’s wealth comes from owning stock—especially Berkshire Hathaway stock—which he rarely sells.
2. Dividends Are Tax-Advantaged
Qualified dividends, like capital gains, are taxed at reduced rates. When companies distribute profits to shareholders, investors like Buffett enjoy this stream of income at a tax discount.
3. Payroll Taxes Are a Non-Issue
Working Americans pay 7.65% of their wages toward Social Security and Medicare (double that if they’re self-employed). Investment income isn’t subject to these payroll taxes.
4. “Buy, Borrow, Die” Strategy
Many wealthy individuals don’t realize income in the traditional sense. Instead, they borrow against their appreciating assets—tax-free—and live off those loans. When they die, those assets pass to heirs with a stepped-up basis, effectively erasing capital gains taxes.
A Hypothetical Illustration
| Taxpayer | Type of Income | Total Income | Effective Tax Rate |
|---|---|---|---|
| Warren Buffett | Capital gains, dividends | $10,000,000 | ~17% |
| Buffett’s Secretary | Salary and bonuses | $80,000 | ~22% |
Even though the secretary earns a fraction of Buffett’s income, she ends up paying a higher percentage in taxes. That’s the paradox.
The Buffett Rule—and What Happened to It
In response to the controversy, President Obama proposed the Buffett Rule: a minimum 30% tax on individuals making more than $1 million annually. It aimed to ensure that the ultra-wealthy paid at least the same effective tax rate as middle-income earners.
But despite public support, Congress never passed the legislation. Lobbyists argued it would discourage investment, and opponents labeled it a form of class warfare. The proposal faded, but the problem remained.
Where the Debate Stands Today
Fast-forward to 2025, and the tax structure is largely unchanged. Capital income remains lightly taxed. Wealth continues to accumulate faster than wages. And the richest Americans—Buffett included—often still pay lower tax rates than their employees.
According to IRS data, the average effective federal tax rate for the top 0.001% of earners is around 23%, while households earning $100,000 to $200,000 face rates close to 19%–22%—a narrow but troubling margin when scaled to billions in wealth.
Recent efforts by the Biden administration and progressive lawmakers have sought to introduce taxes on unrealized gains or a wealth tax, but these proposals remain politically divisive.
The Broader Implications
The Buffett tax discrepancy isn’t just a technicality—it’s a symbol of broader inequality in America. It underscores how the tax system reinforces wealth concentration by taxing income from work more heavily than income from capital.
Buffett himself continues to call for reform. “We need a tax system that requires the super-rich to pay more than their secretaries,” he has said in interviews and shareholder letters.
Until then, the statement that started it all—“I pay a lower tax rate than my secretary”—remains not only true, but emblematic of a system still in need of reckoning.