The Buffett Tax Explained Using A Hippopotamus And An Oxpecker

Tyler Durden's picture

Via Michael Cembalest, CIO JPMorgan

When Warren Buffett claimed that a lot of secretaries pay higher tax rates than the super-wealthy, JPMorgan's Michael Cembalest wanted to take a closer look. As shown in the first chart, Buffett’s assertion is only the case in a minority of situations (like his own).



The vast majority of taxpayers with adjusted gross income over $1 million and over $5 million have effective tax rates in the 22%-35% range, considerably higher than the range of tax rates paid by those with AGI below $100k. As a result, Cembalest notes he was not expecting to see large revenue estimates from an analysis of the fiscal impact of the proposals in the Fair-Share Act of 2012, since if the first chart is correct, there are not that many people that would be impacted by a minimum 30% effective tax rate. Now let’s look at some numbers.

The Congressional Joint Committee on Taxation and the Brookings Tax Policy Center analyzed the proposal, under the assumption that the Bush tax cuts sunset for the top two brackets. If that’s the case, the incremental revenue raised by the Fair-Share Tax Act is around $8 billion per year.

This is real money and may be sound public policy, but in the context of a $1 trillion budget deficit expected for FY2013, it’s a rounding error.


To convey this zoologically, we show two animals whose volume is proportionally the same (125 to 1): a hippopotamus, and its symbiotic companion, the yellow-billed oxpecker.


I would like to think that elected officials and political commentators would avoid grandstanding and not mislead anyone on the fiscal impact of their proposals, but right now, there are some people who need help distinguishing between birds and hippos.


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Go Tribe's picture

Breastfeeding who - Buffet?

Let them eat iPads's picture

What's the marginal rate on oxpeckers?

I am Jobe's picture

Where is the Press Release and a Live Telecast of the crap?


Crtrvlt's picture

so what's caused the massive downtrend in tax revenue as a % of gdp to 15% now from 21% in clinton's last year vs a historical 18%?  on a 16 trillion economy that's a pretty massive revenue hole.  

rehypothecator's picture

"To convey this zoologically, we show two animals whose volume is proportionally the same (125 to 1): a hippopotamus, and its symbiotic companion, the yellow-billed oxpecker."

Far be it from me to suggest that JP Morgan is misleading, but in order for the ratio of volumes of the bird and the beast to be 125:1, that means a grid of 11 x 11 birds, which is 121 birds, would be about the same as one hippo, and 12x12 birds (144) would be larger than the hippo.  But, 11x11 birds could stand on the back of the hippo without it even noticing.  The cube root of 125 is 5, so the correct-sized bird, 1/5 the linear size of the hippo, is closer to the ones walking in the background, not the one standing on its back. 

Yen Cross's picture

Already /priced it out!  Comes in just under 3 hundred thousand dollars>  Fore Skin Ward> E


schatzi's picture

oxpecker weight: 50 grammes

hippo: 4.500 kg


differential: 1: 90.000


I see JP Morgan staff are really clued up when it comes to numbers. Makes me feel so much more secure in knowing the world economy is in safe hands.

Tenshin Headache's picture

It was volume they were talking about, but I'm pretty sure I could stuff a lot more than 125 of those birds inside that hippo.

schatzi's picture

Thx. Yeah missed that. Volume will undoubtedly be less of an error, but as you say, still quite a large error.

BrainDead's picture

Taking 100% of all income of the top 1% of earners would only generate about $480 billion based on 2009 figures, assuming that the 1% would actually

  • remain in the USA, and
  • would even bother generating income knowing it was all going to be stolen, and
  • report their income to the IRS, and
  • not purchase a new tax loop,

All talk of raising taxes is counter-productive.  The notion that any authority has the right to theivery in the name of anything is a farce. Regardless one's belief in the falacy of authority, the "progressive" tax system in particular IS AN ENTRY BARRIER TO WEALTH.  Buffett and his ilk like the idea of high INCOME taxes because it protects the status of WEALTH.  The higher the income tax rate the more difficult for new members to join the Club of Wealth.


Crtrvlt's picture

the top 1% made AGI of 1.326 trillion in 2009  

Dr. Engali's picture

So I gather that you are in the take it all from them and fund the defecit for one year camp....what do you do next year then?

blunderdog's picture

Where'd you gather that from?  It certainly wasn't in the post you're replying to.

Yen Cross's picture

i GIVE UP> Power ball Bitchez

Zymurguy's picture

Can someone post here the numbers of what I've seen called the "effective tax rate" or something like that?

I've seen it somewhere that regardless of the rate the public is taxed, the amount paid into the government remains pretty constant.

csmith's picture

U.S. Federal tax revenue has remained within a couple percentage points of 18% of GDP since WWII, whether marginal tax rates were 91% (1950s) or 28% (1980s).

smiler03's picture

As far as receipts go you are right, but surely more important is the deficit/surplus?


Receipts - Outlays = surplus/deficit

Again, things since 1945 have averaged within a few percentage points:

UNTIL you look at 2009 onwards, when the deficit percentage increased ENORMOUSLY to figures not seen since 1945. (roughly a 300% increase).


you enjoy myself's picture

$8 billion a year?  that's off by 10X.  the CBO pegs it at $80 billion a year ($824B over 10 years).  of course, those numbers are likely way off (though not by an order or magnitude) because the first 5 years are projected at $300B ($524B on the back five).  and we all know how accurate forecasts of the 'out years' have been.

the CBO also infamously uses static tax analysis, though i didn't bother to confirm whether that's the case here.  the idea that the affected 2% (either individuals or LLC's) won't alter their behavior, when that behavior is penalized even more, is demonstrably false.  so, using the inherently more accurate per annum of the first five years ($60B) and guesstimating that a dyanmic tax analysis would shave 30% off of that, we're looking at $40B per year in extra revenue.  $40 effing billion.  that's what TOTUS thinks is the solution?

cuomo and christie just requested twice that amount for a hurricane.

Edit:  durp, my bad.  was confusing the fair share act with the current efforts to repeal the Bush rates.


knotjammin2's picture

I say screw all this fiscal cliff BS!!  Lets ride this baby over the edge........

gould's fisker's picture

And everyone out there is hanging on Warren's every word about politics because ? . . . he has a microphone stuffed in his mouth everywhere he goes?  Anything else--has he ever been right about anything politically? Any demonstrated knowledge about politicians except when he orders them to bend over they line up to do so.  That's really not insight perse.

Richard Head's picture

Can Buffett just die already, please?  The Gates Foundation could probably use his money sooner than later.

Lord Of Finance's picture

Warren Buffet is a 'do-gooder'. Do as I say not as I do, the rules will not apply to me, they will only apply to you. The IRS audited Berk/Hath. over the last several years and states the Berk/Hath owes 1 billion in taxes due to bad right offs. Buffet claims he really wants to pay more ,but he is protesting the IRS audit. C'mon Do-Gooder Warren. The IRS acountants said you are not paying the fair share you insist must be paid by the likes of Do-Gooder Hypocrits or should I say Hippocrits such as yourself.