Are Millionaires Paying Their Fair Share?

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"Hey you millionaires, pay your fair share."
-- Occupy Wall Street protesters

"Fair share," what an interesting concept. What is a millionaire's fair share?

While my fellow Fools have been offering up some very interesting coverage of the Occupy Wall Street protests, I've limited myself thus far to cynical Twitter posts ("Come on, this is a spoof, right?"). When I sat down to really think about it, though, I realized part of why I wanted to ignore the whole thing is because the protesters are bringing up some really important questions that just don't have easy answers.

Like this whole "fair share" thing, for instance.

It's really simple
If you ask some of the folks taking part in Occupy Wall Street, the answer about what "fair share" is when it comes to the wealthiest Americans seems to be a pretty simple "more." One list of proposed demands on the Occupy Wall Street website reads:

No more GE [ (NYS: GE) ] paying zero or negative taxes. Pass the Buffet [sic] Rule on fair taxation so the rich pay their fair share. (If we have a really had a good negotiating position and have the place surrounded, we could actually dial up taxes on millionaires, billionaires and corporations even higher...back to what they once were in the 50's and 60's.

Why should they pay more? Well, quite clearly, the demand reads that they should pay more so that they're paying their "fair share." But I still have no idea what that really means.

The good Mr. Buffett
Warren Buffett is an easy guy to pick on here because he's been outspoken on the idea that the wealthiest aren't paying their fair share. His measure of fair share, like almost everything that comes out of Buffett's mouth, is pretty simple -- he highlights the fact that though he's one of the richest people in the world, he pays the lowest effective tax rate of all the people in his Omaha office.

In August, he had this to say in a New York Times oped:

Last year my federal tax bill -- the income tax I paid, as well as payroll taxes paid by me and on my behalf -- was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income -- and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

I have to say, that seems like a pretty fair way to measure "fair share."

But at the same time, Buffett owns 22% of Berkshire Hathaway (NYS: BRK.B) , a diversified holding company that paid close to $6 billion in taxes over the past 12 months. It wouldn't be too much of a stretch to say that $1.3 billion of those taxes came from the stake that Buffett owns. And don't forget that when Berkshire collects dividends from major stock holdings like Coca-Cola, Wells Fargo (NYS: WFC) , and Procter & Gamble (NYS: PG) , those dividends are paid out of already-taxed earnings and then taxed again.

Though Buffett didn't create the many businesses that fall under the Berkshire umbrella, he has provided an accommodative atmosphere for those businesses, which may have allowed them to stay healthier and grow further than if they didn't have Berkshire as a parent company. As of 2010, the company employed more than 260,000 people. And it's not for nothing that ownership of Berkshire Hathaway stock has turned many people of modest means into wealthy citizens themselves.

It seems, one argument might run, that Buffett has done an awful lot that's been of great benefit to many other people. Should his reward be a hefty tax bill that takes the capital that he's shown great skill at allocating and give it to the government, which (cough, Solyndra, cough!) hasn't exactly (cough, U.S. Post Office, cough!) shown the same?

But the question is...
Even though many millionaires might cheer that latter sentiment, it doesn't really answer our question. And Buffett may be a bad example anyway since he takes a paltry $100,000 annual salary and has pledged all of his vast riches to charity.

But what of JPMorgan Chase's (NYS: JPM) Jamie Dimon, who took in $23 million in 2010 once you tally up his cash and stock compensation? Or what about Goldman Sachs' (NYS: GS) Lloyd Blankfein, whose 2010 total comp came to $18.6 million? What's their fair share?

Or maybe more importantly, what's Oracle's (NAS: ORCL) Larry Ellison's fair share? His (mostly equity) compensation for Oracle's fiscal 2011 was $78 million. But he was worth $33 billion when Forbes last compiled its list of richest Americans and likely has a very sizeable amount of income from capital gains and dividends, both of which are taxed at lower rates than ordinary income.

The same goes for Charles and David Koch, who are reportedly worth $25 billion each. What's their fair share?

I wish I could say that I had some great answer for this question, but I don't. What I do know, however, is that the answer isn't as simple as "more" or "don't worry about it, they already do enough for society."

What do you think? Do you have a view on what "fair share" really means? Do you think there even is an answer for what "fair share" means? Head down to the comments section below and weigh in.

At the time this article was published The Motley Fool owns shares of Wells Fargo, Coca-Cola, Berkshire Hathaway, Oracle, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Berkshire Hathaway, and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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