Appearing in New York City last week with Senator Clinton, the chief executive of Berkshire Hathaway, Warren Buffett, seemed to complain that the tax system was set up so that he paid too little in taxes. What caught our attention was his claim about his own situation. “Buffett said he makes $46 million a year in income and is only taxed at a 17.7 percent rate on his federal income taxes,” a CNNMoney.com account of his remarks said. The Times of London account had it, “Mr. Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.”

Well, wait just a minute there, Mr. Buffett. While $46 million sounds like a lot of income, and it is, it is only his income. It doesn’t come close to accurately representing by how much Mr. Buffett’s wealth actually expanded last year. In a February 14, 2006, signed “Form 5” filing with the Securities and Exchange Commission, Mr. Buffett said he directly owned 474,998 shares of Berkshire Hathaway Class A stock as of December 31, 2005. That stock began 2006 trading at $89,300 a share, making Mr. Buffett’s stake worth about $42 billion. It ended 2006 trading at nearly $110,000 a share, making Mr. Buffett’s stake worth about $52 billion. In other words, while Mr. Buffett told the Clinton audience he made $46 million last year, the actual amount of his gains on paper was more like $10 billion.

Mr. Buffett gave a lot of money away to the Bill and Melinda Gates Foundation, and he has said he was converting some Class A Berkshire shares to Class B Berkshire shares, but even accounting for that, he still made an awful lot more than $46 million last year. Forbes magazine, in its annual listing of the richest Americans issued in September of 2006, wrote, “Despite massive gifts, the Oracle of Omaha is $6 billion richer than last year: Berkshire stock up 19% in past 12 months.”

If Mr. Buffett is right that his tax last year was about 17.7% of $46 million in income, which is about $7.8 million, and if we’re right that his actual increase in net worth was closer to $10 billion, then his actual tax rate was not 17.7%, but closer to .08%. We’re not accusing Mr. Buffett of doing anything illegal; we’re fans of his. Nor are we suggesting that the unrealized gains on his Hathaway equity ought to be taxed. The rules that allow him and his fellow shareholders to accumulate vast wealth while having it taxed only if shares are sold, and then only at a relatively low, long-term capital gains rate, encourage long-term investment. As we’ve noted before (Clinton and Buffett, June 4, 2007), these gains have a way of translating into philanthropy. Even if they don’t, they support a lot of families with good-paying jobs at a lot of American companies, from Dairy Queen to Geico and See’s Candies and NetJets, to name just a few of Berkshire Hathaway’s holdings.

We don’t want to increase Mr. Buffett’s taxes — but neither do we want to raise them on his competitors, the hedge fund operators and private equity fund managers on whom Mr. Buffett is calling for increased taxes. If Mr. Buffett thinks his secretary is overtaxed, the way to handle it would be to cut her taxes, not to raise them on everyone else so that they are over-taxed, too. The way to address the inequities about which Mr. Buffett is concerned is with tax simplification and reform that moves to a flatter, fairer code that would be a tax cut for everyone, not a change that singles out a successful industry — and one that happens to be an engine for economic growth in New York — for special punishment.