During an interview with White House press secretary Jay Carney, Bill O'Reilly criticized President Obama for using investor Warren Buffett as an example of the unfairness in the tax code. Obama, in his speech on jobs before a joint session of Congress, said that “Warren Buffett pays a lower tax rate than his secretary -- an outrage he has asked us to fix.” O'Reilly took exception that remark, suggesting that it was an “apples to oranges” comparison because Buffett pays mostly capital gains taxes while his secretary likely pays mostly income tax.

His criticism is off base. Taxes on “capital gains” are taxes on income derived from capital, as opposed to income derived from labor. Both capital gains taxes and income taxes are taxes on income. O'Reilly is wrong to suggest Buffett and the president are being misleading or unfair.

From the September 8 edition of Fox News' The O'Reilly Factor:

O'REILLY: You've got to stop with Warren, OK? Warren is 88 years old or something. He says his secretary pays more tax. It's not true. He's talking about two different things.

CARNEY: His secretary pays, what he's said is --

O'REILLY: No, he's talking about -- you know this too, Jay, don't try to fool me. Don't try to fool me.

CARNEY: I'm not.

O'REILLY: He's talking about capital gains, Warren Buffett. The secretary pays federal income taxes, it's two different taxes. But Warren and the president are trying to fool us. Stop it. Not good. We all got it.

[...]

O'REILLY: Jay, I know you know what I'm talking about. Warren Buffett pays taxes on capital gains, not income tax. All right? So the president basically told the nation tonight, he wants to raise capital gains tax in the middle of a terrible economy. That's insane. You can't do that. [Fox News, The O'Reilly Factor, 9/8/11]

Later in the show, O'Reilly suggested that Obama and Buffett were making an “apples to oranges” comparison by comparing Buffett's tax burden to that of his secretary:

O'REILLY: Now, the other thing that tees me off is Buffett. Buffett -- this is such a con. It's all about cap gains, not income tax. Cap gains is 15 percent. That's what Mr. Buffett pays. His secretary pays income tax. Probably to the tune of about 30 percent, because she probably makes a hundred grand, all right, being his secretary. And he's whining, “I pay more taxes than she does.” Well, you pinhead, because you're doing it in a different way, comparing the so-called apples to oranges. Correct?

ANDREA TANTAROS (Fox News contributor): Yes. It was a very, very, very bad comparison, and he's done it over and over again.

O'REILLY: Over and over again.

TANTAROS: I don't know why he chose that. [Fox News, The O'Reilly Factor, 9/8/11]

Finally, O'Reilly discussed the issue with former Nixon speechwriter Ben Stein and investor Wayne Rogers, suggesting that the comparison was “a con.” Stein explicitly disagreed with O'Reilly's criticism:

STEIN: Before we get into that, may I respectfully say, Warren Buffett is a friend of mine. He's the greatest chief executive in America. He delivers phenomenal returns for his shareholders, adds a lot of wealth, employs over 200,000 people. He's not 88 years old -- it would be totally irrelevant if he were. He gets paid a piddling $100,000 a year, less than many teachers get paid, and I do not know why you keep attacking him.

O'REILLY: Well, I'll tell you why --

STEIN: He pays capital gains tax. Capital gains tax is tax. Capital gains tax is tax. You know that very very, well, he says he pays less tax --

O'REILLY: And they don't differentiate. They're not differentiating. You know a con when you see it, and the 88 thing was exaggerated.

STEIN: It's not a con.

O'REILLY: Sure it is. It is, you're comparing income tax to capital gains. [Fox News, The O'Reilly Factor, 9/8/11]

According to the Supreme Court and the Congressional Budget Office, Obama, Buffett and Ben Stein are correct. In the 1926 decision in Bowers v. Kerbaugh-Empire Co., the court found that:

[I]ncome may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.

Furthermore, in a policy brief titled “Capital Gains Taxes and Federal Revenues,” the CBO wrote that a capital gain “is a form of income” and that when an asset is sold, that gain “is includable in the owner's taxable income.” From the Congressional Budget Office:

A capital gain is an increase in the value of an asset; a decrease in an asset's value is a capital loss.

[...]

When a gain accrues, it is a form of income for the holder of the asset. But a gain is not counted as income for income tax purposes until it is realized. At that time, the difference between the sale price and the asset's “basis” -- the acquisition price minus depreciation and other adjustments -- is includable in the owner's taxable income.