In August 2011, legendary investor Warren Buffett wrote in a New York Times Op-ed, "While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘[carried] interest,' thereby getting a bargain 15 percent tax rate.My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice."
The tax rate on ordinary income for individuals is 35%. In 2011, Mr. Buffett reported that his income totaled $63 million. Assuming Mr. Buffett's income increases by 5% per year and the interest rate is 7%, what would be the difference in the present value of his income taxes over the next five years from 2012-2016 if all of his income qualifies as (a) interest versus (b) ordinary income?