Buffett Rule

Average tax rates for selected income groups under a fixed income distribution, 1960-2010.

The Buffett Rule is a tax plan proposed by President Barack Obama in 2011 to reduce income inequality in the United States between the top 1% of Americans and the remaining 99% of Americans, due to the income growth in the 1% group as compared to the 99% group. The tax plan would apply a minimum tax of 30 percent to individuals making more than a million dollars a year.

Overview

Distribution of average tax rates including individual income tax and employee payroll tax.

The Buffett Rule is named after American investor Warren Buffett, who publicly stated in early 2011 that he disagreed with rich people, like himself, paying less in federal taxes, as a portion of income, than the middle class, and voiced support for increased income taxes on the wealthy. The rule would implement a higher minimum tax rate for taxpayers in the highest income bracket, to ensure that they do not pay a lower percentage of income in taxes than less-affluent Americans. In October 2011, Senate leader Harry Reid (D–Nev.) proposed a 5.6 percent surtax on millionaires to pay for new stimulus provisions, but the change did not go through.

A White House statement released in January 2012 defined the rule as part of "measures to ensure everyone making over a million dollars a year pays a minimum effective tax rate of at least 30 percent ... implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions." The White House also stated that "no household making more than $1 million each year should pay a smaller share of their income in taxes than a middle class family pays." The rule was not in the President's 2013 budget proposal and the White House initially stressed it as a guideline rather than a legislative initiative. The Buffett Rule, however, was later submitted for deliberation as Senate Bill S. 2059, Paying a Fair Share Act of 2012.

The bill had 51-45 defeat on 04/16/2012

Possible effects

If enacted, the rule change would result in $36.7 billion per year in additional tax revenue, according to a January 2012 analysis by the Tax Foundation, a pro-business think tank. An alternative study released that same month by the Citizens for Tax Justice, a liberal think tank which favors the change, stated that the change would add $50 billion per year in tax revenue. The non-partisan United States Congress Joint Committee on Taxation released a letter in March 2012 estimating that the Buffett Rule would raise $4.67 billion per year over the next 10 years.

Part of the reason for the inequality in taxation is, that revenue from long-term capital gains is taxed at a maximum rate of 15 percent, in an attempt to encourage investment. It's not entirely clear how many individuals would be affected by the change. An October 2011 study by the Congressional Research Service found that a 30% minimum tax rate rule would mean up to 200,000 taxpayers paying more.

Reactions and public opinion

Representative Paul Ryan (R–Wis.), who is the chairman of the House Budget Committee, criticized the new tax provisions. He labeled it as class warfare and also stated that it would negatively impact job creation and investment. Senate Minority Leader Mitch McConnell (R–Ken.) said the conditions of the U.S. economy were ill-disposed to raising taxes. House Speaker John Boehner (R–Ohio) has spoken against the proposed rule and said that, "there's a reason we have low rates on capital gains ... because it spurs new investment in our economy and allows capital to move more quickly."

Paul Krugman, a New York Times columnist and economist, wrote in January 2012 that "such low taxes on the very rich are indefensible" and that "the economic record certainly doesn’t support the notion that superlow taxes on the superrich are the key to prosperity." He stated that since the U.S. economy added 11.5 million jobs during President Bill Clinton's first term, when the capital gains tax rate was over 29 percent, he thinks there's no real reason to keep from raising the tax rate. A CBS News/New York Times poll released in January 2012 found that 52 percent of Americans agreed that investments should be taxed at the same rate as income, and a Gallup poll released in April 2012 found that 60 percent of Americans support the Buffett Rule and a poll released later that month by CNN found that 73 percent of Americans support the idea.

See also

• Economic policy of the Obama Administration
• Taxation in the United States
• United States Federal Budget
• We are the 99%
• Occupy movement