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Buffett Rule

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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.[1] The tax plan would apply a minimum tax rate of 30 percent on individuals making more than a million dollars a year.[2][3] According to a White House official, the new tax rate would impact 0.3 percent of taxpayers.[1]

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.[4] 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.[5] 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.[6]

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."[7] 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."[8]

The Buffet 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.[9] The rule, however, was later submitted for deliberation as US Senate Bill S. 2059, Paying a Fair Share Act of 2012.[3][10] On 16 April 2012, the bill passed the Senate with 51-45 votes, but was stopped by a Republican filibuster forcing the requisite votes to 60.[11][12][13]

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.[14] 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.[7] The non-partisan United States Congress Joint Committee on Taxation released a letter in March 2012 estimating that the Buffett Rule would raise $46.7 billion over the next 10 years.[15]

The estimated $47 billion would reduce by 0.7 percent the $6.4 trillion increase in spending over the next 10 years estimated by the Congressional Budget Office, based on President Obama's 2013 budget plan.[16] The 2013 budget proposed by the Obama administration stated that the Buffett Rule is intended to replace the Alternative Minimum Tax. The Joint Committee on Taxation calculated that the Buffett Rule plus the repeal of the Alternative Minimum Tax would increase the deficit by $793.3 billion in the next 10 years.[17]

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.[18] 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.[14]

Reactions and public opinion

Support

Paul Krugman, a New York Times columnist and Nobel prize winning 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.[18] 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,[19] and a Gallup poll released in April 2012 found that 60 percent of Americans support the Buffett Rule and a similar poll released later that month by CNN found that 72 percent of Americans support the idea.[20][21]

Patriotic Millionaires for Fiscal Strength, which includes at least 200 members, including about a dozen from Google, Lawrence Benenson of Benenson Capital, Abigail Disney, Whitney Tilson, Ben Cohen (businessman) of Ben & Jerry's, Edie Falco, and Erica Payne are supporters of the Buffett Rule.[22]

Opposition

Nearly every elected Republican opposed the proposal. 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.[23] Senate Minority Leader Mitch McConnell (R–Ken.) said the conditions of the U.S. economy were ill-disposed to raising taxes.[24] 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."[19] Dana Milbank from the Washington Post criticized the proposed tax as a gimmick, stating that President Obama was prioritizing the Buffett Rule over the Alternative Minimum Tax for political, not economic reasons.[25]

See also

References

  1. ^ a b Carrie Budoff Brown. "Obama's 'Buffett Rule' to call for higher tax rate for millionaires". Politico, September 17, 2011.
  2. ^ "The Buffett Rule: a Basic Principle of Tax Fairness" (PDF). United States National Economic Council. April 2012. Retrieved 2012-04-17.
  3. ^ a b "S.2059 - Paying a Fair Share Act of 2012" (PDF).
  4. ^ "Obama-seeks-'Buffett-rule'-—-a-new-tax - Chicago Sun-Times". Suntimes.com. 2011-09-18. Retrieved 2011-10-27.
  5. ^ "US economy: New Obama plan to tax wealthiest". BBC News. September 18, 2011. Retrieved September 18, 2011.
  6. ^ Jake Tapper. "Buffett rule tax set at 30 percent: Obama speech’". Yahoo News, January 25, 2012.
  7. ^ a b "CTJ Calculates Buffett Rule Would Raise $50 Billion in One Year and Affect Only the Richest 0.08 Percent of Taxpayers". Citizens for Tax Justice. January 27, 2012. Retrieved January 30, 2012.
  8. ^ "The Buffett Rule | The White House". Whitehouse.gov. Retrieved 2012-04-17.
  9. ^ Annie Lowrey. "The Buffett Tax Rule Is Really More of a Guideline". New York Times, February 16, 2012.
  10. ^ http://thomas.loc.gov/cgi-bin/bdquery/z?d112:s.2230:
  11. ^ http://consumerist.com/2012/04/senate-blocks-buffett-rule-with-51-45-vote.html
  12. ^ "Bill defeat".
  13. ^ http://theweek.com/article/index/226994/the-gop-blocks-obamarsquos-lsquobuffett-rulersquo The Week
  14. ^ a b Boak, Josh (January 26, 2012). "Buffett Rule's impact? W.H. won't say". The Politico. Retrieved January 30, 2012. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  15. ^ United States Congress Joint Committee on Taxation. "Memo On "Buffett Rule" Revenue Estimates" (PDF). Retrieved April 11, 2012.
  16. ^ Richard Rubin (March 20, 2012). "Buffett Rule Tax Bill Would Raise $47 Billion Over 10 Years". Businessweek. Retrieved 16 April 2012.
  17. ^ "The Buffett Tax Loss". Wall Street Journal. April 13, 2012. Retrieved April 16, 2012.
  18. ^ a b Paul Krugman (January 19, 2012). "Taxes at the Top". The New York Times. Retrieved January 30, 2012. {{cite news}}: Italic or bold markup not allowed in: |publisher= (help)
  19. ^ a b Caldwell, Leigh Ann (January 25, 2012). "Obama details "Buffett Rule," says millionaires should pay at least 30 percent tax rate". CBS News. Retrieved January 30, 2012.
  20. ^ "Gallup poll: 60% back Obama's 'Buffett Rule' - Los Angeles Times". Articles.latimes.com. 2012-04-13. Retrieved 2012-04-17.
  21. ^ Geiger, Kim. "Polls: Americans divided over taxes but support 'Buffett Rule'". latimes.com. Retrieved 2012-04-17.
  22. ^ Millionaires Who Dream of Giving More to the IRS April 19, 2012 BusinessWeek
  23. ^ "Rep. Ryan Accuses Obama of Waging 'Class Warfare' With Millionaire Tax Plan". Fox News. 18 September 2011. Retrieved 18 September 2011.
  24. ^ Eldridge, David (18 September 2011). "GOP slams Obama's millionaire's tax as 'class warfare'". The Washington Times. Retrieved 19 September 2011.
  25. ^ Dana Milbank (April 11, 2012). "Rebuffing Obama's gimmicky 'Buffett Rule'". The Washington Post. Retrieved April 16, 2012.
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