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Buffett Rule
The Buffett Rule is the name President Obama has given to his proposal to ensure that the wealthiest Americans pay at least 30 percent of their income in federal taxes.
Republicans have responded by deriding the idea as class warfare, asserting that it would kill jobs or arguing that the problem has been overblown.
In April 2012, Mr. Obama and Senate Democrats kicked off a coordinated pressure campaign on Republicans.
But Senate Republicans blocked debate on a Democratic bill, setting off a round of political wrangling over taxes that both parties insist they are already winning.
Senate Democrats intend to return repeatedly to the legislation. Democrats have known for weeks that the Buffett Rule would not win the 60 votes needed to break a Republican filibuster, but they pressed forward in part to try to make the Republicans’ likely presidential nominee, Mitt Romney, the face of economic “unfairness.”
Republicans relished a debate on their turf, accusing Democrats of trying to raise taxes on investments and capital to feed their appetite for government spending. They portrayed the Buffett Rule as a gimmick and political show vote, whose revenue impact would not even dent the trillion dollar budget deficit.
Instead, the House will vote on a bill by Representative Eric Cantor of Virginia, the majority leader, to give businesses with fewer than 500 employees a 20 percent tax cut this year.
Background
Making a case for the Buffet Rule, Mr. Obama’s economic team, the White House National Economic Council, released a report saying that over the past 50 years the average tax rate paid by the wealthiest Americans has dropped much more than the rate for middle-income taxpayers, even as the income of those at the top of the scale has grown significantly more than for everyone else.
The main reason for the disparity in effective tax rates is that wealthy Americans receive much of their income through capital gains, which are taxed at a lower rate than earnings from wages or salaries.
The proposal could hold political advantages as well. The president’s Republican challenger in November is expected to be Mitt Romney, who in the Obama campaign’s view is the personification of the argument for a minimum tax on the wealthy.
Mr. Romney, with a big investment portfolio, reported income of about $21 million in each of the last two years and paid about 14 percent of that in federal income taxes. That effective tax rate was far below the tax code’s top rate of 35 percent on the highest incomes because much of the Romney income is from capital gains and dividends, which are taxed at 15 percent, and because he claimed an assortment of tax deductions.
Findings From the Report
According to the White House report, the average federal tax rate of the top earning 0.1 percent of Americans, including income and payroll taxes, has dropped 50 percent over the last half-century, to 26 percent from 51 percent. The 400 richest Americans — all with annual income exceeding $110 million — paid 18 percent in federal income taxes in 2008, the report said; as recently as 1995 their income tax on average was nearly 30 percent, the level of the Buffett Rule.
By comparison, taxes for the vast number of middle-income Americans have stayed at about the same level or have slightly increased in 50 years, the report said. Those in the middle 20 percent of all taxpayers paid an average 16 percent of their income in federal taxes in 2010, compared with 14 percent in 1960.
The report noted that income tax rates vary widely among the highest-income Americans, depending on their source of income and ability to take advantage of tax breaks. But it said that nearly one-quarter of all millionaires — about 55,000 taxpayers — pay a lower tax rate than nearly 1.5 million Americans whose income of $100,000 to $250,000 puts them in what is considered the upper middle class.
Of those households reporting more than $1 million in income in 2009, the most recent year for which federal tax data is available, 77,000 paid less than 30 percent in income and payroll taxes, 22,000 paid less than 15 percent, and 1,470 paid no federal income taxes, according to the report.
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