A Buffett Rule Proposal in Congress

By :: February 9th, 2012

In his State of the Union speech, President Obama’s called for a new law that would require high-income people to pay at least 30 percent of their income in taxes. In response, Senator Sheldon Whitehouse (D-RI) and Representative Tammy Baldwin (D-WI) have introduced the Paying a Fair Share Act of 2012, a proposal designed to meet the Buffett Rule: That the wealthy pay at least as much tax as middle-income households.

That sounds straightforward but it’s not.

First, there’s the matter of how to measure income. The rule would define income as adjusted gross income minus a modified measure of charitable contributions. The adjustment avoids discouraging charitable donations.

Measuring taxes is more complicated. The proposal defines taxes to include the regular income tax, the individual alternative minimum tax (AMT), the employee’s share of payroll taxes that finance Social Security and Medicare, and the 3.8 percent tax on investment income and the 0.9 percent tax on earnings imposed on high-income taxpayers to help finance healthcare. That’s a broader measure than what most people see on their tax returns today, but it still excludes other taxes that people pay indirectly like corporate income taxes and the employer’s share of payroll taxes.

If you make at least $1 million (by the act’s definition) and your tax is less than 30 percent of that, you’ll owe more tax, presumably yet another addition on your income tax return. That’s certainly not tax simplification.

The Tax Policy Center estimates the proposal would increase 2015 taxes for about 116,000 households by an average of more than $170,000, assuming the Bush-era tax cuts expire as scheduled and Congress stops patching the AMT. That’s an overall tax increase of about $20 billion, not chump change but less than a tenth of the projected 2015 deficit. If Congress extends tax law in place this year, about 217,000 tax units would owe an average of nearly $190,000 more, yielding about twice as much additional revenue but still less than a tenth of a larger deficit.

The Buffett rule sounds good in principle. High-income taxpayers should pay at least as large a share of their income in taxes as the rest of us. But most already do. On average, middle-income households will pay 2015 taxes totaling about 15 percent of their income (using the legislation’s definition). Without the Buffett rule, more than 99 percent of millionaires will pay more than that and only about 4,000 will pay less. Barely 10 percent of them will pay less than 20 percent.

The proposed legislation would certainly raise taxes on a lot of high-income taxpayers. But the price would be even more complicated tax code. There are better ways to raise taxes on the rich.

13Comments

  1. Michael Bindner  ::  7:38 pm on February 9th, 2012:

    The goal should be comprehensive tax reform and I suspect we will see it in order to get a tax repatriation holiday. Of course, the real issue with inequality is not income taxes so much as the income cap on payroll taxes. Tax reform should include replacing the employer payroll tax with a VAT-like net business receipts tax, a portion of which should fund the employer contribution for Social Security – and this should be credited to each worker equally (regardless of income) and set high enough to raise the base benefit enough to allow premium increases to Medicare Parts B and D and keep the system solvent for 75 years.

  2. How Would the Buffett Rule Affect Marginal Tax Rates? « Donald Marron  ::  5:19 pm on February 15th, 2012:

    […] For more information, including TPC’s estimates of the distributional impacts, please see this post by TPC’s Roberton […]

  3. What would Obama’s Buffett Rule tax really accomplish? « The Enterprise Blog  ::  10:34 am on April 9th, 2012:

    […] the Buffett Rule tax really make the tax system more progressive? Not so much. According to the Tax Policy Center, “middle-income households, on average, will pay 2015 taxes totaling about 15% of their […]

  4. U.S. Government’s Misguided ‘Fixes’ Hurt Us All – Forbes  ::  5:10 pm on April 11th, 2012:

    […] to the Tax Policy Center, the Buffet Rule would affect at most 217,000 American households: specifically, the fortunate Americans who have significant investment rather than “earned” […]

  5. U.S. Government's Misguided 'Fixes' Hurt Us All | BussinessTree NewsBussiness Tree  ::  4:30 am on April 12th, 2012:

    […] to the Tax Policy Center, the Buffet Rule would affect at most 217,000 American households: specifically, the fortunate Americans who have significant investment rather than “earned” […]

  6. All About Government » Blog Archive » U.S. Government's Misguided 'Fixes' Hurt Us All  ::  5:42 am on April 12th, 2012:

    […] to the Tax Policy Center, the Buffet Rule would affect at most 217,000 American households: specifically, the fortunate Americans who have significant investment rather than “earned” […]

  7. Why The Buffett Rule Is Just A Start : Real Estate — Mortgage — Foreclosure — News — Commentary  ::  9:09 am on April 16th, 2012:

    […] Buffett Rule would tax incomes of $1 million or more at the rate of at least 30%. The Tax Policy Center estimates that 116,000 households would face higher taxes by […]

  8. Gary Shapiro: Five Political Lies We Must Expose to Save Our Children | USA Press  ::  7:50 pm on April 17th, 2012:

    […] kill a lot of jobs. According to the Tax Policy Center, the “Buffet Rule” would affect at most 217,000 American households: specifically, the fortunate Americans who have significant investment rather than […]

  9. Gary Shapiro: Five Political Lies We Must Expose to Save Our Children – DigaNews | DigaNews  ::  8:18 pm on April 17th, 2012:

    […] kill a lot of jobs. According to the Tax Policy Center, the “Buffet Rule” would affect at most 217,000 American households: specifically, the fortunate Americans who have significant investment rather than […]

  10. White House tries to pitch “Tax Fairness” with fuzzy math | VASS political blog  ::  2:30 pm on April 18th, 2012:

    […] Roberton Williams at Tax Policy Center said in February 2012 “On average, middle-income households will pay 2015 taxes totaling […]

  11. President Obama Misleading Voters With Buffet Rule Rhetoric « The Devout Infidel  ::  8:10 pm on April 21st, 2012:

    […] The non-partisan Tax Policy Center did an analysis of the Paying a Fair Share Act of 2012. Roberton Williams, a senior fellow at the center who spent 22 years at the Congressional Budget Office, wrote: […]

  12. My Apologies, My Son – Forbes  ::  9:28 am on April 25th, 2012:

    […] Democrats push the “Buffett rule,” a silly election-year distraction that if made law will only generate about $47 billion in […]

  13. barbour  ::  9:32 pm on April 26th, 2012:

    In sixteen twenty-one, a big celebration of barbour jacket took place at Plymouth Colony in what is now the state of Massachusetts. European settlers known as the barbour jackets were celebrating their autumn harvest after a winter of struggle.
    Other colonists held earlier ceremonies of thanks. But the Pilgrims’ three-day feast is often called the nation’s first barbour outlet Thanksgiving. President Abraham Lincoln declared a national holiday in eighteen sixty-three during the Civil War.
    Today families and friends gather on the fourth Thursday in November. And, thanks to the barbour quilted jacket United States Census Bureau, here are some facts about where their Thanksgiving meal comes from.
    The main dish is traditionally a turkey. About two-thirds of the nation’s turkeys are produced in Minnesota and five other quilted barbour jackets tates. Producers are expected to raise two hundred forty-eight million birds this year, two percent more than last year.
    Popular side dishes include cranberries and sweet potatoes. Last year North Carolina barbour sale grew more sweet potatoes than any other state. Wisconsin is expected to be the top cranberry producer this year.
    People often finish the meal with pumpkin pie. Last year Illinois grew the most pumpkins. California, New York, Ohio and barbour uk were also major pumpkin producers.
    Thanksgiving is a big event, but buying a barbour mens traditional holiday meal can be a struggle for the poor. So charity groups often hold food drives to collect food forbarbour ladies low-income families.
    http://www.barbourjacketsale2012.com/