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The “Buffett Rule”

Can you make a tax increase more popular just by giving it a good name? Today President Obama plans to propose a series of steps to reduce the deficit. One of Obama’s proposals is being called the “Buffett Rule.”

The phrase first appeared late Saturday (September 17) in a New York Times story by Jackie Calmes:

“President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials…. Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.”

The Associated Press, Politico, The Washington Post and others also quickly used the phrase, crediting the White House for coining it. Reuters calls it the “Buffett Tax” in a headline: “Obama to propose ‘Buffett Tax’ on millionaires.

So what exactly is the Buffett Rule? The Buffett Rule calls for people who earn more than $1 million annually to have a higher federal tax rate than people who earn less.

The rule relies on the premise that wage income income and investment income are not so different that they should be taxed at vastly different rates. Right now, wage income (which is how most people earn most of their money) has higher federal tax rates than investment income (how the wealthiest earn most of their money). The result is middle-class people pay a higher percentage of their income on taxes than super-rich people.

Warren Buffett, a billionaire, defined this problem in an August 2011 op-ed in the Times, “Stop Coddling the Super-Rich.” He offered this proposal:

“For those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in 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.”

President Obama, so far, has failed to win applause for his economic policies. This latest proposal will also be a hard sell. Even with a clever name, and even though it makes complete sense both morally and mathematically, it is still a tax increase. The message writers have their work cut out for them.

Photo of Warren Buffett and President Obama: Official White House Photo by Pete Souza, via the White House Flickr Feed.

— By Daryl Lang. Filed under Politics

8 comments

  1. The Blue Knight says:

    “. . . and even though it makes complete sense both morally and mathematically”

    Those who invest have already paid income tax on the income they’ve invested. Why would it make sense “morally and mathematically” to tax what was already taxed before investments were made? Here’s an idea your column never considered. How about Obama and his big government cronies stop spending money like it’s pulled from a monopoly game? There’s no place in our forefathers writings or in the constitution that allows for this class warfare nonsense or the idea that it’s okay to penalize those who do well in this country.

    • Poyda says:

      “Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” – The Famous Socialist – Abraham Lincoln, 1861 – State of the Union Address.

      I know the founder of the GOP was a socialist (and everything), but I’m pretty sure that under his reasoning, capital should be taxed at a HIGHER rate than labor.

      That would help get over your concern about tax already having been paid on the money invested. If it was earned through labor, then it should be the case that very little tax was previously paid.

      • Captain Crunch says:

        So does that make John Wilkes Booth the first Tea Party supporter?

      • It is nonsense to penalize those who do not do as well in this country. If you are not a millionaire or billionaire, why should a less significant income earner pay more taxes? The less significant income earner should not pay more taxes.

        Why should lower income earners investment and savings income be taxed? The lower income earner should not be taxed; especially, when they are paying higher taxes than the millionaire or billionaire.

        I agree with President Obama & Warren Buffett.

        • Steph103 says:

          You need to reread the article. One is income tax..ie “the secretary” vs. capital gains tax..ie Warren Buffett.

    • I agree with President Obama and Warren Buffett. It is nonsense for less income earners to pay more taxes than millionaires and billionaires.

  2. Daryl Lang says:

    I found the math in Buffett’s August column very persuasive.

  3. Woodnut says:

    Practical application: Drafted 1991. Served 21 years. Earned masters degree 2001. Information technology employment until 2011 (now 60 yr old). Highest AGI reported on 1040 in 2002 = $158000. Tax that year = $10,800. 2011 AGI $92000 (earned = $52000, investments = $40000) Tax in 2011 = $10,800. In a year when “earned” income was 1/3 of what it was in 2002 the same tax was demanded; effectively three times the tax paid in 2002. Put whatever BS name you want on this tax talk. A flat tax is the ONLY fair tax!! ALL income i.e., earned, investment, interest, dividend, etc minus legal exemptions is taxed at the same rate by EVERY American. Coming up with that rate is big question.

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