Calls for the Buffett Rule Intensify

Wednesday, April 11, 2012 at 6:36 PM by

The so-called “Buffett Rule” would address the concern that the tax code now makes working-class and middle-class taxpayers pay higher effective tax rates than do some multi-millionaires. That’s because money that comes in a paycheck is subject to a higher personal income tax rate than money that is earned from investments. Working-class and middle-class taxpayers typically rely much more heavily on income from work than on income from investments.

The most straightforward way to implement the Buffett Rule would be to end all preferences for income earned from investments, according to a new report released by Citizens for Tax Justice.

The CTJ report compares the effective federal income tax rate of a middle-class taxpayer earning between $60,000 and $65,000 with that of a taxpayer earning $10 million or more. If the middle-class taxpayer earned less than 10 percent of his income from investments (as more than 9 out of 10 taxpayers at that level did), then he or she could expect to pay an effective tax rate of 21 percent. That is a higher tax rate than about a third of the taxpayers earning $10 million or more.

What’s the best way to implement the Buffett Rule? CTJ praises a proposal made by U.S. Senator Sheldon Whitehorse (D-RI), but advocates for a more sweeping approach:

The most straightforward way to implement the Buffett Rule would be to eliminate the personal income tax preferences for investment income. This would mean, first, allowing the parts of the Bush tax cuts that expanded those preferences to expire. Second, Congress would repeal the remaining preference for capital gains income, which would raise $533 billion over a decade.

Requiring the best-off taxpayers to pay rates at least as high as the rates paid by middle-class taxpayers could help address the deficit and free up revenue for our communities.

Tamarine Cornelius

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