Proposed Changes to Capital Gains Would Change How Much the Best-Off Pay in Taxes

Friday, January 27, 2012 at 10:27 PM by

In his State of the Union address, President Obama proposed what many are calling the “Buffett Rule,” which would ensure that taxpayers earning $1 million would pay a minimum of 30 percent of their income in taxes. This proposed policy is named after billionaire investor Warren Buffett, who spoke out against tax breaks that result in Buffett’s secretary paying a higher percent of her income in taxes than he did.

One of the reasons that very wealthy people sometimes pay a smaller percentage of their income in tax than middle class taxpayers is that a greater share of wealthy people’s income comes in the form of capital gains. Capital gains are taxed at a special low rate, lower than the rate that must be paid on income earned through work.

If implemented, the Buffett rule would raise an additional $50 billion in revenue, according to a new analysis by Citizens for Tax Justice. This amount would be very close to the cost of continuing federal unemployment benefits through the end of 2012. Only a very few of the best-off taxpayers would be affected by the Buffett Rule as proposed by President Obama – the top eight-hundredths of one percent, to be exact, according to CTJ.  Yet while the President proposes policies to narrow the capital gains tax break, GOP candidates who are vying to oppose him are debating how much it should be expanded.   

Newt Gingrich has proposed that taxes on capital gains be eliminated altogether, with the goal of making “American entrepreneurs more competitive against those in other countries.”  The elimination of the capital gains tax would mean that very wealthy people who live mostly on income from their investments would pay little or nothing in federal tax.

Ironically, Gingrich has criticized Mitt Romney for only paying 14 percent of his income in federal taxes, but Gingrich’s plan would lower Romney’s taxes to virtually zero. Mitt Romney has proposed eliminating the capital gains tax for taxpayers making less than $200,000 per year.

Tamarine Cornelius

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