It’s all Buffett rule around here, and I must say, after careful deliberation, I’ve decided that this idea—to put a federal income tax floor of 30% on households with at least a million bucks—makes sense.
Think of it as a simple way to cut through a bunch of nonsense in the tax code that leads to outcomes like this:
–In 2009 (most recent data) 22,000 millionaire-and-up households paid less than 15% in federal income taxes, and about 1,500 paid nothing.
–The 400 richest Americans, with average incomes over $100 million, paid 18% in federal income tax.
–These average tax rates have fallen sharply over the years, due both to cuts in the basic income tax rates, and particularly to much larger cuts in taxes on asset-based incomes, like capital gains. According to the White House’s release on this: “the wealthiest 1-in-1,000 taxpayers pay barely a quarter of their income in Federal income and payroll taxes today—half of what they would have contributed in 1960.”
–Rich people spend a lot of time and resources figuring out ways to tap all the loopholes that favor capital income, income earned abroad, income borrowed against your stock holdings. That’s one way you end up with a ratio of US foreign companies’ profits to GDP of about 550% in the Cayman’s.
Source: Treasury report on business tax reform.
Sure, it’s about fairness. But it’s also about taking inefficient distortions out of the tax code. Perhaps if those with these kinds of resources—and remember, we’re talking about households who reside within the top half of the top income percentile—spend less time tax planning they can spend more time doing actual productive stuff.
Two more points. First, there’s an argument I’m hearing today that we shouldn’t bother with the Buffett rule because it would only raise enough revenue to reduce the deficit a little bit. That’s a terribly weak argument, a lot like an overweight person saying that since he can only exercise for 10 minutes today, he might as well just go have an ice-cream cone instead.
Any time we can close a tax loophole and generate both more fairness and any level of fiscal improvement we should do so (think about the carried interest loophole in this regard). And the score on the Buff rule is that compared to current law—Bush cuts sunset as planned—it raises about $50 billion. Compared to current policy—the tax cuts stay in place—it raises $160 billion. Either way, that’s real money.
Second, here’s a useful, albeit somewhat complicated graphic. It shows the distribution of tax rates for various middle and high-income households. The tenth percentile person in the $50-100K range pays 7% in income and payroll taxes; the 90th percentile person pays 21%. So what you see here, for example, is that the typical middle-income household, at 13%, pays about the same tax rate at the 10th percentile super-rich ($100 million+) household.
Source: WH report, link above.
So, yeah…I’d say we need the Buffett rule.
Update: Tim Noah over-analyzes me. As a chin-stroking, brow-furrowing econ policy wonk, I deliberate over pretty much everything (the egg salad or the tuna?? Simplify, simplify!). But I think the text above provides pretty full-throated support for the BR and that’s no BS (and I don’t mean Bowles-Simpson).
I should send Tim some of my dreams for deeper analysis—like this one.