The Buffett Rule: A path to tax reform?

By Tylor Claggett
0 Comment(s)Print E-mail, September 24, 2011
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During a recent stump speech promoting his new plan to create jobs and reduce the U.S. budget deficit, U.S. president Barack Obama said that wealthy Americans have enjoyed lower tax rates as a result of cuts during the Bush administration that were promoted as "temporary." In addition for calling for a rollback of tax rates for the wealthiest Americans, Obama implied that loopholes in the U.S. tax code benefitted high-earners.

"Those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible. We shouldn't get a better deal than ordinary families get," Obama said.

But what exactly constitutes taxable income in America, especially for the wealthy?

According to recent New York Times op-ed, American billionaire investor and Berkshire Hathaway chairman Warren Buffett said that only 17.4 percent of his income last year went to taxes, a lower percentage than the 20 other people working in his office, even his secretary. The main reason for this, Buffett said, is that wages are taxed at a higher rate than capital gains, where Buffett makes most of his money. In addition, social security tax only applies to the first $106,800 in wages, which largely exempts high earners from their share of responsibility.

A recent CNN piece further elaborates on Buffett's statement, coined as the 'Buffett Rule'. "In terms of averages, the current tax system already satisfies the Buffett Rule. Americans on average pay 16 percent of their total income in federal income and payroll taxes, while millionaires pay an average of 20.1 percent, according to the Tax Policy Center," the report said.

Despite loopholes in the tax code, the article also argues that Buffett actually pays higher taxes if you factor in corporate taxes paid on his large share of Berkshire Hathaway. Corporate tax rates range between 15-38 percent, making them often higher than personal income tax rates.

Others would argue that the wealthy are in the best position to create new jobs, especially if they are able to divert tax dollars to wages for their employees.

When "one size, fits all" proposals are made again and again, the devil tends to be in the details.

The author is a columnist with For more information please visit:

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