snipPresident 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 <br><br>
at least the same percentage of their earnings as middle-income taxpayers, according to administration officials. With a special joint Congressional committee starting work to reach a bipartisan budget deal by late November, the proposal adds a new and populist feature to Mr. Obama’s effort to raise the political pressure on Republicans to agree to higher revenues from the wealthy in return for Democrats’ support of future cuts from Medicare and Medicaid. 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.
Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from someconomists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments.
The rest of the article can be found hereBehind the arguments of Mr. Obama, Mr. Buffett and others about the inequity of the tax system is the difference between taxpayers’ marginal tax rate, popularly known as their tax bracket, and the effective tax rate they end up paying after subtracting for deductions, credits and other breaks.marginal tax rate is the percentage paid on the last dollar a person earns. The current system has six marginal tax rate percentages — 10, 15, 25, 28, 33 and 35 — and each applies to a progressively higher amount of income. In theory, a wealthy filer pays the lower rates on income within each bracket, but the bulk of their income is taxed at the top 35 percent rate. Middle-class taxpayers generally pay marginal rates of 15 percent or 25 percent. But investors like Mr. Buffett pay no more than 15 percent on most of their income because that rate applies to capital gains, dividends and “carried interest,” which is the compensation paid to hedge fund partners and investment managers like Mr. Buffett.
Another reason many wealthy Americans pay a smaller share of their income in federal taxes is that the Social Security payroll tax does not apply to
income above $106,800; most people do not reach the cutoff and pay the tax on all their income. Counting income and payroll taxes, Mr. Buffett
has said he paid an effective tax rate of 17.4 percent for 2010 compared with an average 36 percent rate for many employees of his company,
Berkshire Hathaway. Mr. Obama’s proposal, Mr. Buffett and others with taxable income of more than $1 million would pay a minimum tax rate closer to his
employees’ rates. But Mr. Obama will leave the details of how such a rate would be calculated — whether to focus on the overall federal tax
burden of middle-income individuals generally, or their marginal rates — to the debate over rewriting the tax code.
The effective tax rate is at least 3% less than it was during 2000, when we had a balanced budget. Conversely, tax revenue as a percentage of total income (using the income approach to national output) is at its lowest level since 1950, when tax revenues made up 14.4% of GDP (FWIW, they were 20.6% in 2000). No credible long term deficit reduction can occur without restoring a competent policy. The starve the beast mentality does not take into account fluctuations in the business cycle, and is now taking its toll on our politicians ability to not only fund itself (ala August 2nd), but to enact the necessary fiscal policy to combat the persistently high unemployment rate.