When President Obama enunciated the so-called “Buffett Rule”— that millionaires shouldn’t pay lower tax rates than middle-income families — he raised an obvious question: how many millionaires are we talking about? A new study by the Congressional Research Service (CRS) concludes:
“[T]he current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers.”
“Roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate income taxpayers (10% of the moderate-income taxpayers).”
The new CRS data use a broad measure of income (Adjusted Gross Income), and also attribute to shareholders their share of corporate taxes paid. Clearly, despite suggestions in some news reports to the contrary, we are talking about more than just Warren Buffett and a few other individual millionaires.
Further, CRS underscored why making the tax code more consistent with the Buffett Rule would not only be fair and good fiscal policy, but would not harm small businesses, saving, or investment:
Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends. For example, the President has proposed allowing the 2001 and 2003 Bush tax cuts to expire for high-income taxpayers and taxing carried interests of hedge fund managers as ordinary income as tax reforms that observe the Buffett rule. Research suggests that these tax reforms are unlikely to affect many small businesses or to deter saving and investment.