1. The “Buffett Rule” is not a reference to anything having to do with Jimmy Buffet, although that would have made for a great rule in my opinion. It is a reference to the “most successful investor in the world”, Warren Edward Buffett, owner of Berkshire Hathaway and Nebraska Furniture Mart.
2. The bill, if made into law, would impose a mandatory 30% effective tax rate for anyone making more than $1 Million in adjusted gross income. Many prognosticators have gone on record saying the bill will die quickly in the Senate. It likely did already.
3. The rule was drawn up into this piece of legislation after President Obama made reference to the differences in tax rates paid by Warren Buffett and his secretary. Warren relies primarily on investment returns as his income, and is therefore primarily subject to the capital gains tax rate of 15%. Warren’s secretary relies primarily on her salary and is therefore primarily subject to income tax rates, which are capped at 35%.
4. Investment returns and income from employment are taxed differently for a reason. First, because the federal government wants to encourage investment, which leads to growth in the economy, jobs, etc. Secondly, and more importantly, there is a belief that earnings should not be subjected to double-taxation (e.g.
taxed when earned by a salary and then again when that money is invested a company pays corporate income tax on its profits, then the stockholder pays again on the capital gain or dividend income derived from those profits).
5. Even though some are saying the rule is about equality, the bill states in the title, “to reduce the deficit by imposing a minimum effective tax rate for high income tax payers.” If made into law, the Buffett Rule would bring in an estimated $4.7 Billion a year. The 2011 federal deficit was $1.56 Trillion. In case you don’t want to do the math, the proposed law would reduce the deficit (not the debt, the deficit) by roughly 0.3%.
My take: I think capital gains taxes are already double-taxed, if not triple taxed. Think about it. A company produces a profit by providing a service or product of value. That profit is then taxed at corporate tax rates.
The remaining “after-tax” profit is what’s reflected in the company’s stock valuation. When that profit is distributed to shareholders it is taxed as a capital gain tax rate of 15%.
Additionally, the money that the shareholder used to invest in the shares was not taken out of thin air. It was earned at a job or through another business by someone and already taxed at income tax rates, which are as high as 35%.
Because of this double and triple taxation, I think capital gains, and certainly what amounts to a mandatory 30% capital gains tax rate is unfair and bad for investment. Additionally, I think the rule itself only serves to pit the classes against each other.
It should be no surprise then, that I actually think progressive income tax rates are unfair. There is absolutely no basis for requiring someone to pay more than an equal share and calling that “fair”. You can call it necessary, or according to the law, but you can’t abuse the word fair (in the “just” sense) like that, in my opinion.
Further, the only reason we have progressive tax rates in this country to begin with is because we can get away with it. There aren’t enough progressively wealthy people to protest the incremental increases.
Of course, what’s fair to me may not be considered fair to everyone else. For instance, a recent poll showed that 60% think the Buffett Rule is a good idea. Personally, I doubt most of those 60% could spout the five facts above though.
Am I wrong? Is the Buffett Rule fair?
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