President Obama’s latest budget endorses a “Buffett rule” – a new floor on taxes paid by folks with very high incomes. His rule would require that “those making over $1 million should pay no less than 30 percent of their income in taxes.”
The president didn’t offer many specifics about how the rule would actually work. Up on Capitol Hill, however, Senator Sheldon Whitehouse and Representative Tammy Baldwin have introduced legislation that would implement a 30% minimum tax. That legislation addresses key technical issues such as which taxes to include, what measure of income to use, and how to phase-in the tax so that there isn’t a giant spike when someone’s income rises from $999,999 to $1 million. For more information, including TPC’s estimates of the distributional impacts, please see this post by TPC’s Roberton Williams.
TPC”s Daniel Baneman has examined how the PFSA would affect marginal tax rates — i.e., the effective tax rate that would apply if a person earned an additional dollar. Here’s his chart comparing the PFSA to current policy (i.e., the taxes that would be in effect if all the expiring tax cuts get extended at the end of the year, except for the payroll tax holiday):
As you can see, the Buffett rule would have little effect on the tax rate on wages and salaries. The real action is in capital gains:
Effective marginal tax rates on capital gains would nearly double from 18 percent (under current policy) to 34 percent for taxpayers with incomes between $1 million and $2 million, and would climb to 29 percent for taxpayers with incomes over $2 million. That jump shouldn't come as a surprise. As Warren Buffett has been telling us, high-income taxpayers who face low tax rates tend to have lots of capital gains, which are currently taxed far below the fair share tax rate of 30 percent. (If you're wondering, taxpayers with incomes between $1 million and $2 million face a higher effective marginal rate than taxpayers with incomes over $2 million because the fair share tax phases in over that range.)
If investors ever expect that the Buffett rule will actually go into effect, expect them to realize lots of capital gains early.
This Article's Word Cloud:BudgetBuffettCancelChangeDecemberEconomicsEconomyEmailFebruaryFollowJulyJuneNaturalNovemberOctoberRatesTaxesWordPressaccountbordercapitalcommentingemailfromgainshaveincomeincomesleftlistmarginmarginalmillionoverpaddingpercentpostratereblogrulesharetaxestaxpayersthatthisthumbusingwithwouldyour
Bank Reserves: A Hot Potato Wed, May 22, 5:31 PM ET, by Bob McTeer During the Q&A following Chairman Bernanke's testimony before the Joint Economic Committee today, Senator Sanders ...
Best Zombie Movie? Mon, Apr 8, 6:12 PM ET, by Donald Marron I haven’t had time for blogging lately, so here’s somethingdifferent: “Cargo,” a short film from ...
Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes
only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners.
In no way should any content contained herein be interpreted to represent trading or investment advice.
None of the information contained herein constitutes a recommendation that any particular security, portfolio,
transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no
circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be
held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.
SDI is associated with: ValueForum.com --
a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com --
videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock
quote content appearing on SDI is at least 20 minutes delayed and is
powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on
gold mining companies.
RSS
