The ‘Buffet Rule’ in history’s grand sweep
The most famous secretary in America works “just as hard” as her billionaire boss — according to her boss, investor Warren Buffett — but pays federal taxes at twice the rate her boss does.
Debbie Bosanek, America learned last week, has been working for billionaire Buffett since 1993. In 2010 she paid 35.8 percent of her income in federal income and payroll taxes. Buffett paid his federal taxes at a 17.4 percent rate.
GOP White House hopeful Mitt Romney sits with Buffett in America’s richest 0.006 percent of taxpayers. Romney, America also learned last week, paid his federal income taxes for 2010 at a mere 13.9 percent rate.
At what rate should wealthy Americans like Warren and Mitt pay their taxes? President Obama last week suggested — for the first time — a specific minimum percentage for what he has been calling, since last fall, the “Buffett rule.”
“Tax reform should follow the Buffett rule,” Obama proposed in his state of the union address. “If you make more than $1 million a year, you should not pay less than 30 percent in taxes.”
The Obama administration will be advancing legislation that fixes this 30 percent figure into law. In effect, a new 30 percent “Buffett rule” minimum would replace the current “alternative minimum tax,” a levy enacted in 1969 that no longer operates as any sort of effective check on super rich tax avoidance.
Would this new 30 percent minimum have an appreciable real-world impact? The Obama administration last week declined to estimate how much new revenue a 30 percent Buffett rule might raise from America’s millionaires.
But we can get a sense of what that impact might be by applying a 30 percent minimum to previous years. In 2009, the latest year with IRS data available, taxpayers reporting over $1 million in income paid an average 24.4 percent of their incomes in federal income tax.
If a 30 percent minimum had been in effect that year, these taxpayers would have paid, on average, more than $171,000 additional per taxpayer. Citizens for Tax Justice calculations indicate that a Buffett rule at 30 percent would now raise about $50 billion a year in new revenue.
Would a 30 percent Buffett rule, in and of itself, make the tax code fair? Not by the Debbie Bosanek yardstick. If her boss Warren Buffett had to pay 30 percent of his income in federal income tax, Debbie Bosanek would still be paying total federal taxes at a higher rate than her boss.
The White House seems to understand this reality and, to its credit, is asking for more tax changes than a new 30 percent Buffett rule. For starters, the Obama administration wants to let the 2001 and 2003 Bush tax cuts expire for taxpayers making over $250,000 a year.
That move would raise the top tax rate on capital gains income — the category that includes most of the income that Warren Buffett and Mitt Romney collect every year — from 15 to 20 percent and the tax rate on dividends from 15 to 39.6 percent, the same top tax rate the expiration of the Bush tax cuts would fix on ordinary income from wages and salaries.
The Obama administration also wants to reduce the tax deductions and credits high-income taxpayers can claim.
All these changes would certainly make for a more progressive tax code. But these changes, taken all together, would still leave today’s rich and super rich paying taxes at substantially lower overall rates than America’s rich and super rich used to pay decades ago.
A half-century ago, in 1962, Americans making over what today would be $1 million, after taking inflation into account, paid 42.8 percent of their total incomes in federal income tax. Ten years earlier, they paid even more. In 1952, millionaires — in today’s dollars — paid federal income tax at a 55.2 percent rate, show IRS historical data.
And those rich in 1952 were actually getting a good deal, compared to their counterparts ten years earlier. In 1942, the first full year of World War II, taxpayers who would be millionaires in today’s dollars paid their federal income taxes at an overall effective rate that hit 68.9 percent.
Just a reminder: We won that World War II, and the economic boom during the war years would raise millions of Americans into the middle class.
These days, billionaire Warren Buffett notes in another reminder, we’re fighting another war. A class war. In this class war, Buffett adds, his side has awesomely more weaponry than his secretary’s side.
“We have K Street,” Buffett explained last week. “We have Wall Street. Debbie doesn’t have anybody. I want a government that is responsive to the people who got the short straw in life.”
So should we all.Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read a recent issue or sign up to receive Too Much in your email inbox.