Question:

I read an article that talks about the “Buffett Rule” and a 30% minimum tax. WE HAVE THAT ALREADY! The marginal tax rate is 35% for earnings over $379,150 for a married couple filing jointly. The last time I looked, 35% was more than 30%. Has that changed?

Why pass another tax bill to lower the tax rate on high income earners because the rich aren’t paying enough — that makes no sense at all.

Answer:

Investopedia explains ‘Marginal Tax Rate’ as follows:

Under a marginal tax rate, tax payers are most often divided into tax brackets or ranges, which determine which rate taxable income is taxed at. As income increases, what is earned will be taxed at a higher rate than your first dollar earned. While many believe this is the most equitable method of taxation, many others believe this discourages business investment by removing the incentive to work harder.

The Buffett Rule would limit the degree to which the best-off can take advantage of loopholes and tax rates that allow them to pay less of their income in taxes than middle-class families.

According to the IRS, 22,000 households that made more than $1 million in 2009 paid less than 15 percent of their income in income taxes, and 1,470 paid no federal income taxes on million-plus-dollar incomes. The very wealthiest American households are paying nearly the lowest tax rate in 50 years, some just half of the federal income tax that top income earners paid in 1960, while the average tax rate for middle class families has barely budged.

By changing the tax code, The Rule would create “a minimum effective tax rate for high-income taxpayers.” Regardless of whether their income derived from long-term capital gains, dividends, wages or salary, Americans earning over $2 million a year would be required to pay a tax rate equal to 30 percent of their total income. Americans earning between $1 million and $2 million would pay a graduated rate approaching 30 percent.

Question:

What impact would the Buffett rule have on the nation’s finances?

Answer:

Not as much as is needed. Estimates of how much tax revenue would be generated by the Buffett rule range from $47 billion up to $160 billion over 10 years.

The politics on both sides is weak. From a progressive perspective, the measure will not raise enough revenue to make a meaningful difference in the federal budget. From the conservative side, it’s argued that higher taxes on the wealthy will depress investment and hurt job creation, but the evidence for that assertion is weak at best. So it’s basically a fairness issue. According to A Civil American Debate – How we Got There & How We Move Forward:

Over the last 30 years, the top income tax rate has averaged about 40%.  It’s now at 35%, one-half of the 70% rate in effect throughout the 1970s.  It was even higher, at 90% in the 1950s and early 1960s, before being reduced to 70% in 1965.   As we discuss (Stable Income Inequality), these lower-than  maximum income tax rates were an instrumental factor…in greatly increasing income and wealth inequality, with disastrous consequences for the economy and for the bottom 99%.

By contrast, letting the Bush tax cuts on Americans earning over $250,000 a year expire would raise $800 billion over the next10 years. As continued deficits will crowd out investment, rolling back the Bush tax cuts is integral in restoring long-term sustained investment and economic growth.

The Buffet Rule was blocked in the Senate.

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