'Buffett Rule' targets loophole-seekers

April 10, 2012 at 6:02 PM   |   0 comments

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BOCA RATON, Fla., April 10 (UPI) -- U.S. President Barack Obama Tuesday pushed his proposal to bring the tax rate on investments to the level of income to help trim the federal deficit.

The Obama administration has proposed the so-called "Buffett Rule" that would make sure millionaires and billionaires do not pay a lower tax rate than middle-class taxpayers. It would raise the tax rate on investment income to 30 percent.

Billionaire investor Warren Buffett, ranked by Forbes as the world's third-wealthiest person, has made a point of saying he pays a lower tax rate than his secretary and thinks it's only right for the rich to pay taxes, as a portion of income, comparable to people in the middle class.

In an appearance at Florida Atlantic University in Boca Raton, Obama said fairness has been a hallmark of the American experience.

"What drags our entire economy down is when the benefits of economic growth and productivity go only to the few ... and the gap between those at the very, very top and everybody else keeps growing wider and wider," Obama said.

Obama criticized the $1 trillion in tax cuts proposed by Republicans, which he said average "$150,000 to every millionaire, billionaire in the country. … Some folks would get a lot more."

Obama went through a list of things for which that money could pay.

"And I just want to -- I just want to emphasize again, look, I -- I want folks to get rich in this country. I think it's wonderful when people are successful. That's part of the American dream," he said.

"You know, it is great that you make a product, you create a service, you do it better than anybody else. That's -- that's what our -- our system's all about. But -- but understand the share of our national income going to the top 1 percent has climbed to levels we haven't seen since the 1920s. This -- the folks who are benefiting from this are paying taxes at one of the lowest rates in 50 years.

"You might have heard of this, but Warren Buffett is paying a lower tax rate than his secretary. Now, that's wrong. That's not fair."

En route to Florida, White House press secretary Jay Carney criticized as a "gimmick" a call by a Republican super PAC for Obama and Buffett to pay more in taxes voluntarily.

"If you tell a middle-class American who's paying a higher rate on his or her income tax than the multi-millionaires who are funding these super PACs -- you're asking about whether they'll be satisfied that we've introduced tax fairness in this country if individual millionaires decide to write a check to the Treasury Department or the IRS, then I think they'll say, no, that is not the measure of fairness that they're looking for," Carney said.

A White House report said rich Americans paying minimal taxes by calling their pay "capital gains" instead of "income" are the "Buffett Rule" target.

The tax-lowering loophole and others like it are "fundamentally unfair" and are a "result of decades of the tax system being tilted in favor of high-income households at the expense of the middle class," the National Economic Council report said.

The Buffett Rule would seek to close loopholes so the rich pay at least 30 percent of their income in taxes.

Sixty to 65 percent of Americans say they support the change, while about 25 percent say they oppose it, recent public-opinion polls indicate.

The Senate is scheduled to vote on the rule when it returns to Washington Monday. The vote will decide if senators will even debate the bill.

Democrats give it little chance of reaching the necessary 60-vote threshold, The New York Times reported.

The Senate measure is slightly different from Obama's. It would establish a minimum 30 percent tax rate for households earning at least $2 million a year, with a lower minimum rate for incomes between $1 million and $2 million.

"Of millionaires in 2009, a full 22,000 households making more than $1 million annually paid less than 15 percent of their income in income taxes -- and 1,470 managed to pay no federal income taxes on their million-plus-dollar incomes" because they took advantage of loopholes, the council report said, citing Internal Revenue Service data.

Federal tax rates varied from 10 percent to 35 percent in 2009. The marginal rate on a couple with $70,000 in taxable income was 25 percent.

Capital gains include profits from selling stocks and bonds, real estate and other capital assets.

"To be clear, on average, high-income Americans do pay more," the report said. "That is because the United States has a progressive tax system in which tax rates generally rise with income, albeit not as much as they have in the past."

For instance, high-income small-business owners "who receive primarily labor income and take advantage of few special tax benefits," pay taxes "at an effective rate not dramatically lower than their statutory rate."

But a system that lets hedge-fund managers characterize their compensation as capital gains, "thereby paying a fraction of the taxes they would pay if their income were classified as wages" like that of most other working Americans, "cannot be justified," the report said.

Republicans argue lower tax rates are needed to encourage investment. They also say the Buffett Rule would hurt economic growth.

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