‘Millionaire Tax’ Seen Easier Said Than Done
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Writing the new “Buffett rule” proposed by President Barack Obama to snare more tax revenue from millionaires will prove to be logistically and mathematically difficult.
The concept, named for billionaire investor Warren Buffett, would require Americans earning more than $1 million a year to pay at least the same tax rate as middle-class households. Such a rule would be problematical to craft or ineffectual because higher earners aren’t the only taxpayers benefiting from breaks; many middle-income families take advantage of deductions and credits that drive their rates below the 17.4 percent that Buffett pays.
Buffett has said he and other Americans earning more than $1 million a year should pay more in taxes than they currently do. The administration wants to include Buffett’s concept in a broad overhaul of the U.S. tax code. Obama didn’t include specific language in the proposal he released today.
“We’re not going to give the Congress a detailed proposal for how to meet that principle because we think there are a bunch of different ways to do that,” said Treasury Secretary Timothy Geithner, adding that the details of the rule would depend on the rest of the structure of a new tax system.
‘Game-Changer’
Charles Schumer of New York, the third-ranking Democrat in the Senate, said on a conference call with reporters today that the proposal would have broad support in his party and would be a “game-changer” in the tax debate.
“It really works well as a defining principle, but I think it works even better as an actual piece of legislation,” Schumer, a member of the tax-writing Finance Committee, said. “Let’s draft the language and get it scored. Let’s put it on the floor and let’s have a vote.”
The example that Obama gave during his speech today illustrated the difficulty of applying the Buffett principle in practice. He said that a teacher earning $50,000 shouldn’t pay a higher tax rate than an investor making $50 million.
“I reject the idea that asking a hedge-fund manager to pay the same tax rate as a plumber or a teacher is class warfare,” Obama said at the White House. “It’s just the right thing to do.”
That example isn’t as straightforward as it appears. Under current law, that teacher would have a maximum taxable income of $40,500, after subtracting the standard deduction and personal exemption. The teacher’s federal income tax would be $6,250, or 12.5 percent of the $50,000 income.
Specific Breaks
The teacher’s tax rate, though, would be higher if payroll taxes were included. It would be lower if the teacher took advantage of the specific breaks available to middle-income taxpayers: those for retirement savings contributions and health-care flexible spending arrangements, and deductions for student loan interest and out-of-pocket expenses of educators.
The tax rate would be even lower if the teacher were married or had children, which would allow for a larger standard deduction, personal exemptions and a child tax credit. A married couple with two children can earn as much as $45,776 without paying income taxes this year, according to the Tax Policy Center, a nonpartisan Washington research group.
Making Choices
As a result of those complexities, lawmakers trying to write a Buffett rule would have to make some choices about how to measure a middle-income family’s earnings and tax rate. They also face complicated arithmetic for higher-income taxpayers.
Assuming the millionaire investor received all of his or her income from long-term capital gains and dividends, the tax rate would be 15 percent, the preferential rate for investment income.
That rate could be much lower if the investor took itemized deductions for state and local taxes, mortgage interest and charitable contributions. It would be higher if the investor also had some wage income.
Writing a Buffett rule into law would require defining income and setting a minimum rate for it, said Roberton Williams, a senior fellow affiliated with the Tax Policy Center. That definition might need to address sources of income, such as municipal bond interest, that aren’t included under the regular income tax.
‘Opening the Door’
“Every time you set up something like this, you’re opening the door for the tax lawyers to come in and get around the attempt to raise revenues,” Williams said.
Obama’s prime target for what he calls income-tax fairness is the 20-point gap between the top rate for capital gains and ordinary income tax rates.
In 1986, President Ronald Reagan signed an overhaul of the tax code that equalized the tax rates on capital gains and ordinary income at 28 percent. Since then, Congress has raised the top income tax rate to 35 percent and dropped the top capital gains rate to 15 percent.
During a briefing at the White House today, Geithner said the rates of high-income taxpayers vary depending on their profession.
People who earn much of their income from wages, such as corporate executives and professional athletes, have relatively high tax rates. Investors who make money from capital gains and dividends tend to have lower rates.
Buffett, the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc., said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him and on his behalf, was $6.93 million.
‘Lower Percentage’
“That sounds like a lot of money,” Buffett wrote in an essay calling for higher taxes on millionaires in The New York Times last month. “But what I paid was only 17.4 percent of my taxable income -- and that’s actually a lower percentage than was paid by any of the other 20 people in our office.”
Several bipartisan groups, including the fiscal commission appointed by Obama last year, have proposed eliminating the preferential tax rates for capital gains as part of a tax overhaul that would also lower rates on wage income.
That approach, rather than the calculation of a minimum tax, might be the most straightforward way to satisfy the Buffett principle, Williams said.
“That certainly makes it a lot easier,” he said. “But a lot of people would oppose that on the argument that there are good reasons to tax capital income at lower rates.”
The arguments for lower capital gains rates include the benefits of encouraging investment, and tax economists say that lower dividend rates minimize the double taxation of income already taxed at the corporate level.
Minimum Tax
The Buffett rule would essentially operate as a type of alternative minimum tax.
Since 1969, the U.S. has imposed a minimum tax of some sort on the nation’s highest earners to prevent them from using legal deductions, credits and exemptions to avoid paying taxes. That year, in response to a report that 155 people earning more than $200,000 had paid no taxes, Congress created the forerunner to the alternative minimum tax.
The AMT came into its current form in the 1986 tax-code overhaul. It requires taxpayers to compare their tax liability under the regular tax code with their liability under the AMT. Because the AMT doesn’t allow taxpayers the full benefits of the state and local tax deduction or personal exemptions, people with large families or who live in high-tax states in the Northeast tend to be disproportionately affected.
Congressional lawmakers’ efforts to prevent people from legally avoiding all taxes haven’t been successful. In 2008, the most recent year for which data is available, 18,783 people filed U.S. tax returns with adjusted gross incomes of at least $200,000 and owed no taxes. That represented 0.43 percent of high-income taxpayers, the biggest non-payer percentage in an Internal Revenue Service study that dates to 1977
from bloomberg
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so warren buffet made 40 million that year.
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Corporate Jets Face Flight Fee in Obama Plan
President Barack Obama’s administration proposed a $100 per-flight fee on corporate jets and other turbine-powered planes that use the U.S. air-traffic system.
The fee would raise an estimated $11 billion over 10 years, according to the president’s recommendations to the 12-member congressional committee charged with finding ways to trim the deficit. The fee is aimed at private aircraft, which currently don’t pay their fair share of costs of operating the aviation system, the administration said today.
About two-thirds of the air-traffic system is paid for by aviation excise taxes, including levies on airline tickets and on fuel. Last year these taxes raised $10.8 billion, according to the Department of Transportation.
There is a disparity between what airlines and their passengers pay into the system and what users of private aircraft pay, the plan said.
An airline flight from Los Angeles to San Francisco would generate $1,300 to $2,000 in taxes, depending on the number of passengers and what they paid for tickets. A private jet, which requires almost the same services from air-traffic controllers, would pay about $60 in fuel taxes, the plan said.
“General aviation users currently pay a fuel tax, but this revenue does not cover their fair-share use of air traffic services,” the plan said.
Opposition Mounts
A coalition of nine U.S. associations representing users and manufacturers of corporate and private aircraft issued a joint statement “expressing our unified opposition” to the proposal.
“Mr. President, many foreign countries have imposed per flight charges on general aviation and the results have been devastating,” the e-mail statement said. “Please do not go down the dangerous path and cost jobs in our community.”
General-aviation pilots pay their fair share of fuel taxes and a new fee would create “a costly new federal collection bureaucracy,” the groups said.
The groups that issued the letter include the Washington- based General Aviation Manufacturers Association, whose members include General Dynamics Corp. (GD)’s Gulfstream and Textron Inc. (TXT)’s Cessna; the Washington-based National Business Aviation Association, with members including PepsiCo Inc. and Humana Inc. (HUM), the Aircraft Owners and Pilots Association, based in Frederick, Maryland, which has more than 400,000 individual members; and the Experimental Aircraft Association in Oshkosh, Wisconsin.
NetJets Reacts
Berkshire Hathaway Inc. (BRK/A)’s NetJets, the largest U.S. firm selling fractional shares of corporate jets, issued a statement from Chairman and Chief Executive Jordan Hansell agreeing with the trade groups. NetJets, based in Columbus, Ohio, has more than 7,000 customers worldwide.
A similar proposal introduced by President George W. Bush’s administration was defeated in Congress after opposition by the same groups.
That plan, which was introduced in 2007, was supported by the airline industry, which argued that corporate aircraft owners should pay a greater share. This time, the Air Transport Association, a Washington, D.C.-based group representing airlines including Delta Air Lines Inc. (DAL), has joined the opposition.
“We oppose any new taxes on airlines or their passengers,” ATA President Nicholas Calio said in a statement.
The Obama plan is aimed at pilots who fly under the supervision of air-traffic controllers.
Nearly all small private, piston-powered planes wouldn’t have to pay the fee, the proposal said. It would also exempt aircraft operated by the military or other government agencies, air ambulances and any flight that doesn’t require air-traffic guidance.
from bloomberg
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i lke what obama is doing. its high time the US make the rich 'contribute' to help with US deficit.
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it'll never work because it would probably kill the republicans who cannot maintain their lifestyles with only 8x the average household income after they feed their families
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Originally posted by the Bear:
it'll never work because it would probably kill the republicans who cannot maintain their lifestyles with only 8x the average household income after they feed their families
the weakness of a 2 party system.
nothing ever get done.
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Originally posted by dragg:
the weakness of a 2 party system.
nothing ever get done.
yup.. they actually need a few more parties.. so that the GOP can be marginalised
if they had one single party and the GOP was it, the people of the US would be screwed so bad they'd be running away in droves
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Weakness of a one party system, things get done, but not done in the interest of the citizens but politburo members.
(eg North Korea, USSR, Burma, ......)http://www.youtube.com/watch?v=7Sh74mk7VM8
If there is so much inherent weakness in the multi-party system, then perhaps every country in the world should return to communism?
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Originally posted by βÎτά:
Weakness of a one party system, things get done, but not done in the interest of the citizens but politburo members.
(eg North Korea, USSR, Burma, ......)http://www.youtube.com/watch?v=7Sh74mk7VM8
If there is so much inherent weakness in the multi-party system, then perhaps every country in the world should return to communism?
all systems have problems.
its only whether the problem affects you or otherwise.
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Originally posted by βÎτά:
Weakness of a one party system, things get done, but not done in the interest of the citizens but politburo members.
(eg North Korea, USSR, Burma, ......)http://www.youtube.com/watch?v=7Sh74mk7VM8
If there is so much inherent weakness in the multi-party system, then perhaps every country in the world should return to communism?
so out of the countries that have had a one-party-system, how does Sgp fare amongst them?
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Originally posted by dragg:
all systems have problems.
its only whether the problem affects you or otherwise.
But a one party system like North Korea, defunct USSR and Burma (Myanmar) seems to do more damages to a whole lot of people when compared to a multi-party system like, USA, Japan, UK and Germany.
Think about the quality of lives in these dichotomies.
Would you prefer to live in North Korea and Burma or UK and Germany?
The advantages of a multi-party system though fraught with many obstacles still outweighs that of a single party system.
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Originally posted by βÎτά:
But a one party system like North Korea, defunct USSR and Burma (Myanmar) seems to do more damages to a whole lot of people when compared to a multi-party system like, USA, Japan, UK and Germany.
Think about the quality of lives in these dichotomies.
Would you prefer to live in North Korea and Burma or UK and Germany?
The advantages of a multi-party system though fraught with many obstacles still outweighs that of a single party system.
Sir have you lived in US/UK/Germany for more than 10 years before making these boisterous comments? Having been in SG I can say there is simply no comparison. I can make a loong list but lets just stop here with Social benefits.
I do not understand why every freaking idiot want to tax the rich who worked hard setting up their companies while the whiners were enjoying their life. If they cry foul about all these, who is stopping them from being rich?
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A real mess for the US.
Good thing that Spore do not have this problem.
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Originally posted by Bio-Hawk:
Sir have you lived in US/UK/Germany for more than 10 years before making these boisterous comments? Having been in SG I can say there is simply no comparison. I can make a loong list but lets just stop here with Social benefits.
I do not understand why every freaking idiot want to tax the rich who worked hard setting up their companies while the whiners were enjoying their life. If they cry foul about all these, who is stopping them from being rich?
You mean one has to stay in Myanmar for 10 years and another 10 years in UK before he/she can make a distinction between the two?
So you mean to tell me between North Korea and UK, you prefer North Korea.
When you moving to North Korea or Myanmar?
I think taxing the rich to re-distribute to the poor for social injustices is something your selfish mind will never comprehend in this lifetime.
If there is no income redistribution, the poor, sick, retarded without of money should just end their life.
You probably think like Bernard Shaw.
Justify your existence!
http://www.youtube.com/watch?v=L8lwg-NMWjE
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Originally posted by βÎτά:
You mean one has to stay in Myanmar for 10 years and another 10 years in UK before he/she can make a distinction between the two?
So you mean to tell me between North Korea and UK, you prefer North Korea.
When you moving to North Korea or Myanmar?
I think taxing the rich to re-distribute to the poor for social injustices is something your selfish mind will never comprehend in this lifetime.
If there is no income redistribution, the poor, sick, retarded without of money should just end their life.
You probably think like Bernard Shaw.
Justify your existence!
http://www.youtube.com/watch?v=L8lwg-NMWjE
So Sir,you are a trained believer who will believe anything/everything you read/hear/see about without even verifying it and spread it around like a Gospel? Were u in Myanmar before this military took over?
To blame the rich for all problems and not being one is something an idiot can never comprehend.
Great minds think alike.And I am not stopping you(poor+retard) from ending your life
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Originally posted by Bio-Hawk:
So Sir,you are a trained believer who will believe anything/everything you read/hear/see about without even verifying it and spread it around like a Gospel? Were u in Myanmar before this military took over?
To blame the rich for all problems and not being one is something an idiot can never comprehend.
Great minds think alike.And I am not stopping you(poor+retard) from ending your life
dont everyone of us 'believe' in something based on what we either see or hear or read?
how many people actually go to the ground and verify before 'believing'?
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Originally posted by dragg:
dont everyone of us 'believe' in something based on what we either see or hear or read?
how many people actually go to the ground and verify before 'believing'?
For sure you are right. And the dude above was proclaiming all he heard from some one else was the truth, the only truth and complete truth.
Especialy saying SG was better than US/UK/Germany. Muppet
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Originally posted by Bio-Hawk:
So Sir,you are a trained believer who will believe anything/everything you read/hear/see about without even verifying it and spread it around like a Gospel? Were u in Myanmar before this military took over?
To blame the rich for all problems and not being one is something an idiot can never comprehend.
Great minds think alike.And I am not stopping you(poor+retard) from ending your life
Looking at your reasoning, you have my sympathies.
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Originally posted by βÎτά:
Looking at your reasoning, you have my sympathies.
And you have none,hopeless -
there is no such thing as which country is better.
it depends on what you have and what you want. hence which country. best serve your needs.
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Investors Back Obama's Buffett Rule
Global investors overwhelmingly support President Barack Obama’s proposed tax increase for those earning annual incomes of $1 million or more in an effort to reduce the deficit.
By a margin of 63 percent to 32 percent, respondents in a Bloomberg Global Poll approved of the president’s proposal, known as the “Buffett rule” in a nod to Warren Buffett, the chairman of Berkshire Hathaway Inc., who has said it is wrong that he pays a smaller share of his income in taxes than does his secretary.
Obama said Sept. 19 that making sure that the wealthy pay at least the same tax rate as the middle class was “just the right thing to do.” House Speaker John Boehner accused the president of practicing “class warfare,” saying any new tax would hurt job creation and Buffett’s situation was not typical.
The call for the rich to pay more, however, found backing among financial professionals in the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. “Higher tax payments could help to avoid or delay potential social disturbances and in addition create some kind of a general solidarity,” says Henry Littig, chief executive officer of Henry Littig Global Investments AG in Cologne, Germany, a poll respondent.
In the U.S., support for the idea was lower, with more than half opposing it, although four in 10 supported it. “The U.S. does not have a tax rate problem -- we have a spending and entitlement problem,” said poll respondent Jay Wright, managing director of Samco Capital Markets in San Antonio, Texas. “And if we do not address it quickly we are going to be Greece.”
Strong Support
Support for the millionaire’s tax was highest in Europe, where French President Nicolas Sarkozy plans a 3 percent surcharge on incomes above 500,000 euros ($680,000.) European poll respondents backed Obama 78 percent to 17 percent; Bloomberg customers in Asia supported the president’s idea 69 percent to 21 percent.
“Increasing taxes on millionaires may not harm the economy, but it will not help it either,” said Don Lindsey, chief investment officer at George Washington University, who participated in the survey. “What we need is a complete overhaul of the tax system.”
In a New York Times op-ed last month, Buffett wrote that his federal income tax bill was $6.94 million, or 17.4 percent of his taxable income -- a lower rate than any of the other 20 employees in his Omaha, Nebraska, office.
Ultra-Wealthy
In an interview today with Bloomberg Television, Buffett said the “ultra-wealthy” should pay a new minimum tax, without any change in tax rates on income or capital gains. “An athlete making $10 million -- he would not have a change in his tax rate at all or $20 million or $30 million even,” Buffett said. “But somebody that buys a stock index future and sells it 10 seconds later and gets 60 percent by long-term gains, he would have a different world to live in.”
The new tax would apply to perhaps 50,000 individuals and raise around $20 billion annually, Buffett said.
‘Send in a Check’
Buffett has repeatedly said that his secretary pays a higher share of her income in taxes than he does, prompting Republicans such as Senate Minority Leader Mitch McConnell to gibe: “If he’s feeling guilty about it, I think he should send in a check.”
Some participants in the Bloomberg poll agreed. “Buffett is being very deceptive,” said Michael Prisby, corporate investment officer at Citizens Financial Bank in Munster, Indiana. “He may be taxed at a capital gains rate of 15 percent, but that doesn’t mean all high earners are.”
On average, taxpayers with annual incomes of more than $1 million last year paid a 29 percent tax rate, compared with 15.1 percent for those making between $50,000 and $75,000, according to the non-partisan Tax Policy Center in Washington.
Some high-income individuals, like Buffett, do pay a lower average tax rate because much of their income is derived from capital gains rather than wages. In 2009, the most recent Internal Revenue Service data shows that 1,470 individuals with at least $1 million in annual income paid no income tax.
‘Disproportionate Rewards’
The debate over a “Buffett rule” tax caps an era in which disproportionate rewards have gone to those at the top of the nation’s income distribution. Between 1993 and 2008, the top 1 percent of families captured 52 percent of total income gains, according to a 2010 paper by economist Emmanuel Saez of the University of California, Berkeley.
“The Buffett rule does not apply to all rich people or the average rich person, but it does apply to some rich people,” said Roberton Williams, an analyst at the Tax Policy Center.
The administration has said it has no plans to submit a detailed millionaires’ tax proposal to Congress. For now, that means the main significance of the Buffett rule is political not financial.
The proposed tax is the rhetorical centerpiece of White House jockeying in the run-up to the deliberations of a congressional “supercommittee” seeking $1.5 trillion in deficit reduction by Nov. 23.
Earlier this week, Douglas Edwards, who described himself as “unemployed by choice” after retiring as an early employee from Google, urged the president to “please raise my taxes” at a town hall in Mountain View, California.
Far From Rich
Lionel Mellul, co-founder of Momentum Trading Partners in New York, said he endorsed the idea of the rich paying more, while taking issue with the $1 million threshold. A New Yorker with a $1 million annual income is “far from really being rich,” he said.
In follow-up interviews, many respondents called for a stem-to-stern overhaul of the tax code.
“Until the administration completely overhauls the personal and corporate tax code to both drive growth and incentivize the efficient transfer of capital and risk, the wealthy people will just have their tax lawyers find more loopholes to lower their taxes,” said Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco.
from bloomberg
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of course easier said den done.. try doing that in singapore.. people sure kbkp like nobody's business..
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nobody wants to pay tax - rich or poor, let alone pay more.
US is in such dire straits. only the rich can help alleviate or solve the problem. what can the poor do?
the president has to force the issue. i just dont see any other way US can settle their national debt which is growing at an amazing rate.
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So how now brown cow ?
MoOOoOO~!
Taxes... the TaxMan....
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Come to think of this issue, supposing spore really want to implement this in spore where rich and high earning salary workers need to pay extra income tax to help the needy and the poor, couldnt it be better?
All ministers, mps, millionaires and above, presidents, high earner workers, self employed (with gst) will have to pay extra percentage of income tax. That amount collected will help the needy and the poor families in spore.