What Is the Buffett Rule?

The “Buffett Rule” was part of the tax plan proposed by President Barack Obama in 2011. It was a fair share tax and it got its name from billionaire investor Warren Buffett's frequent claims that it was wrong that he paid a lower tax rate th♏an his secretary.

Understanding the Buffett Rule

The Buffett Rule contended that the tax system wasn't fair because it put a greater proportional tax burden on wages than it put on investment income.

Middle-class taxpayers shoulder this burden because their income primarily consists of wages that are subjected to income, payroll, and other federal taxes.

Upper-class income was felt to consist primarily of investment income taxed at preferential 澳洲幸运5开奖号码历史查询:capital gains rates.

The Rule blamed tax code bias for an unfair tax system that forced many middle-class workers to pay a larger proportion of their income in taxes than the wealthy do.

The Buffett Rule sought to remedy this bias by requiring millionaires to pay at least 30% of their post-charitable contribution income in taxes.

The Paying a Fair Share Act

The Buffett Rule inspired legislation known as the "Paying a Fair Share Act.” The Act was first introduced in the Senate in March 2012 and was ultimately rejected by Congress about a month later.

The Act would have amended the Internal Revenue Code (IRC) to support the targeting of married filing-jointly taxpayers with adjusted gross incomes of more than $1 million after they took all available credits and deductions provided by the IRC. It proposed a minimum tax rate of 30% on these individuals, just as the Buffett Rule suggests.

Biden's Tax Proposal on the Wealthy

Similar legislation was introduced and rejected during the administration of former President Biden. Another "Paying a Fair Share Act" was brought before the Senate on April 18, 2023.

It, too, touted Buffett's philosophy that the wealthy should pay a fair share of the country's tax burden that he asserted fell most heavily on the middle class. The Act adopted the same $1 million and 30% guidelines but as of August of 2023, it had not been enacted.

The 2024 fiscal year budget propos🗹ed by President Biden laid out provisions by which the tax code could achieve these numܫbers.

Biden suggested that the top tax rate of 39.6% should be restored. President Donald Trump's Tax Cuts and Jobs Act (TCJA) of 2017 reduced this rate to 37%.

Biden's proposal also provided help to the middle-income taxpayers that Buffett had expressed concern by increasing the Child Tax Credit and making it fully refundable.

Criticism of the Buffett Rule

Critics of the Buffett Rule asserted that the relatively few ultra-wealthy—people such as Warren Buf🍷fett—make their vast sums of money from investments, noꦅt salaries or wages. The legal tax rate applied to this type of income was the capital gains tax rate.

Thus they argued that the Buffett Rule w🐭as effectively a capital gains tax rate hike that would have a chilling effect on business growth.

Critics also noted that the vast majority of millionaires pay a higher ordinary income tax rate than middle class wage or salary earners.

In addition, the nonpartisan Tax Policy Center declared that even without the Buffett Rule, only about 4,000 people with $1-million-plus income would pay less than the 15 percent effective federal tax rate that middle-income households would also pay.

Support for the Buffett Rule

Proponents of the Buffett Rule claimed that it was the first step to closing a tax loophole with a measure of tax impartiality.

They reminded critics that tax code bias helped the very wealthy avoid taxes so that they paid an average effective federal tax rate far short of the top 澳洲幸运5开奖号码历史查询:marginal rate that they should pay.

The🌄y believed the Buffett Rule could usher in middle-class tax relief by making sure th🐼at the wealthy paid as large a share of their income in taxes as the middle class paid.

The Bottom Line

Warren Buffett's secretary might not have become a household name due to Buffett comparing their tax situations. But the predicament his comments illustrated drove efforts to add the Buffett Rule to the tax code.

The crux of the🥂 pro✃blem was that IRC taxes wages more strenuously than it does investment income. As of 2024, no changes had been made to address the difference between ordinary income tax rates and the capital gains tax rates.