Obama to propose millionaire’s tax to cut the deficit
President Obama will propose that people earning more than $1 million a year pay at least the same tax rate as middle-class earners to help reduce the soaring budget deficit, according to administration officials.
Obama will call the plan the “Buffett rule” after billionaire investor Warren E. Buffett, a supporter of his who recently called the tax system unfair, noting that it lets him pay a lower rate than his secretary does.
The plan would replace the complicated alternative minimum tax, which was enacted decades ago to ensure that the wealthy paid at least some income taxes, according to the officials, who requested anonymity because they were not authorized to discuss the matter publicly.
Obama’s proposal, to be unveiled Monday, is likely to face strong opposition from congressional Republicans and could resonate throughout the 2012 presidential election.
Republicans have vowed not to raise taxes even on the wealthy, arguing that the struggling economy cannot recover if Washington takes more money from people they have dubbed “job creators.”
Republican leaders already have balked at the president’s suggestion to help pay for his proposed $447-billion jobs package by closing some loopholes and eliminating deductions for some industries as well as for families earning more than $250,000 a year.
But the White House appears to be calculating that the GOP will have a more difficult time standing up for millionaires as the nation struggles with a huge budget deficit.
Obama has cited Buffett’s example as an illustration of what’s wrong with the tax code and the need for the wealthy to do more to help close the deficit.
“Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix,” Obama said this month in a nationally televised address to a joint session of Congress. “We need a tax code where everyone gets a fair shake and where everybody pays their fair share.”
While unveiling his jobs package in that speech, Obama promised to announce deficit-cutting measures on Monday. His proposals would go to a special congressional committee charged with finding deep budget cuts by Thanksgiving.
House Speaker John A. Boehner (R-Ohio) said last week that tax increases were “not a viable option” for the deficit-reduction committee.
“It’s a very simple equation. Tax increases destroy jobs,” Boehner said.
About 235,000 income tax returns with at least $1 million in adjusted gross income were filed in 2009, according to the IRS. The median income in the U.S. that year was about $50,000.
Polls have shown that the public supports raising taxes on higher-income Americans. For example, a CBS News/New York Times survey in August found that 63% of respondents favored increasing taxes on households earning more than $250,000 a year to help close the budget deficit.
Despite that support, Obama backed down in December on his campaign promise to let the George W. Bush-era tax cuts expire for those earning more than $250,000 a year. In the face of strong Republican opposition, and out of concern that failure to strike a deal would cause taxes on all earners to go up when the cuts expired at the end of the year, he agreed to extend the tax breaks until the end of 2012.
Details were sketchy about the latest White House proposal, which was first reported by the New York Times.
Administration officials did not say what the minimum rate would be for those earning more than $1 million a year, how a middle-class income would be defined, nor how much revenue the plan would produce.
Income over $379,150 is taxed at 35%, but the overall average tax bite for those earning more than $1 million a year in 2009 was 24.4%, according to the IRS. For those earning between $125,000 and $150,000, it was 11.7%.
The relative bargain for the wealthy comes partly as a result of tax breaks available to them, such as a lower rate on capital gains.
“My friends and I have been coddled long enough by a billionaire-friendly Congress,” Buffett, chief executive of Berkshire Hathaway, wrote in an August opinion article in the New York Times. “It’s time for our government to get serious about shared sacrifice.”
Buffett said his 2010 federal tax rate was 17.4%, lower than that of any of the 20 people in his office. Their tax rates averaged 36%.
Obama’s proposal is similar to one floated late last year by Sen. Charles E. Schumer (D-N.Y.), who wanted to let the Bush-era tax cuts expire only for those earning $1 million or more.
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