Tax on millionaires gets hostile GOP reception

Top congressional Republicans accused President Obama of trying to incite “class warfare” with his plan for a new tax on millionaires, part of a $3-trillion deficit reduction package to be announced Monday, and vowed to oppose the tax on grounds that it would hurt economic growth.

“Class warfare … may make for really good politics, but it makes for rotten economics,” House Budget Committee Chairman Paul D. Ryan (R-Wis.) said on “Fox News Sunday.” “We don’t need a system that seeks to prey on people’s fear, envy and anxiety. We need a system that creates jobs and innovation and removes these barriers for entrepreneurs to go out and rehire people.”

The strong Republican opposition means the millionaire tax proposal, which the White House has dubbed the “Buffett rule” after billionaire investor Warren Buffett, is unlikely to pass Congress. But it promises to become a highly charged centerpiece in the battle over deficit reduction and job creation that will be a focus of the 2012 election.

Sen. Richard J. Durbin (D-Ill.) showed the tack his party might take when he criticized Republicans for not supporting Obama’s $447-billion jobs bill.

“I think his team put together a positive, good plan,” Durbin said Sunday on CNN’s “State of the Union.” “What’s the Republican alternative? Do nothing and protect the millionaires.”

Obama’s deficit reduction package will include tax increases and spending cuts, according to people familiar with the plan who were not authorized to speak publicly.

The president will not propose increasing the age at which people are eligible for Medicare and other entitlement programs, these people said.

Over the last week, a fierce debate took place in the White House over whether to cut benefits, with congressional Democrats urging against it.

Obama could not push through a similar, broad deficit reduction plan during the debt ceiling negotiations this summer when Republicans refused to go along with any tax revenue increases. In the end, Obama met the GOP’s demands for budget cuts to secure an increase in the debt ceiling and avoid a possible U.S. default.

But with the 2012 election campaign heating up, Obama is pushing his deficit reduction plan again — with a twist.

The Buffett rule will be a new minimum tax rate for millionaires to ensure they pay an effective federal tax rate at least as high as that of middle-class earners, administration officials said.

It will be part of a broader effort to revamp the tax code, making it simpler and “more fair and efficient,” according to talking points that the White House sent to lawmakers.

Buffett is an Obama supporter who has publicly complained that tax breaks allow him to pay a lower rate than his secretary.

The administration did not release details of the proposal, so it’s not known what the minimum tax rate would be for those earning more than $1 million a year, or how much additional revenue it would produce.

The White House talking points said, “No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay.”

The Buffett rule would apply to the top 0.3% of wage earners, the White House said, noting that in 2009, 22,000 people making more than $1 million a year paid less than 15% of their income in taxes.

Congressional Republican leaders have said they are open to an overhaul of the tax code, but have been adamant in their opposition to new taxes. House Speaker John A. Boehner (R-Ohio) said last week that tax increases were “not a viable option” for the special congressional “super committee” that must find at least $1.5 trillion in deficit cuts by Thanksgiving.

Senate Minority Leader Mitch McConnell (R-Ky.) said wealthy individuals such as Buffett were free to pay more taxes, but the government shouldn’t impose an increase on people who helped provide the investments that created jobs.

“With regard to his tax rate, if he’s feeling guilty about it, I think he should send in a check,” McConnell said on NBC’s “Meet the Press.” “But we don’t want to stagnate this economy by raising taxes.”

Obama has touted Buffett’s complaint about his relatively low tax rate as evidence that the wealthy can and should pay more. In an August opinion article in the New York Times, Buffett said his 2010 federal tax rate was 17.4% because of various tax breaks for investors, such as those on capital gains.

The average rate for the other 20 people in his office, he said, was 36%.

“If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine,” wrote Buffett, chief executive of Berkshire Hathaway. “But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.”

Durbin, the second-ranking Senate Democrat, said Republicans risked the public’s wrath if they opposed raising taxes on people like Buffett.

“I wonder if John Boehner knows what it sounds like when he continues to say the position of the Republican Party in America is that you can’t impose one more penny in taxes on the wealthiest people,” Durbin said. “I wonder if he understands how that sounds in Ohio to working families who are struggling paycheck to paycheck.”

But Sen. Lindsey Graham (R-S.C.) said Obama’s millionaire proposal was simply a political move that would do little to reduce the budget deficit.

“The truth of the matter is if you raise taxes on billionaires and millionaires it adds a de minimis amount of money to the Treasury to pay off the debt,” Graham said on CNN. He too accused Obama of waging class warfare.

Of the approximately 140 million federal income tax returns filed in 2009, about 235,000 reported adjusted gross income of at least $1 million, the Internal Revenue Service said.

jim.puzzanghera@latimes.com

Peter Nicholas in the Washington bureau contributed to this report.