The Buffett Rule Is A Good Idea by Simon Johnson

The Buffett Rule Is A Good Idea

by Simon Johnson

By Simon Johnson
Some high income Americans pay a lot of tax; others do not.  If you have right tax advice and if most of your income can be structured as some form of “capital gains”, your marginal rate – what you pay on the your last dollar of income – may be very low.  The highest marginal income tax rate currently is 35 percent, while long-term (over a year) capital gains are taxed at 15 percent at most.
The Buffett Rule is a proposal is establish a minimum tax rate for “millionaires” – people earning more than $1 million per year – and the Senate is likely to vote on a version this week.  The exact amount of revenue that this would bring in depends on the details, but there is no question that it is small relative to the country’s need to control the federal budget.  (The Joint Committee on Taxation scored one version of this proposal as generating about $30 billion over ten years; the annual budget deficit will remain over $1 trillion in the near term even under the most optimistic projections.)
The biggest sticking point for any reasonable strategy to control the US federal budget is that one side – the Republicans – steadfastly refuse to raise taxes, at all and on anyone.
There are three ways forward.  Either the Republicans begin to compromise – and agree to raise taxes as part of a comprehensive deficit reduction and debt control strategy, just as Ronald Reagan did.  There is a great deal of confusion about whether Reagan raised taxes after first cutting them; see chapter 3 of White House Burning for the details of what actually happened.