A recent analysis conducted by the Congressional Research Service has shown that roughly 25 percent of millionaires don’t pay enough in federal taxes to be affected by the Buffett Rule – a recently proposed guideline aimed at taxing the rich more.
The study, which found that 94,500 millionaires pay an effective federal tax rate lower than that paid by 10.4 million middle-income wage earners, put the U.S. tax system in conflict with the Buffett principle, proposed by President Barack Obama in September after billionaire Warren Buffett, the 81- year-old chairman and chief executive officer of Berkshire Hathaway Inc., said it wasn’t fair for him to pay a lower percentage of income in taxes than his secretary
“[Last year] what I paid was only 17.4% of my taxable income — and that’s actually a lower percentage than what was paid by any of the other 20 people in our office,” Buffett wrote in a New York Times op-ed last month.
According to Buffet, the reason that moderate-income taxpayers bear the brunt of the Social Security payroll tax is because it applies only to the first $106,800 in wages.
Furthermore, while ordinary income is taxed at rates ranging from 10 to 35 percent, a significant portion of millionaires derive the bulk of their income from investments – which typically are taxed at lower rates.
While critics of the Rule often assert that small businesses are the source of the greatest job creation, and that raising tax rates on small business owners would be bad for the economy, the CRS report found that “small businesses contribute only slightly more jobs than larger businesses relative to their employment share.”
The study also noted “most small business owners of startup firms are not in the top income categories and would not be affected by tax policies that observe the Buffett Rule.”