Washington (CNN) - Senate Democrats formally unveiled legislation Wednesday to ensure that all millionaires would pay a minimum federal tax of 30 percent.
The legislation comes as the relatively low tax rate for some high earners –like investor Warren Buffett and GOP presidential candidate Mitt Romney– takes center stage in both the policy and political arenas in Washington.
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President Obama and congressional Democrats have made enactment of the "Buffett Rule," which they say would force high earners pay a higher tax rate than their secretaries, a central part of their re-election messages. They argue it's both a matter of fairness and the best way to reduce the staggering deficit.
Buffett supports the Democrats' legislation.
"These middle class families are really struggling to get by and then they find out that some people with really extremely high incomes are actually paying lower all-in federal tax rate than they are. That's, to them, just not common sense," said Sen. Sheldon Whitehouse, D-Rhode Island, and author of the bill. "Americans deserve a straight deal and right now they are not getting one from our tax system."
A key reason Buffett and Romney pay a lower tax rates is because most of their income comes from investments. Taxes on capital gains from investments are capped at 15%.
The legislation would apply to people earning more than $1 million a year, be it from salaries or investments or both. They could still take some deductions – such as for charitable giving – but after all is said and done, they must pay an effective tax rate of at least 30 percent of their income as federal taxes.
Whitehouse says his legislation would raise billions for the government but there is no official estimate from the Congressional Budget Office about how much it would raise.
Most Republican strongly oppose raising the capital gains tax because they argue taxing investments at a higher rate will stifle job creation and hurt the economy.
Senate Democratic leaders have not decided when they will push for a vote on the legislation, which is called the "Paying a Fair Share Act of 2012." They want to consider first a handful of bills they consider to be job creation measures, including a highway funding bill, the FAA funding bill, and postal reform bill, according to aides.
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Just wait... I am sure they will conveniently forget to index their $1 million dollar tax for inflation. This will turn into another AMT. Somewhere down the road, the middle class will get sucked into paying a minimum 30%. Don't say I didn't warn you.
I see that argument all the time that corporations pay tax before the dividends are issued. This is not always true.
Exxon Mobel paid no tax and then issued dividends and GE paid no tax and issue dividends. Any many many companies do the same. It is time millionaires paid their fair share. Buffett pays more dollars than his secretary, but his secretary needs the money more than he does. Also more of her salary is subject to sales tax than his.
I think that if this bill actually made "millionaires" pay 30% in taxes then I would be ok with it. But it has two main issues. First is that I see no definition of "millionaire." If it was specified that a millionaire was an individual NOT a small business then I would be ok. Otherwise this tax increase is a massive increase on business's making over one million in investments. If the small business is only taking in a little more than one million then this will destroy them.
My second issue stems from how the bill seems to be structured. By changing the capital-gains tax rate itself, you affect everyone who has an investment. This would cause "millionaires" to pay more in taxes, but it would also hurt every other person who tried to make an investment.
Also here is a small simplified economics lesson for everyone (kind of a tangent but still somewhat relevant). When measuring GDP one does not take into account any form of transfer payment (ex: Government takes money from person A and gives to Person B). Thus simple redistribution of wealth does nothing to "help" the economy in and of itself. Person B does have more money to spend (and these expenditures would get counted in GDP) but so would Person A's potential expenditures. Meanwhile we forget that the money had to be transfered from Person A to Person B through the Government (with the Government taking a portion for itself). This is inefficient. We should look for a way to have Person A give money directly to Person B (through the form of a transaction).
For those who didn't feel like reading: Transfer payments do little to help the economy or small businesses. The only way to redistribute money is through the system itself. Jobs. This bill doesn't help.
Economics for dummies:
If you are wealthy and taxes on investments increase do you continue investing the same way or do you seek investments with lower tax consequences?
If you said " I'd invest the same way as before so I can pay my fair share " then you failed. Try again.
Define Fair – Correct me if I'm wrong, but this bill's intent is to make a group of people who currently pay Federal Income Taxes to pay more. Meanwhile the estimates for 2011 are that 47% of those who Filed will not pay Federal Income Tax. Now, I get the poor i.e. the 15% of Americans living below the poverty lines, but you mean to insist that the other 32% shouldn't pay ANY Federal Income Tax, and that is Fair! Sorry but I'm not buying that for a second. I'm also not a buyer of the argument that they pay other taxes because so does everyone else, but that shouldn't exempt them from Federal Income Taxes. The percentage of filers (not to mention those that don't even bother to file because their income is gained illegally or through their illegal status in this country) continues to grow. In 2009 it was 42% and is projected at 47% for 2011, heck at this rate give in 20 years only the Top 3% will pay any Federal Income Tax. I don't think we can talk about Fairness in Federal Income Taxes and ignore those not paying any now. Just for the record, I'm middle class and nowhere near being a millionaire but what I'm hearing feels more like a desire to let government redistribute wealth. I'll leave the impact of Capital Gains on job creation to economists, but I can decide what I think is fair on my own and don't need a Bill to tell me what it looks like, especially when the proposed bill creates more unfairness by taking more from those already paying and giving a huge segment of the population a free pass.
For all you "This is class warfare!" people. Class warfare was started when billionaires (like the Koch Brothers) and corporations started spending millions of dollars (pocket change to them) to buy lobbyists and Congressman to pass legislation that lets the rich get richer by paying an ever-smaller share in taxes while the rest of us pay an ever-increasing percentage. They've made legislation that effectively funnels money from the non-rich to the rich. A big company like GE makes a bad investment? Well they just call up their buddies in Congress to give them an interest free loan (or outright gift) to pay off their bad investments. But if they ever make a profit, they whine "We should be able to keep it all because we took all the risk!" That's Socialism for corporations.
I love how the rich and their lap dogs will always shield themselves with "This will hurt job creation" whenever a represented plan would create conflict to their interest or profit.
People need to understand that there is a difference between personal income tax and capital gains tax. And after understanding the difference, people must also understand that jacking up people's taxes is going to hurt the economy.
CAPITAL GAIN at 15% and a LOWERING of Corporate Taxes if PERSONAL INCOME – whether through Earned Income or Investment – in Excess of $1,000,000 would be TAXED at 30% and a LOWERING of Middle Class Tax rates as Proposed by the Democrats would mean LESS tax for more than 99% of Individuals and small business and Corporations Too – Just NOT ROMNEY
Economics for dummies:
Let's say you are very wealthy. So wealthy that you earn millions of dollars in investment income. Now let's say the government raises taxes on investments by 100%.
Question: can you afford to not invest your millions and just wait for more favorable tax policy?
Now if you are not so rich and these tax policies cause lower investment activity, resulting in slower growth and fewer jobs, can YOU afford to not work for a while you wait for more favorable tax policy?
Would it make you feel good that a rich person makes less money on investments even if it means you are unemployed?
See how easy basic economics can be?
just obama politics...just think about the money this will chase out of America. As it is Corporations have enough cash in foreign banks to pay off the national debt... Six out of seven jobs go overseas too.... GM it's self opened plants in Mexico and China just last year (after the obama cash infusion).
Home ownership is at a 70 year low...CBO says real unemployment is 10%(yesterdays report, nonpartisan). The middle east is on fire, the dollar is under attack...and there is much much more...and obama offers everyone a 3% mortgage...WHY WOULD ANYONE VOTE FOR ANOTHER 4 YEARS OF THIS?
There is a ton of momentum right now in terms of populist support for restoring some equity to our tax system. The election, and Romney in particular, have helped make things like "carried interest" part of common verbiage. Let's keep up the momentum to raise the capital gains taxes, particularly on hedge funds and things like carried interest. (Items that are not about creating jobs, but rather simply shift wealth). It is in our national interest to restore some level of equity and to reduce executive compensation down to a multiplier more in line with the rest of the world (CEOs getting no more than 40x the average employees rate; I know, still a ton, but we are over 100x right now, far in excess of any other country in the world). It ain't class warfare, it is simple fairness, and it is the right thing for the U.S. of A's future.
If I were a millionaire, I would simply add 30% more to my products that I sell to the little people. Just like ALL previous tax hikes. Charge it down to the consumer.
Who do you suppose pays for ALL taxes (expenses incured by the welthy anyway)???
Economics for Dummies:
Fact: Increasing taxes on anything results in less of the taxed activity.
Fact: Increasing taxes on investments causes less investing
Fact: Less investment results in slower growth
Fact: slower growth means lower employment (higher unemployment)
Question: Does Obama understand basic economics or is he a very smart politician just trying to score points with those who don't understand basic economics?
Once again the Democrats are trying to screw the People. Leave the tax rates alone, A person making 30K a year would pay 15% which amounts to 4500 dollars a person making 300, 000 a year would pay 45,000 dollars at 15% tax. So rich people allready pay more in taxes. This is nothing more then a cheap political stunt to get votes.
I would love to be a millionaire. Which means that I would love to be able to pay this tax.
Call their bluff! Have a few Repubs that aren't running again vote yes on it and put the Senate & the President in a spot when they have to change their mind. There is not a chance in Hell they are going to pass this.
It won't pass because all the money lobbyist will pay off the dems and repubs not to vote for it. Money rules sad day in America
Do you make a million dollars a year? Then it doesn't affect you, read the article........
@ anagram – we are talking about effective federal income tax rates. if you have an effective federal income tax rate of 30% on earned income (wages) then you are making in excess of $650,000 a year. I kind of doubt that. If I'm wrong and you are making that much, good for you.
even at Romney's effective federal income tax rate of 14% (it's that low due to the fact the majority comes from investment income and taxed at a lower rate) he paid over $3 million dollars in federal income tax in one year. that's more in taxes in one year than most people will "earn" in their life times.
This will lower the net income tax from investments. 1) Investors will shift to non dividend paying stock, 2) they will sell before the tax takes effect, and 3) lastly since capital gains tax is elective meaning you do not have to pay it if you don't sell stock, fewer sales will occur and only for need and not for simply trying to find the best investment. This also doesn't address Treasury bonds which are tax free. If you include those, our interest rates will jump as people dump treasuries and move money offshore.
The Republican held house would never go for it, they have become the party of the super wealthy.
Wake up people. Those that make a million a year don't need Social Security(SS), they have a big 401K or IRA they can tap with a million in it. If you rely on SS and not your investment to live on when you CAN retire, the Government taxes that too! Even after you paid taxes on it when you earned it. Your SS should be tax free, it's called double taxation and is supposed to be illegal and was until Congress took it away from us.
this "Buffet Rule" will bring in somewhere around $50B in annual federal tax revenue. the projected FY12 budget deficit is about $1.3T. Only $1.25T to go.
I think it is about time for everyone to wake up and realize a vote for a Republican is a vote against themselves unless they make over $1 Million a year. This will not hurt jobs in the USA at all, the only things hurt by this legislation will be offshore banks where crooks hide their illicit funds from all the rest of us and the government. If the Bush tax cuts actually created jobs we would ALL have 3 jobs each by now instead of having 9% unemployment. Bush Tax Cuts= Unemployment over 8%