Nobody From Nowhere (@i8dc)

Occasional Common Sense

Congressional Research Service: Warren Buffett’s Right – In a Big Way

with one comment

or “Mark Perry’s Perfect Opportunity to Say “Oops… My Bad”

The Washington Post’s Lori Montgomery reports this afternoon:

A quarter of millionaires in the United States pay a smaller share of their income in federal taxes than many middle-class families, according to a new congressional analysis…

The report, by the nonpartisan Congressional Research Service, found that when all federal taxes are taken into account — including those on wages, investment income and corporate profits — some households earning more than $1 million a year paid as little as 24 percent of their income to the Internal Revenue Service in 2006.

That’s substantially less than the share paid by many families making less than $100,000 a year that faced a top effective tax rate exceeding 26.5 percent, the report said.

All told, 94,500 millionaires paid a smaller share of their income in taxes than 10 million households with moderate incomes, the report found…

Critics initially blasted the Buffett Rule, arguing that the average millionaire already pays a significantly higher effective tax rate than middle-class families do. The CRS report, by Thomas L. Hungerford, a specialist in public finance, found that to be true: Millionaires, on average, paid about 30 percent of their income in federal taxes, while households earning less than $100,000 paid closer to 19 percent.But the averages hide wide variations within income categories, Hungerford wrote, with millionaires paying anywhere from 24 percent to more than 35 percent of their income in federal taxes. The lower tax bills are primarily the result of low tax rates on investment income, such as capital gains and dividends…

“The current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than [do] a significant proportion of moderate-income taxpayers,” Hungerford wrote, although “not to the extent alluded to by Mr. Buffett.”Congressional Republicans have attacked the Buffett Rule, as well as the idea for a surtax on millionaires, as “class warfare.” They argue that raising taxes on millionaires would penalize many small businesses, the primary engine of U.S. job growth. They also oppose raising taxes on investment income, arguing that doing so would discourage savings and risk-taking.

The CRS report offers a withering rebuttal to both claims. Just 1 percent of tax returns with business income have adjusted gross income of more than $1 million a year, the report says, and those businesses are some of the least likely to create jobs…

As to savings, the report argues that private savings rates have fallen over the past 30 years even as the capital gains tax rate dropped from 28 percent in 1987 to 15 percent today, suggesting that “changing capital gains tax rates have had little effect on private saving.”

Well, that’s pretty damning.  Let’s see what else I can find very quickly in the report.

Key takeaway, right in the summary:

Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends. For example, the President has proposed allowing the 2001 and 2003 Bush tax cuts to expire for high income taxpayers and taxing carried interests of hedge fund managers as ordinary income as tax reforms that observe the Buffett rule. Research suggests that these tax reforms are unlikely to affect many small businesses or to deter saving and investment.” [emphasis added]

Note that the report does not break out the higher income levels, where the regressivity of the current system becomes obvious.

I’m eagerly awaiting responses to this study.

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Written by David Clayton

October 13, 2011 at 4:45 pm

Posted in Debunkery

One Response

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  1. The article is misleading at one point the author claims:

    “some households earning more than $1 million a year paid as little as 24 percent of their income to the Internal Revenue Service in 2006. That’s substantially less than the share paid by many families making less than $100,000 a year that faced a top effective tax rate exceeding 26.5 percent, the report said.”

    But later says this:

    “The CRS report, by Thomas L. Hungerford, a specialist in public finance, found that to be true: Millionaires, on average, paid about 30 percent of their income in federal taxes, while households earning less than $100,000 paid closer to 19 percent.”

    The fact that the distribution around the average tax rate can be large enough for many people in the top 1% to pay less than people making less than $100K/year speaks to the need for tax reform, not tinkering with the rates or adding a surcharge on top of the current rates to try to create some equality. Seems like Bowels-Simpson were on to something. Too bad our elected leaders would rather pander for votes.

    Michael

    October 15, 2011 at 4:05 pm


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