Your high net worth clients are in the president’s sights, and if he pushes his tax agenda through Congress, those making $1 million or more a year will be hit with a new “kind of AMT” that would ensure they pay at the same rate as lower income taxpayers.
President Barack Obama’s controversial proposal to cut $3.6 trillion from the deficit over the next decade includes a measure called the “Buffett Rule,” a tax increase on wealthy Americans who earn $1 million or more per taxable year. “Middle-class families shouldn’t pay higher tax rates than millionaires and billionaires,” said Obama. “Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it.”
Obama was referring to Buffett’s New York Times op-ed piece in which he said that the federal government protects the wealthy like “spotted owls” and other “endangered species.” In the piece, Buffett said that his effective tax rate is far lower than anyone else’s in his office and called for the wealthy to make “shared sacrifice” to get the country’s finances in order.
But Republicans like House Speaker John Boehner, R-Ohio, don’t see the Buffett Rule in terms of fairness. “I don’t believe that class warfare is leadership,” the speaker said. The president countered that, “[Y]ou’re already hearing the moans and groans from the other side about how we are engaging in class warfare and we’re being too populist and this and that and the other—all the usual scripts. I mean, it’s predictable, the news releases that come out from the other side.” Perhaps ironically, Obama’s comments were made at his recent $35,800 a couple fundraiser.
Obama claims that the tax hike is necessary to promote fairness among high and low income earners, but government statistics tell a different story. According to the Congressional Budget Office, over 70% of all federal income taxes are paid by the top 10% of earners. And while some millionaires may be paying a lower percentage of their income in tax than the regular middle-income earner, this represents less than 1% of all households with incomes exceeding $1 million.
With the combined effects of the proposed $447 billion American Jobs Act and the sunset of the Bush tax cuts in 2012, this additional tax increase proposal is already receiving widespread criticism. Opponents of it are arguing that Obama is merely raising taxes and increasing spending without affirmatively resolving the high unemployment rates suffocating our economy.
Because it’s highly unlikely that Republicans will allow Obama’s Buffett Tax Proposal to pass a House vote, taxpayers may be left wondering whether the proposal is really in the best interests of the U.S. economy or whether it’s an empty attempt to charge up the president’s base in the lead-up to the election.
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See also The Law Professor’s blog at AdvisorFYI.