End the Bush tax cuts for high incomes: The Bush-era tax cuts for households with incomes over $250,000 will expire at the end of 2012. As long as Congress doesn’t extend these tax cuts, the top marginal tax rate will change from 35 percent to 39.6 percent, and the capital gains and dividends tax rate will change from 15 percent to 20 percent. Ending these tax breaks is an important first step for increasing high income tax rates. Restoring pre-Bush tax rates on households with more than $250,000 income would raise $700 billion over ten years.
Enact the Buffett Rule and increase millionaires tax rates: The Buffett Rule was proposed by President Obama and named after Warren Buffett, who has called attention to the fact that he pays a lower effective tax rate than his secretary, largely due to the capital gains tax rate. The principle of the Buffett Rule is to ensure that millionaires pay more income tax – not less – than middle-income taxpayers. This year, Senator Whitehouse introduced the “Paying a Fair Share Act” (S. 2059) that would require millionaires to pay a minimum tax rate of 30 percent. This bill could raise $171 billion in revenue over 10 years, and is one available policy strategy for enacting the Buffett Rule.
Tax wealth like work: Currently, long-term capital gains and dividends are taxed at 15 percent. We could raise $533 billion in revenue over 10 years by repealing the capital gains tax break and tax income from wealth like income from work. According to Citizens for Tax Justice, 80 percent of the tax increase resulting from eliminating the capital gains preference in 2014 would be paid by the richest one percent of taxpayers. This reform could be a highly effective way to enact the Buffett Rule.
Close carried interest tax loophole: Fund managers are currently taxed at the capital gains for compensation from investments. Closing this “carried interest” loophole and taxing fund manager’s compensation like ordinary income could raise $21 billion over 10 years.
Progressive estate tax: In 2001, Congress passed legislation to phase out and eliminate the federal estate tax, our only tax on inherited wealth. This was a $1.35 trillion tax break for multi-millionaires and billionaires over the last decade. Due to Congressional inaction, the estate tax expired at the end of 2009. Congress then passed a deal at the end of 2010 to reinstate the estate tax at a rate of 35 percent, and to exempt estates worth as much as $5 million ($10 million for a couple). Congress could institute more progressive estate tax reform that closes loopholes and raises additional revenue from those able to pay. The Responsible Estate Tax Act would establish graduated tax rates, with no tax at all on estates worth under $3.5 million ($7 million for a couple), and include a 10 percent surtax on the value of an estate above $500 million ($1 billion for a couple). While the estate tax does not impact the income tax rates paid by millionaires, it is a critical strategy for taxing wealth and creating opportunity for future generations. The Responsible Estate Tax Act would raise $264 billion over ten years.
Revenue figures from Citizens for Tax Justice (www.ctj.org)