Congress should pass the “Buffett rule” to restore fairness to the federal income tax system and raise urgently needed revenue. But lawmakers should go further to rebalance the tax code and eliminate many provisions that benefit only the wealthiest 1 percent and a couple of thousand transnational corporations.
It is a national disgrace that millionaires pay effective income tax rates substantially lower than middle class taxpayers do.
As super-investor Warren Buffett has pointed out, his effective tax rate has been declining for years. In 2010, Buffett disclosed he paid 17.4 percent of his income in federal taxes, while most of his office colleagues paid 33 to 41 percent of their incomes.
This is largely the result of the way our tax code privileges income from wealth and investments over income from work and wages. In 1986, income from wages and capital gains were both taxed at the same rate of 28 percent. Today, we tax higher incomes from wage earnings at 35 percent and income from capital gains and dividends at 15 percent, creating huge distortions.
The wider public widely supports increasing taxes on millionaires because they recognize the U.S. has developed a “two-tier” tax system. We have one set of rules for the vast majority of people and another set of advantaged rules for the super-wealthy. They understand how tax rules have been tilted in favor of the 1 percent at the expense of everyone else.
Instituting the Buffett rule will be a step in the right direction but inadequate to reverse several decades of regressive tax policies and meet our revenue needs.
Since 2001, we have borrowed over $1 trillion to pay for the 2001 and 2003 Bush tax cuts for the wealthy. We should reverse the Bush tax cuts and institute several additional revenue provisions. A financial speculation tax—a modest penny tax on every four dollars of financial transactions—would generate over $100 billion a year and dampen the kind of speculative trading activity that crashed the economy in 2008. Closing offshore tax havens that enable transnational corporations to game their taxes down to zero would also generate over $100 billion.
The Buffett rule moves us to greater fairness and trust in the tax system and ensures the rest of our nation’s taxpayer that we are not chumps for paying our fair share on April 17.
Chuck Collins is a senior scholar at the Institute for Policy Studies and cofounder of Wealth for the Common Good.