It is a quirk sometimes known as the "Buffett Rule" after investment oracle Warren Buffett backed efforts by Barack Obama to correct it, saying that he was paying a lower tax rate than his secretary.
As Mr. Buffett explained last month, “What I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” His income comes mostly from his investments, which are taxed at the capital gains rate of 15 percent. His secretary is most likely paid a salary and bonus, which would be taxed as ordinary income, at a rate that goes as high as 35 percent.
The rule stipulates that people who make more than $1 million a year should pay at least the same percentage of their earnings as middle-class Americans.
The number of people who fall under the Buffett Rule is quite small, only about 60,000 people. And the amount of revenue that would be generated over the next 10 years from raising their taxes is equally small — just $13 billion over the next decade, if people like private equity, venture capital and hedge fund managers, who receive the bulk of their income from investments, were taxed at the ordinary income tax rate instead of the capital gains rate of 15 percent.President Obama included the “Buffett Rule” in the budget plan he sent to Congress.
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires. That's pretty straightforward," Obama said.
The prospects of the rule ever becoming law are poor — there is strong opposition to it among Republicans in Congress. But some variation is possible.
The president’s plan also has several unintended consequences for people who make far less than $1 million a year. Interest on municipal bonds, for instance, is now tax-free. Under the president’s proposal, only taxpayers who pay an income tax rate of 28 percent or less would continue to get the tax exemption.
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