Why We Need a Buffett Rule
Seven Convincing Reasons
Seth Hanlon
February 2012
In recent months President Barack Obama articulated a fairness principle known as the
“Buffett Rule,” named after billionaire investor Warren Buffett, who disclosed that he pays
a smaller percentage of his income in federal taxes than his secretary. The Buffett Rule
holds that no millionaire should pay a lower effective tax rate than middle-class families.
On February 1, Sen. Sheldon Whitehouse (D-RI) introduced the Paying a Fair Share Act
of 2012. The bill would turn the principle behind the Buffett Rule into a rule of the U.S. tax
code, requiring that all households with incomes above $1 million pay at least a 30 percent
minimum tax rate (with a phase-in for incomes between $1 million and $2 million).
Here are seven compelling reasons why we need a Buffett Rule.
1. The incomes of the top 1 percent have skyrocketed over the past three decades, nearly
quadrupling and leaving middle-class incomes far behind. Rising inequality has meant
that the very rich have captured an outsized share of the country’s economic gains.
Inequality on the rise
Average after-tax income in constant dollars, 1979-2007
$1,319,700
1,400,000
1,200,000
1,000,000
$55,300
Middle quintile
Top 1%
800,000
600,000
$44,100
$346,600
400,000
200,000
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
0
Source: CBO
1 Center for American Progress | Why We Need a Buffett Rule: Seven Convincing Reasons
2. During these same years, tax rates on millionaires dropped sharply as a result of the
Bush tax cuts and successive rounds of tax cuts on investment income (capital gains
and dividends).
Overall federal income tax rates on millionaires, 1993-2009
35%
2001
First Bush tax cuts lower
top marginal rates from
39.6% to 35%
30%
25%
1997
Capital gains tax rate
lowered from 28% to 20%
2003
Second Bush tax cuts
accelerate rate cuts,
reduce capital gains and
dividend taxes to 15%
20%
15%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Internal Revenue Service, Publication 1304.
3. A large number of millionaires are now paying lower taxes than millions of middleclass Americans.
Billionaire Warren Buffett pays a below-average tax rate
than millions of average Americans.
Average federal income tax rate vs. Buffett’s
35%
16%
14%
12%
ONE IN FOUR millionaires pays lower taxes
30%
13.5%
11.0%
10%
8%
25%
TAX RATE
26.5%
20%
6%
15%
4%
2%
0%
10%
Average federal income tax rate,
2005-2009
Warren Buffett's tax rate on
$62 million of income in 2010
Source: IRS Statistics of Income (2005-2009 average); Warren Buffett letter to U.S. Rep. Tim Huelskamp (Oct. 11, 2011),
available at http://money.cnn.com/news/storysupplement/buffett-letter-to-huelskamp/.
2 Center for American Progress | Why We Need a Buffett Rule: Seven Convincing Reasons
5%
0%
94,500 millionaires pay a tax
rate of less than 26.5 percent,
while 10 million Americans
who earn less than $100,000
annually pay a tax rate
greater than 26.5 percent.
Source: Congressional Research Service (combining
income, payroll, and corporate taxes).
4. While many at the top continue to pay lower taxes than those below them on the
income scale, the entire burden of deficit reduction falls on investments and services for
the middle class.
The Budget Control Act, enacted in August 2011, includes:
• $1 trillion in cuts to government services and public investments (“discretionary”
spending) over 10 years
• $1.2 trillion in additional across-the-board spending cuts, including defense and
Medicare, starting in January 2013
• $0 in additional revenues
5. The Buffett Rule would raise significant amounts of revenue to address our budget
challenges, while affecting a tiny percentage of people who can easily afford it.
• $73 billion: Additional revenue that the United States would have collected per year over
the last three years if millionaires merely paid an average tax rate of 30 percent. • 0.1 percent: Percentage of Americans that would pay more in taxes under the Buffett Rule.
• 2.2 percent: Average tax increase for these millionaire households.
Source: Authors’ calculations from IRS data, Tax Policy Center tbl. T12-0024.
6. The Buffett Rule enjoys broad, bipartisan support.
Majority of Americans favor Buffett Rule
AP-GfK poll, February 2012
9%
14%
50%
12%
Strongly Favor
Somewhat Favor
Somewhat Oppose
Strongly Oppose
Neutral/Don't Know
15%
Source: Associated Press and GfK, “The AP-GfK Poll, February, 2012,” p. 6, available at http://apgfkpoll.com/main/wp-content/uploads/2012/02/AP-GfK-Poll-February-2012-Topline_Congress.pdf
3 Center for American Progress | Why We Need a Buffett Rule: Seven Convincing Reasons
7. And that’s because the rule would restore fundamental American values.
“We’re going to close the unproductive
tax loopholes that allow some of the truly
wealthy to avoid paying their fair share.
[These loopholes] sometimes made it
possible for millionaires to pay nothing,
while a bus driver was paying ten percent
of his salary, and that’s crazy.” JUNE 6, 1985
“Now, you can call this class warfare
all you want. But asking a billionaire to
pay at least as much as his secretary in
taxes? Most Americans would call that
common sense.” JAN. 24, 2012
Seth Hanlon is Director of Fiscal Reform at the Center for American Progress.
See also:
• Ronald Reagan, Father of the ‘Buffett Rule’ by Seth Hanlon and Michael Linden
• Issue Pulse: Support for the Buffett Rule
• Many Millionaires Do Enjoy Lower Tax Rates by Sarah Ayres
4 Center for American Progress | Why We Need a Buffett Rule: Seven Convincing Reasons