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ThePlumLIneGS whorunsgov plumline
Posted at 11:26 AM ET, 10/13/2011

Yup, the Buffett-and-his-secretary analogy is completely accurate

When Obama first began pushing the “Buffett Rule,” arguing that some millionaires and billionaires (such as Buffett) pay lower tax rates than middle class Americans (such as his secretary), conservatives and some neutral commentators scoffed at the analogy. They argued that on average the wealthy pay higher taxes than middle income Americans do.

This response was off point, because as Paul Krugman noted at the time, the point was that some rich people, not all, pay lower tax rates than middle class Americans. And the idea behind the Buffett rule is that this shouldn’t happen at all.

Now, thankfully, the nonpartisan Congressional Research Service has weighed in with an analysis that confirms that the Buffet-and-his-secretary analogy is accurate. Lori Montgomery reports:

A quarter of millionaires in the United States pay a smaller share of their income in federal taxes than many middle-class families, according to a new congressional analysis that offers fresh support for President Obama’s push to raise taxes on the nation’s wealthiest households.
The report, by the nonpartisan Congressional Research Service, found that when all federal taxes are taken into account — including those on wages, investment income and corporate profits — some households earning more than $1 million a year paid as little as 24 percent of their income to the Internal Revenue Service in 2006.
That’s substantially less than the share paid by many families making less than $100,000 a year that faced a top effective tax rate exceeding 26.5 percent, the report said.

I’ve got a copy of the report, which seems to be the first thorough analysis of tax rates in the context of the argument over the Buffett Rule. It does confirm the general conservative argument that on average millionaires pay higher tax rates than the middle class.

But the report nonetheless supports the argument Democrats are making about the Buffett Rule — i.e., that in many cases the wealthy are paying lower rates, and that this is a significant phenomenon. And it strongly undercuts another primary conservative argument against raising taxes on the wealthy — that so doing would hammer small businesses and discourage investment. The report’s conclusion:

The results of this analysis show that the current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers. Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends. For example, the President has proposed allowing the 2001 and 2003 Bush tax cuts expire for high-income taxpayers and taxing carried interests as ordinary income as one way to observe the Buffett rule. Research suggests that these reforms are unlikely to affect many small businesses or to deter saving and investment.

The bottom line: Yes, there are many Warren Buffetts out there who pay lower tax rates than their secretaries, and no, trying to remedy this does not constitute “class warfare.”

By  |  11:26 AM ET, 10/13/2011

 
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