President Barack Obama will once-again this week try to right the nation's fiscal ship-of-state by proposing a new tax levy for U.S. taxpayers whose income exceeds $1 million per year.
The tax, called the Buffett Tax or Buffett Rule after Berkshire Hathaway Investment Guru Warren Buffett, will be among the recommendations Obama will forward to Congress' super committee charged with reducing another $1.5 trillion in debt by late November. Obama is expected to announce his new debt reduction plan Monday, an outline that will recommend $2 trillion in debt reduction -- or more than the super committee's goal.
Obama's new tax is designed to make sure the wealthiest taxpayers don't pay an effective lower tax rate than middle-income filers, Bloomberg News reported Sunday.
The tax would affect 450,000 adults, the Obama administration said, The New York Times reported Sunday.
Buffett: Taxes On Me, Rich Are Too Low
The proposal has been dubbed the Buffett Rule after Berkshire' Warren Buffett who said he, and billionaires like him, as well as millionaires, should not be paying an effective lower tax rate than the typical person.
Buffett says the current tax code's tax breaks allow him to pay a lower rate of tax than his secretary pays, The Los Angeles Times reported Sunday.
Obama's tax proposal, which would start in 2013, would limit deductions and credits that high -ncome adults could take once they hit the $1 million threshold, The New York Times reported Sunday.
Liberal and populist groups generally favor Obama's proposal because of what they argue is a flaw in U.S. tax law. Although in theory upper income groups pay a higher percent of their income in federal tax, after subtracting for deduction, credits, and other breaks, upper-income adults -- and especially the uber-rich with adjusted gross incomes above $5 million per year -- often pay a lower percent of their income in federal income tax than middle-income and working class adults.
In other words, Obama is going after one of biggest loop holes in the current tax law -- and one that costs the U.S. Government hundreds of billions of dollars - the 20 percent differential that encourages tax filers to find ways to reclassify wage income as investment income.
That loop hole in federal tax law is one reason that hedge fund managers, for example, among other institutional investors and accredited investors, who gross over $10 million of $25 million per year can, via reclassification, shift wage/salary income to investment income --- often resulting in a lower effective tax rate than middle-income and working-class filers.
No Surprise: Republicans Oppose Tax on Millionaires
Obama's proposal did not generate an unconventional response from Congressional Republicans. Key GOP members labeled it class warfare -- the term the party routinely uses any time a proposal is forwarded that asks those who reap the greatest benefits and profits from American society to bear the greatest burden.
Class warfare ... may make for really good politics, but it makes for rotten economics, House Budget Committee Chairman Paul D. Ryan, R-Wis., said on Fox News Sunday.
And earlier this month House Speaker John Boehner, R-Obio, said the 12-member super committee should focus on cutting federal spending and reforming Social Security and Medicare to reach its $1.5 trillion deficit reduction target.
Tax increases, I think, are off the table, and I don't think they're a viable option for the joint committee, Boehner said, Bloomberg News reported.
Political/Public Policy Analysis: Obama's tax increase on millionaires is not likely to pass the Republican-controlled U.S. House, but is important that Obama and Congressional Democrats force Congressional Republicans to vote No on every tax proposal that has the goal of shared sacrifice.
By getting the Republicans on the record, it will provide the American people a more-clear idea where the two parties stand on shared sacrifice: the Democrats, willing to make spending cuts if upper-income and uber-rich individuals are asked to sacrifice too; and the Republicans, who, despite votinge for cuts to programs that help the poor, working, elderly and other vulnerable members of society, are unwilling to ask those adults with incomes of $1 million per year or more -- in other words very well-off individuals -- to pay their fair share to help the nation get its fiscal house in order and to meet nation's social needs.
The tax on millionaires will not be the most important issue in the 2012 election -- the economy and whether the U.S in adding or losing jobs will be -- but getting the Republicans on record is an important data point for voters as they evaluate who represents the powerful, and the uber-rich, and who represents the entire nation and society.