The bill, to be introduced by Senator Sheldon Whitehouse of Rhode Island, would impose a new rate of up to 30 percent that would phase in gradually on incomes between $1 million and $2 million. The new rate would have to be paid if it is higher than the taxpayer’s current rate. It would operate like the alternative minimum tax, superseding all brackets and the lower rates for investment income, though it would preserve the incentive for charitable donations.
Those taxpayers who earn most of their high incomes from salaries would not be affected, as their rates are already higher than 30 percent. But taxpayers like Mitt Romney, who earn most of their income from investments or hedge-fund partnerships that are taxed at 15 percent, would have to pay substantially more.
President Obama prefers the example of Warren Buffett, who, he has said, pays a smaller tax rate than his secretary. (Thus, he calls it the “Buffett Rule.”)
The Congressional Research Service estimates that the Buffett Rule, requiring millionaires to pay at least the same rate as most middle-income taxpayers, would affect about a quarter of all millionaires, or 94,500 taxpayers. Citizens for Tax Justice, a liberal policy group, says the bill’s 30 percent rate would bring in about $50 billion a year.
The Obama administration says it is supportive of Mr. Whitehouse’s bill but still wants to see other changes in the tax code, such as using limits on itemized deductions for the highest earners to generate more tax revenue.
Both approaches would be good starts toward making the rich pay a fairer share and reduce the mounting cuts to government programs that benefit the less fortunate. But they are only the beginning. Sound tax policy calls for raising the capital gains tax, which, at 15 percent, is the lowest since the Great Depression.
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