U.S. Billionaires Paying 1% Tax, or, Why the ‘Buffett Rule’ Makes Sense
Many U.S. millionaires and billionaires are exploiting tax loopholes and shelters to pay very little or no federal income tax, with some billionaires paying as little as 1%, ThinkProgress reports.
According to the Center for American Progress, in 2009 there were 1,470 households with reported incomes of over $1 million that paid no federal income tax at all. The average federal income tax rate for America’s 400 richest people in 2008 was 18.11%, compared to 15.7% for households with incomes ranging from $45,200- $92,400.
Bloomberg News, which is owned by billionaire New York City Mayor Michael Bloomberg, reports that American billionaires sometimes pay as little as 1% in federal income tax:
That’s because they derive the bulk of their income from stock appreciation, and they use complicated strategies — some of them — to make sure those gains don’t get classified as taxable income. Basically what they do is enter into transactions known as “variable pre-paid forward contracts” and it can enable them to defer paying capital gains tax until a later date…Much of the wealth never converts into income on a tax return.
The Center for American Progress also cites the “carried interest loophole” that allows hedge fund managers and private equity funds to pay 15% capital gains tax and no payroll tax.
ThinkProgress also reports that tax rates for millionaires have fallen 25% since the 1990s. According to the non-partisan Congressional Research Service, 25% of U.S. millionaires pay lower taxes than many middle-class Americans.
Billionaire investor Warren Buffett has been championing higher taxes on the wealthiest Americans, pointing out that the rate at which he is taxed has been “a lower percentage than was paid by any of the other 20 people” in his office. In an August op-ed piece in the New York Times titled “Stop Coddling the Super-Rich”, Buffett wrote:
While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks… These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places…My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Buffett’s extraordinary candor inspired what has come to be known as the “Buffett Rule,” an Obama initiative that seeks to alter the nation’s tax code so that “no household making over $1 million annually should pay a smaller share of income in taxes than middle-class families pay.” That sounds eminently reasonable. Conservative politicians have, of course, attacked the proposal as “class warfare.”
Buffett isn’t the only wealthy American calling for higher taxes on the rich. A group calling themselves “Patriotic Millionaires” took the case for higher taxes to Congress last week, and the Wall Street Journal reported that a Spectrem Group survey of millionaires found that 68% of them favored raising taxes on people making $1 million or more annually.
Even those who would be most hurt by it seem to agree that the “Buffett Rule” makes sense.
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