Article Of The Month

Buffett Tax

Local businesses will have mixed messages to President Obama’s newest plan.  President Barack Obama’s “Buffett Rule” created in 2011 says that a call on raising taxes on millionaires is not a redistribution of wealth, but a way to free up money for crucial investments in the U.S. economy.  In a recent White House release on April 10th, the White House Council of Economic Advisors claims that it would “use the U.S. tax code to combat widening income inequality.”  Obama dismissed the notion that the plan is a gimmick.  He says it is necessary in order to tackle the country's massive deficits.

The rule is named after billionaire investor Warren Buffett who holds that the preferential tax rates on investment income should be increased.  Obama was flanked during his remarks at the White House Wednesday by several business executives and their assistants who he says agree with the principles in the Buffett Rule.

The Senate will vote on the tax this spring, where it will likely not receive much support.  Paul Ryan (R) of Wisconsin states “It pays for about 6 percent of the president’s proposed deficit spending.”  And it would impose a “huge tax increase on job creators…They would get hit by this Buffett rule.”  This means a larger hit on small businesses that would opt out of expansion to prevent entering a higher tax bracket.  This would also mean fewer jobs and less job creation in the long run.

According to the report by the Internal Revenue Service, 22,000 households made more than $1 million in 2009 and paid less than 15 percent in income taxes.  The report cited an Internal Revenue Service study on the 400 U.S. taxpayers with the highest incomes in 2008, at $110 million or higher.  Those people paid an average tax rate of 18.1 percent, excluding payroll taxes, down from 29.9 percent in 1995.  Families in the middle 20 percent of the income distribution paid 16 percent in federal taxes in 2010, according to the report.

Tax equality will become a central theme of the President’s re-election campaign to combat Republican front-runner Mitt Romney’s policies that suggest favoritism to large Wall Street firms.  However, Romney’s communications director replied that “President Obama is the first president in history to openly campaign for re-election on a platform of higher taxes.”

The 2012 Presidential campaign will address the fate of many businesses, large and small.  Should the Buffett Rule exert its power, Wall Street companies will face further cutbacks and layoffs to survive the tax increase.

 Alex Rahn, Wanner Associates, 908 N. 2nd St., Harrisburg, PA  17102; P-717.236.2050; www.wannerassoc.com