The whole point behind the White House’s “Buffett Rule” push is to correct a flaw in the tax system that’s fundamentally unfair: thanks to various loopholes and breaks, very wealthy Americans can end up paying a lower tax rate than working families. It’s a problem President Reagan considered “crazy,” and President Obama wants to fix.
The right is eager to leave the discrepancy alone, but conservatives haven’t yet come up with a coherent explanation to oppose tax fairness, and various defenses were easily debunked. In case conservatives are tempted to argue, though, that this is a fluke in the tax code affecting almost no one, it’s worth appreciating how common the problem really is.
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.
All told, 94,500 millionaires paid a smaller share of their income in taxes than 10 million households with moderate incomes, the report found.
This is exactly what Democrats have been talking about for quite a while.
Greg Sargent has the CRS report, and noted that it also goes a long way in knocking down another common Republican argument about small businesses. Greg highlighted this excerpt: “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…. Research suggests that these reforms are unlikely to affect many small businesses or to deter saving and investment.”
For the record, Mitt Romney benefits from this very problem — Time reported that the GOP candidate’s investment income “allows him to pay a lower percentage of his money to the federal government each year than many middle-class wage earners” — and opposes tax-fairness proposals.
Update: Here’s the CRS report (pdf), for those who want to check it out.