Obama’s “Buffett Tax” Will Widen The Wealth Gap

President Obama has called for a new “Buffett Tax” on millionaires as part of his plan to cut the deficit by $3 trillion. The effort, he says, is aimed at making sure that people who earn more than $1 million a year pay at least as much tax as middle-class families, Democracy Now reported yesterday.

The "Buffett Tax" is named after billionaire U.S. investor Warren Buffett, who wrote that rich people like him often pay less in tax than those who work for them. He also said that there is a class war going on and the rich are winning [in part because the current tax system has hastened the widening of the wealth gap].

The “Buffett Tax” contradicts Obama’s repeated calls for affluent Americans to pay their fair share. The concept of progressive taxation is based on the principle that the greater one’s income, the greater the percentage of their income that is taxed. The basis for this system is the assumption that the affluent can afford to part with a larger share of their income and still remain affluent. Therefore, if a “Buffett Tax” only makes the rich pay the same amount as the middle class, all it would do is possibly get the wealthy pay $20,000-30,000 per year in taxes, which is approximately what a lower middle class family is taxed.

However, if millionaires truly paid all the income taxes they are supposed to pay, they would have to pay 35% on all income above $379,150. Therefore, a millionaire would pay 35% of $620,850, or $217,297.50. Obviously, those making more than a million would pay much more. However, even this is letting them off easy. Consider that during the Great Depression, the marginal rate for the highest tax bracket was 63% and from 1953-1963 it was over 90%! In fact, from 1932 to 1986, the tax rate for the richest Americans never dropped below 50%, possibly Reagan’s most lasting legacy and why he is so adored by the wealthy.

This, of course, does not even take into account all the other tax breaks they get, like the current capital gains tax rate of 15% (28% under Reagan), or the inheritance tax breaks that have occurred over the past few years.