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

[Modern School]

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 .

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

Modern School
http://modeducation.blogspot.com/2011/09/obamas-buffett-tax-will-widen-wealth.html

[golfguru]

1. The "lucky" rich have won the lottery of life!

Why not bring back the 90% tax brackets of the 50's & 60's?
It would be more fair. That will bring them down to
earth. Why stop at 39.5%???

[frazzled]

2. The Buffett tax means taxes on capital gains on investments

Not income taxes. We're talking about people whose main income is from investments, and they pay less than 15%. The Buffett rule means to tax this "money made on money" more like ordinary income.

"First, we need to be clear when we describe what Buffett is talking about. Income for the rich generally doesn’t come from a paycheck but from capital gains, namely dividends -- or profit made from the sale of an asset, such as stock. The federal, long-term capital gains tax rate was lowered from 28 percent to 20 percent by then-president Bill Clinton, and then again to 15 percent by then-president George W. Bush."

[golfguru]

3. Will there be means testing for capital gains tax

or do all of us lose the 15% rate on our 401-k capital gains? I am not clear on this.

[A HERETIC I AM]

4. You do not pay capital gains tax on your 401(k)

Your 401(k) is a tax deferred account, meaning there are no taxes for gains realized on an annual basis. When you draw the money out during your retirement, that money is taxed as ordinary income, NOT as capital gains.

BTW, the 15% rate on capital gains applies only to an asset held longer than one year.

The rate for assets held less than one year is 35%.

So...if you buy a share of ABC stock on January 1st for $10.00 and on December 29th it has gone up to $50 and you sell, you pay a capital gains tax on the $40 you realized as profit of 35%.

If you sold that same share on January 2nd, you would pay 15%.

If that stock paid a dividend to you during the year, they are also taxed as ordinary income.

[golfguru]

7. Yes I do pay tax on 401-k since I am drawing down

from it. I am retired. They send me a 1099-R each year.

[A HERETIC I AM]

9. As I said....

"When you draw the money out during your retirement, that money is taxed as ordinary income, NOT as capital gains."

You asked "Will there be means testing for capital gains tax or do all of us lose the 15% rate on our 401-k capital gains? I am not clear on this."

The money you have gained through the investments made inside your 401(k) are not taxed in that way.

And FWIW, if you are retired and still hold those funds in your 401(k), you are likely paying higher fees for management than you need to.

If you haven't already looked into it, it would be wise to investigate the advantages of rolling those funds into an IRA.

[frazzled]

5. I'm sure it will be on very high income players only

Like all the other proposed tax hikes, it's not meant to hit the middle classes. I don't think the details are out, but it was billed as making "millionaires" pay their fare share. My guess is the cap will be quite high. But honestly, I don't have the details.

I think people are confused about this because Obama didn't want to call it a "capital gains hike." Because the Republicans will get their panties in a twist and then start saying it's a tax hike on everybody.

[golfguru]

8. I sure hope the 15% will apply to under $200k incomes

although I would be quite OK with $100k. If the 15% goes away for everybody, I am gonna be mad as hell.

[demigoddess]

6. problem is that most republicans think it is still at 90 percent

they really have no idea that some person on social security probably pays more in percentage than a millionaire. They also do not know that if someone loses a farm or a business because of 'taxes', it is most likely that they managed their money stupidly. Just because you own a farm or a business does not mean you know how to manage money. Anybody can start a business not everybody knows how to run one.