In his speech to Congress earlier this month, President Obama jabbed at our tax code. "Right now, Warren Buffett pays a lower tax rate than his secretary -- an outrage he has asked us to fix," he said. "We need a tax code where everyone gets a fair shake and where everybody pays their fair share."

He's referring, of course, to Buffett's New York Times op-ed last month, when the Berkshire Hathaway (NYS: BRK.B) billionaire pointed out that his tax rate was about half that of rank-and-file Berkshire employees. "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 wrote.

Tomorrow, Obama is expected to do just that, proposing what's being called the "Buffett Tax," effectively ensuring that those making more than $1 million a year have a tax rate at least equal to middle-income workers.

There are no details on how the plan might work -- and Obama isn't expected to outline specifics tomorrow. But here are three things to keep in mind.  

How much revenue would it raise?
Buffett has said in the past that a main reason for fixing the discrepancy between his tax rate and middle-income workers is simple fairness. But if we're talking about raising revenue to lower deficits, how much might such a plan bring in? Hard to say. In an interview with Charlie Rose, Buffett hinted that a similar plan could raise $550 billion over 10 years, but it's very difficult to project these things accurately, particularly when there are no specifics.  

Whom would it hit?
Our tax code is still largely progressive up until the very top:

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Source: IRS, 2009. Top-400 data from 2007.

The vast majority of those making more than $1,000,000 probably wouldn't see much change from the Buffett Tax, because their tax rates are already above those of middle-income workers. It's not until you get to the extreme top, such as the top 400 filers, before average rates regress. In 2007, the top 400 tax filers had an average income of $344,000,000, taxed at an average rate of 16.62%. That was less than the average tax rate paid by a household making $100,000 a year.

Can it pass?
In this Congress, I don't think the plan stands a chance of passing. One side of the legislature has made it clear that no tax increases are politically feasible. The Buffett Tax is likely to go down as a symbolic gesture highlighting what many see as a flaw in our tax code, but it's unlikely to become law anytime soon.

What do you think about the idea? Sound off below.

At the time this article was published Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Follow him on Twitter, where he goes by @TMFHousel. The Motley Fool owns, and Motley Fool newsletter services have recommended buying, shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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8 Comments

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hello wis 2 wag

WHAT TO PAY DEBT?
THEY HAVE KNOW IDEA WHAT THAT IS,
I AM ON A TOWN BOARD WE HAVE NO DEBT WHEN IT IS BROUGHT UP I VOTE AGAINST IT.
WE BUILT A MUNICIPAL BUILDINGWHEN WE HAD CASH TO PAY FOR IT.

December 13 2011 at 3:52 AM Report abuse rate up rate down Reply
gandnmgmt

I'd pay more if the government would use it to good purpose (help stimulate the economy) but they seem incapable of that.

September 19 2011 at 12:15 PM Report abuse rate up rate down Reply
delamplugh

The tax rate benefits the very rich because they have the most and donate the most to the politicians that make the tax laws. I consider myself a conservative and beleive government waste is a problem, however I am against anyone not being taxed at least the amount that the middle class is taxed. With the financial condition our Congress has gotten us in (and it's both parties and been over the last 20 years) I doubt we can get to a balanced budget without raising revenues somewhere. Just imagine trying to cut your own budget by about 40% (thats the amount of expenditures we borrow). Let's be real we need a combination of budget cuts and revenue enhancements and that is going to mean more taxes on someone.

September 19 2011 at 10:54 AM Report abuse rate up rate down Reply
wberroyer

I'am for it. But I believe in the end our goverment must be held back from spending money they don't have. Just like families, even if the ideas they come up with are great. If they don't have the money it dosen't get done. The tax code should be completely revamped based on whats fair, not what benifities the people in goverment.

September 19 2011 at 10:41 AM Report abuse rate up rate down Reply
adocafg

Never been able to understand the concept of "fair share" as it relates to taxation.If I earn more than another person why do I have to pay more to an utterly wasteful government? Do I receive more from this government than somebody who pays less? NO! Am I better educated and work harder than somebody who pays less? YES!!.Am I being penalized for being better educated and working harder? YES!!! Seems patently unfair to me.Obama is a socialist and the progressive tax is just another way to redistribute income.

September 19 2011 at 8:47 AM Report abuse rate up rate down Reply
SPQR

The next time you see that graph it will be just a straight line no doubt. and Warren Buffet will pay 13%

September 18 2011 at 7:47 PM Report abuse rate up rate down Reply
jvriner

We own several hundred shares of BRK.B and, for several years, have watched the poor porformance of this stock. Now, Warren Buffet wants us to pay more taxes on other income, even though our investment in his stock has substantially declined and we have a painful paper loss.

We believe that Warren Buffet no longer deserves his reputation as an astute investor.

In view of Warren Buffet's current political stance and his non-sensical tax suggestions, we we have had enough of him. We plan to sell our stock and take the loss.

September 18 2011 at 3:19 PM Report abuse rate up rate down Reply
jvriner

1) From the above chart it seems that the "Progressive" Tax Rate ceases at approximately the $1,000,000 mark. Why is that?? The "Progressive" Tax Rate should continue to increase at the $1,000,000 mark. We remember that in the 1950s the Tax Rate continued to increase to the approximate 90% level. Why not now???

2) Warren Buffet and others that embrace his tax philosophy should VOLUNTEER to pay more taxes. There is certainly no law against this approach; and, the rest of us would welcome a bit of help along these lines. Failing to
VOLUNTEER, this group shoud welcome a continuing Tax Rate Increase beyond the current 39% (above chart).

September 18 2011 at 3:10 PM Report abuse rate up rate down Reply