Buffett's plan, as he outlined it, would largely affect the top 1% of families. For those who make $1 million or more, he has proposed a tax rate of 30%, including payroll taxes, while those who make $10 million or more would pay 35%. But even if Buffett's plan passes -- a long shot, given the Republican Party's refusal to consider tax increases on the rich -- experts say that balanced budgets will still require sacrifices across the board.
The Buffett Rule would increase taxes for households that make most of their money from investments. The billionaire's own tax return is a fair example: In 2010, he paid just 17.4% of his income in federal taxes, largely because most of his income was taxed at the 15% dividend and capital gains rate. In other words, the Buffett proposal would more than double his tax rate, increasing it to 35%.
Filling a Big Gap
But Buffett's proposal, while significant, wouldn't fill the hole in the federal budget. According to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, to do that will require increasing taxes on the middle class. "There aren't enough really rich people to generate the kind of money we need," Williams notes. "To cut the deficit in half, we would need to levy a 90% tax on everyone who makes more than $250,000 per year."
Democrats have responded by trying to create a direct link between middle class jobs and upper class taxes. The most explicit version of this argument was presented by Vice President Biden: Defending the "Teachers and First Responders Back to Work Act," a proposal to levy a 0.5% tax on all millionaires, he argued that the relatively minor increase in taxes would put "400,000 school teachers back in classrooms ...18,000 cops back on the street, and 7,000 firefighters back into firehouses."
Ultimately, there is no painless way to balance the budget: Doing so will require some combination of spending cuts, middle class tax increases and tax hikes on the wealthy. The solution, whatever it is, will leave everybody somewhat unhappy.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at email@example.com, or follow him on Twitter at @bruce1971.