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The Buffett Rule: Tax Reform Plan Is a Perfect Fit for Obama 2012

Brendan SmialowskiIn a recent conference call with reporters, the White House made the case for a minimum tax on millionaires, ahead of a speech in which President Barack Obama will make it the centerpiece of his re-election campaign. The president's advisers say it will address the problem of income inequality in America and reduce the deficit. Republicans call it class warfare.

Here's what adoption of the tax -- or lack thereof -- might mean for all of us.

The Oracle of Omaha speaks

As proposed, the tax would require those making more than $1 million per year to pay 30% to the federal government. Right now, the highest federal income tax bracket is 35%, but few actually pay that percentage because the tax code leaves so much room for maneuvering.

According to a report from the White House Economic Council, in 2008 the 400 wealthiest Americans paid an average federal income tax of just 18%. This 30%, then, would be a bare minimum to be paid on income, no matter what else the tax code might say to the contrary.

Warren BuffettThe idea was proposed last fall by billionaire Warren Buffett, CEO of Berkshire Hathaway (BRK-B), when he discovered that he paid less taxes on a percentage basis than his secretary. It was instantly picked up as a talking point by Obama and has since become known simply as "the Buffett rule."

Capital Gains and Private Equity

As it becomes clearer that Mitt Romney will be the Republican nominee for president, making the Buffett rule the centerpiece of his campaign platform is an obvious move for Obama. Romney is very wealthy, and famously made his millions in private equity as the head of Bain Capital.

Private equity firms typically make money by buying companies, reconfiguring them, and then selling them. Any profit made on the sales of the reconfigured companies is taxed as capital gain, which translates into a flat 15%.

When it was revealed that Romney only paid about 15% on $21 million in income over the past two years, it became political ammunition for both Romney's Republican challengers and Obama -- all of whom were more than happy to paint him as an of an out-of-touch elite in an economically struggling America. In that sense, the Buffett rule was made to order for the president's upcoming campaign.

Mitt Romney Taxes

You Can't Blame a Guy for Trying

Of course, it's not Romney's fault his taxes are what they are. That's the tax code as it stands, and by all accounts, there's no funny business surrounding his filings.

But Romney's particular case, high profile as it's become, only serves to underline what many people see as a system that rewards those with the means to manipulate it, or at the very least get the most out of it. This point of view has dangers associated with it.

In October 2011, the nonpartisan Congressional Budget Office released a report showing that in the last 30 years, "income grew by 275% for the top 1% of households, 65% for the next 19%, just under 40% for the next 60%, and 18% for the bottom 20%." When things get too economically uneven, and people feel they have nothing left to lose, they can take to the streets. Look at Athens, or Paris, or London. Whether you feel Occupy Wall Street has a good case to make or not, nobody wants to see a peaceful movement burst into violence.

Citizens, politicians and members of the business community on both sides of the aisle have been calling for tax code reform for some time now. No one likes taxes, but the country can't run without them.

Politics aside, the Buffett rule carries a lot of weight because of the simple fact of who proposed it: one of the richest men in America and no foe of the free market. It may be a step in the right direction, not only to fix the budget and the national debt, but also to reduce the income inequality that may someday lead to true class warfare. Buffett's idea, now Obama's, is one of many. Let's hear more.

Motley Fool contributor John Grgurich owns no shares in Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, and Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway.

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May 05 2012 at 11:48 PM Report abuse rate up rate down Reply


Economical fairness for the middle class

April 13 2012 at 9:56 AM Report abuse -1 rate up rate down Reply
Dark Matter

The Buffett is a way to avoid tax reform, and to avoid having an adult conversation on government spending. It's about Obama's reelection, not economics.

April 13 2012 at 9:51 AM Report abuse +1 rate up rate down Reply
1 reply to Dark Matter's comment

In the previous administration we had Bush and a GOP house and senate, and just open your eyes and look at what we ended up with.

April 13 2012 at 10:09 AM Report abuse rate up rate down Reply
1 reply to Somey's comment

Correct... we got this Clown and his Czars and are paying for his vacations and waste.... now we need a serious President!!!

April 13 2012 at 10:48 AM Report abuse +2 rate up rate down

why not tax imputed income? Then Obama can tax Buffett on the billions he has, not on the fake take home salary.

April 13 2012 at 9:26 AM Report abuse +2 rate up rate down Reply

Charities will suffer immensely and those people dependent on these charities will now be dependent on the government for more food stamps and free hand-outs. Does this administration ever think about stuff like this? It is hard to believe that any of them have taken even introductory finance and/or economics course.

April 13 2012 at 9:22 AM Report abuse rate up rate down Reply

Barry.... just get Buffet to pay what he owes........ Huffy.... want to interview / write an article on why Buffet wont pay his 'fair share" ???? Thught not...

April 13 2012 at 9:09 AM Report abuse +1 rate up rate down Reply
1 reply to cpo1514's comment

Not to mention what Romney owes

April 13 2012 at 10:10 AM Report abuse -2 rate up rate down Reply
1 reply to Somey's comment

Some Liberal... Mitt pays three times..... At going rate when he declares, on the dividends, and at death... Buffet sues to avoid.... Too much to comprehend??/ Thought so... uneducated led by the the uninformed....

April 13 2012 at 10:27 AM Report abuse +3 rate up rate down

Stupid, Stupid, Stupid and praying on the ignorance of the American people. Raising income tax on muliti millionairs is a joke. Millionairs dont have income to tax. The money they live off of comes from investments which is taxed by way of the capital gains tax. The administration knows not to talk about increasing capital gains taxing because that would crash the market, the market being the only way to get any kind of return on your money today. You could raise Buffets income tax to 100% and he would not pay a penny more than he does now. But what difference does that m ake anyway Buffets Berksire Hathaway owes the IRS over 1 Billion dollars he dosewnt think he owes. That, from a manwho thinks millionairs should pay more, figure that one out. these people who pray on the american ignorance are the scum of the earth.

April 13 2012 at 9:01 AM Report abuse +1 rate up rate down Reply
Holli, Chaney

This tax increase will amount to about 3 billion a year.. equal to about 1% of the interest we pay on the national debt.

lets be clear folks.. We take in 2.1 trillion a year. We spend another 1.3 trillion more than that. We have to raise taxes on EVERYONE that pays them 50% JUST TO BREAK EVEN. This crap about a 4% tax increase for the rich..Isn't going to make any difference..and OBAMA wants to use this as an Excuse to spend more.. He said that..really.. HELLO OBAMA.. Wake up.

April 13 2012 at 7:24 AM Report abuse +3 rate up rate down Reply
1 reply to Holli, Chaney's comment

And then the OBAMA CARE bill came due.... Treasury is empty... Obama Care cant fund the Czars in the Death Panel.... so taxes go up again.... Barry will be organizing in Kenya with his pension..... seems fair if you are uneducated and led by the uninformed... like the Libs who voted for this Clown.

April 13 2012 at 9:11 AM Report abuse +2 rate up rate down Reply
1 reply to cpo1514's comment

You mean Buffoon Romney

April 13 2012 at 10:11 AM Report abuse -3 rate up rate down




April 13 2012 at 4:26 AM Report abuse +4 rate up rate down Reply
1 reply to ha6ai's comment

Yup, an "AOL Original" ... LOL!!

April 13 2012 at 4:29 AM Report abuse +3 rate up rate down Reply

Buffet is a worn out old man just trying to get noticed with a few ribbons placed around his neck before he goes ~

April 13 2012 at 12:08 AM Report abuse +3 rate up rate down Reply