海角大神

President Obama鈥檚 latest budget endorses聽a 鈥淏uffett rule鈥澛犫�� a new floor on taxes paid by folks with very high incomes. His rule聽would require that 鈥渢hose making over $1 million should pay no less than 30 percent of their income in taxes.鈥�

The president didn鈥檛 offer many聽specifics about how the rule would actually work. Up on Capitol Hill, however, Senator Sheldon Whitehouse and Representative Tammy Baldwin have聽 introduced legislation that would implement a 30% minimum tax. That legislation addresses key technical issues such as which taxes to include, what measure of income to use, and how to phase-in the tax so that there isn鈥檛 a giant spike when someone鈥檚 income rises from $999,999 to $1 million. For more information,聽including TPC鈥檚 estimates of the distributional impacts, please see this post by TPC鈥檚 Roberton Williams.

TPC鈥漵 Daniel Baneman has examined how the PFSA聽would affect marginal tax rates 鈥� i.e., the effective tax rate that would apply if a person earned an additional dollar. Here鈥檚 his chart comparing the PFSA to current policy (i.e., the taxes that would be in effect if all the expiring tax cuts get extended at the end of the year, except for the payroll tax holiday):

As you can see, the Buffett rule聽would have little effect on the tax rate on wages and salaries. The real action is in capital gains:

If investors ever聽expect that the Buffett rule will actually go into effect, expect them to realize lots of capital gains early. Update (I forgot to include the second half of that thought): After that, realizations will be significantly lower than they would be under current tax rules. That cuts into the potential revenue from the Buffett rule.