Obama’s “Buffett rule” Equivalent to Raising Top Marginal Rate on Millionaires to 44%

January 25, 2012

In his State of the Union address last night, President Obama proposed the latest version of the “Buffett rule.” But he got more specific this time around.

The rule would require all individuals reporting at least $1 million in income to pay an effective tax rate of no less than 30 percent. He did not say how this would be implemented, nor did the White House release more specifics on the rule today.

For the moment, let’s think about this in the context of the term with which most Americans can identify: top marginal rate. This is the tax rate you pay on your last dollar earned. How big of an increase to the top marginal rate is the “Buffett rule” equal to for million-dollar earners?

Nine percentage points.

If the rest of the tax code remained untouched, the top marginal rate would need to be raised from 35 percent to 44 percent on the average million-dollar earner (someone making $3.1 million annually, calculated using table 1.2 of IRS data) to ensure the 30 percent effective rate of the proposal.

The United States already “boasts” the most progressive individual tax code in the industrialized world. Combine that with the fact that the OECD has found individual taxes to be the second most harmful to economic growth and this policy spells disaster for the 100 percent, not just the one.

Follow David S. Logan on Twitter @Loganomix

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