TAILIEUCHUNG - THE BUFFETT RULE: A BASIC PRINCIPLE OF TAX FAIRNESS

More normally, gains in factor effi ciency by a corporation should result in gains in social utility in the long term. Un- less the corporation is a monopoly any gains will be won at the expense of other market competitors. Th ese other fi rms will then have to either increase their own effi ciency or lose market share. Over time more and more of the goods produced in that market will be produced more effi ciently, and the price off ered to consumers should be reduced by competition. (Th is will not hold. | THE BUFFETT RULE A BASIC PRINCIPLE OF TAX FAIRNESS The National Economic Council April 2012 The Buffett Rule A Basic Principle of Tax Fairness The Buffett Rule is the basic principle that no household making over 1 million annually should pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett has famously stated that he pays a lower tax rate than his secretary but as this report documents this situation is not uncommon. This situation is the result of decades of the tax system being tilted in favor of high-income households at the expense of the middle class. Not only is this unfair it can also be economically inefficient by providing opportunities for tax planning and distorting decisions. The President has proposed the Buffett Rule as a basic rule of tax fairness that should be met in tax reform. To achieve this principle the President has proposed that no millionaire pay less than 30 percent of their income in taxes. Why the Buffett Rule Is Needed The average tax rate paid by the very highest-income Americans has fallen to nearly the lowest rate in over 50 years. The wealthiest 1-in-1 000 taxpayers pay barely a quarter of their income in Federal income and payroll taxes today half of what they would have contributed in 1960. And the top 400 richest Americans all making over 110 million paid only 18 percent of their income in income taxes in 2008. Average tax rates for the highest income Americans have plummeted even as their incomes have skyrocketed. Since 1979 the average after-tax income of the very wealthiest Americans -the top 1 percent - has risen nearly four-fold. Over the same period the middle sixty percent of Americans saw their incomes rise just 40 percent. The typical CEO who used to earn about 30 times more than his or her worker now earns 110 times more. Some of the richest Americans pay extraordinarily low tax rates as they hire lawyers and accountants to take particular advantage of loopholes and tax .

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