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April 16, 2012
Tax Analysts' Martin Sullivan Tackles Myths Surrounding the Buffet Rule
FALLS CHURCH, VA — With the U.S. Senate set to vote on the proposed “Buffett Rule,” imposing a 30 percent tax rate on those making at least $2 million a year and phasing in a similar rate for those making at least $1 million, Tax Analysts’ chief economist Martin A. Sullivan debunks the myths surrounding the Buffett Rule in a study released today.

He notes:

      Myth #1: The Buffett rule is largely a symbolic political ploy because it would raise only $5 billion a year.

      [T]he Joint Committee on Taxation reported that the Buffett rule would raise $47 billion over the next 10 years. It is true that if we revert to a pre-2001 world [that is, before President Bush’s tax cuts], the impact of a Buffett rule would be relatively small, as the $47 billion figure suggests. But in the world we are likely to be facing for many years to come -- where Republicans have veto power over any tax increases -- a Buffett rule would likely raise much more than the oft-quoted $47 billion figure… If the Bush tax cuts are extended, application of the Buffett rule would raise $162 billion over 10 years.

      Myth #2: The United States cannot raise taxes on the wealthy because "there appear to be limits in the real world as to how much tax blood can be extracted from rich turnips" and "the U.S. has the world's most progressive tax burden."

      Opponents point out that the top 10 percent of U.S. taxpayers pay a larger share of "household taxes" (that is, income and the employee portion of payroll taxes) than in any other OECD country. However, this ignores the fact that the top 10 percent of taxpayers in the United States have a larger share of total income than the top 10 percent of taxpayers in most other countries. It also fails to take into account that although the share of taxes paid by the wealthy may be larger in the United States than in other countries, the tax burden as a percentage of income is smaller because the United States is a low-tax country.
      Myth #3: The United States has a progressive income tax.

      In actuality, the schedule of effective tax rates in the United States is not steadily upward sloping. Depending on the year, average tax rates begin declining somewhere in the $2 million to $5 million range. Application of the Buffett principle would eliminate the dip in tax rates at the high end. The Buffett rule is roughly equivalent to an increase in the tax rate on capital gains and dividends on millionaires. The United States must choose whether it wants an income tax that is progressive over all income categories or whether it wants large tax benefits for capital gains and dividends. It can't have both.

Martin Sullivan is chief economist for Tax Analysts, writes extensively for its daily and weekly publications, and blogs regularly for An expert on corporate taxation, he has testified before Congress on issues related to tax reform. He is frequently quoted and interviewed by the media; recent mentions include The New York Times,, as well as appearances on ABC's World News With Diane Sawyer, NPR's On Point, and CBS's 60 Minutes. He is also author of Corporate Tax Reform: Taxing Profits in the 21st Century.

Media Notes: To request a full copy of the study or an interview with Mr. Sullivan, please contact Jennifer Devlin or call 703-876-1714.

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