Buffing Up the Buffett Rule

Buffing Up the Buffett Rule

By David Windish, TaxAnalysts® Contributing Editor

Ah, the "Buffett Rule," the President's (and Warren Buffett's) answer to tax fairness. Let's just make sure that anyone with $1 million in income pays the same tax rate as his or her secretary. According to our President, 30 percent seems about right.

Now that's just fine with me, as long as we just buff up that Buffett rule a bit. Let's make sure we're taxing the same thing when we equalize those tax rates. Now, Buffett's corporation pays that secretary a salary, and under our tax code, the corporation gets to deduct that salary from corporate income. So the secretary is paying taxes on pre-tax corporate income. The corporation now has a bit left over after paying that secretary and all other expenses. It pays the corporate tax on that leftover and then pays Mr. Buffett a dividend with what's left after that. So Mr. Buffett pays a 15 percent tax on after-tax corporate income - income that has already been taxed at the corporate level. Seems to me, the only fair thing to do would be to tax Mr. Buffett at the same rates as his Secretary, but only if that tax is on pre-tax corporate income. Let's let the corporation deduct the dividends or deny the deduction for the secretary's salary and apply the 15 percent rate for dividends to that salary. Or we simply could eliminate the corporate tax and then tax all income at the same rates.

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Here's an even crazier notion. Let's just get rid of the income tax altogether in favor of taxes based on consumption, with an exemption for sustenance expenditures. In that case, the only way the rich could escape their fair share would be to live like the rest of us and not enjoy the fruits of their wealth. That should make everybody happy, right Mr. Buffett?

View David Windish's opinion in its entirety on TAX.com.

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