04/16/2012 12:48 pm ET Updated Jun 16, 2012

Dueling Tax Proposals Affecting Small Businesses, Millionaires May Be Doomed


WASHINGTON -- The day before Americans' taxes were due, Senate Republicans defied President Barack Obama on Monday and prepared to block a Democratic "Buffett rule" bill requiring the nation's top earners to pay at least 30 percent of their income in taxes.

A near party-line roll call was expected in a clash that was aimed more at winning over voters in this November's presidential and congressional elections than in pushing legislation into law. Democrats were using the battle to paint themselves as battling for equality for a middle class that is struggling to find jobs and make ends meet, while Republicans called the measure a divisive Democratic distraction from the nation's real problems that would not address the economy's real woes.

"Times are tough for many middle-class American families," said Senate Majority Leader Harry Reid, D-Nev. "But millionaires and billionaires aren't sharing the pain or the sacrifices, not one bit."

"Americans are tired of the blame game," said Senate Minority Leader Mitch McConnell, R-Ky. "They want their president to solve problems, not point fingers."

Monday's vote was the first time a "Buffett rule" proposal has come to a Senate vote this election year, though Democrats have tried unsuccessfully in recent months to impose modest surcharges on the income of the wealthy.

It was also a microcosm of the broader battle the two parties are having over an economy that is still having a tough time creating enough new jobs. And the fight isn't confined to the Senate floor.

On Thursday, the House plans to vote on a plan by House Majority Leader Eric Cantor, R-Va., to provide 20 percent tax deductions to all businesses with fewer than 500 workers - a threshold that includes 99.9 percent of all U.S. companies.

Republicans say that plan would spur job creation, while Democrats call it a giveaway to business because firms would not have to hire employees to receive the reduction. That bill is expected to pass the GOP-run House but die in the Democratic-led Senate.

The Senate vote was on a measure by Sen. Sheldon Whitehouse, D-R.I., that would impose a minimum 30 percent income tax on people making over $2 million yearly and phase in higher taxes for those earning at least $1 million. The measure is nicknamed for billionaire Warren Buffett, who has called for higher taxes on the rich.

The fight has been politically irresistible for both sides.

It allows Democrats to take shots at Mitt Romney, the wealthy, all-but-certain GOP presidential nominee. He has released data showing he paid an effective tax rate of only around 14 percent in 2010 and about 15 percent last year, both years earning around $21 million.

For Republicans, it's a chance to accuse its Democratic backers of pressing for tax increases that will divert money employers could otherwise use to expand and hire more workers.

The Senate measure would raise $47 billion over the coming decade, barely enough to notice against the roughly $7 trillion in budget deficits expected over that period. Administration officials have conceded that by itself it would do little to trim those shortfalls, instead emphasizing its fairness.

"The administration believes that continuing to allow some of the wealthiest Americans to use special tax breaks to avoid paying their fair share simply cannot be justified," the White House said in a written statement.

Obama's tax return shows he earned nearly $790,000 last year and paid an effective tax rate of almost 21 percent.

Republicans said the bill underscored an effort by Obama and Democrats to scapegoat the wealthy with a gimmick that would accomplish nothing.

Sen. Rob Portman, R-Ohio, called the measure a proposal "that no one can credibly argue will create a single job."

On average, the wealthy already pay higher income tax rates than those who make less.

People making $1 million or more annually paid an average effective rate of 25 percent last year in federal income and payroll taxes that finance Social Security and Medicare, according to the nonpartisan Tax Policy Center, a Washington group that studies taxes. Those earning $50,000 to $75,000 paid an average effective rate of 12 percent, the group said.

The White House complaint was that even so, some millionaires end up paying lower rates than many of those earning less. That is largely because many wealthy people earn income from dividends that are taxed at just 15 percent, instead of the top 35 percent rate on salaries.

A report last October by the Congressional Research Service, an agency that conducts research for lawmakers, said about a quarter of those earning $1 million or more per year - 94,500 taxpayers - had a lower tax rate than 10.4 million moderate-income people.