The rich are getting a little tired of Warren Buffett constantly wanting to raise their taxes and suggest the real tax slackers are further down the income scale. Shockingly, that's not quite the truth.
The Oracle of Omaha, America's cuddliest billionaire, took to the New York Times recently to demand that he have his income taxed at a higher rate. His idea, dubbed the "Buffett Rule," is to have income of between $1 million and $10 million taxed at a 30 percent rate and everything over that taxed at 35 percent. This isn't the first time he has asked for higher taxes. He has asked for higher taxes so many times that other rich people are starting to worry about him.
The typical rich-person's retort to Buffett is that his cockamamie idea is only going to bring in chump change, about $47 billion in 10 years, according to one independent estimate. Hardly worth launching a Class War over. As the Washington Post's Ezra Klein pointed out a while back, this is a bogus argument because, hey, every little bit helps, and the Obama administration has packaged the Buffett Rule with other measures to raise more revenue. And also the Buffett Rule might actually raise more like $160 billion, which is almost real money.
Anyway, CNBC's wealth reporter, Robert Frank, has offered what at first glance seems to be a more serious, numbers-based retort to the Buffett Rule: It's hard to see what the Buffett Rule accomplishes because rich people already pay much, much higher income tax rates than the middles and the poors. And he even has IRS data to prove it: In 2010, for example, people with income of $10 million or more paid an income tax rate of 20.7 percent, compared with just 3.8 percent for people with incomes of $30,000 to $50,000 and 4.7 percent for incomes of $50,000 to $100,000. Come on, middles, pull your damn weight already. And don't even get us started on the lower incomes, who paid next to nothing in federal income taxes.
And people who are only kind-of rich? People who make just $1 million to $5 million per year? They are treated even more unfairly, paying about 25 percent of their income in federal income taxes.
"Put another way, millionaires pay a rate that’s nearly three to four times the rate paid by the middle class," Frank writes.
And he is absolutely right, but only if you focus on federal income-tax rates and not on federal payroll taxes or state taxes or sales taxes or the many other taxes that people pay -- taxes that often weigh more heavily on you the lower down you are on the income ladder.
"It's real important to understand how regressive that payroll tax is, and how much more it affects middle income people," hedge-fund manager Whitney Tilson, another rich guy asking for a tax hike, told CNBC earlier this year.
The Tax Policy Center recently tried to estimate the tax burden for different income groups of all of the various federal taxes, including payroll taxes. It found that people roughly in the middle of the income scale pay 15.5 percent of their income, on average, on income and payroll taxes. The people in the top 0.1 percent pay 24.7 percent. So the rich still pay a higher percentage, but the gap is much, much narrower than "three to four times the rate." And again, this does not include state or sales taxes.
Anyway, as Frank acknowledges, the point of the Buffett Rule really is as much symbolic as anything: Republicans and Democrats alike think we need to raise more revenue in order to help get the federal budget deficit under control. If that's the case, then why not start with the wealthiest Americans, whose tax rates have tumbled in recent decades, while the rates of middle-income taxpayers have risen?
Frank's point, that the rich already pay much higher tax rates than people in lower incomes, undercuts this basic-fairness argument, which is one of the most compelling arguments that proponents of the Buffett Rule have in their arsenal. But Frank's point doesn't begin to tell the whole story.