President Barack Obama will propose a new levy on U.S. taxpayers who make more than $1 million as a means to help trim the nation’s debt, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.
The president hasn’t settled on the new minimum tax rate for top earners, which is designed to make sure the wealthiest taxpayers aren’t paying a lower effective tax rate than middle- income earners, the official said. Obama has already proposed limiting some tax deductions for those in the highest income brackets, taxing carried interest as regular income and ending breaks for gas and oil companies to pay for the $447 billion jobs package.
This is pretty simple to do, assuming he's serious.
If your AGI is over $1m then all income is taxed at ordinary income rates irrespective of how you earned it, and with no deductibility against it.
That is, you lose all deductions against any AGI over $1m, and in addition all income over $1m is taxed at 35% + 2.1% (Medicare.) Assuming the Bush tax cuts do not extend after 2012 it will be 39.6% + 2.1%.
Is this "fair"? Good question. It is without dispute that most who make over $1m a year do not get most of their money from W2 income where it is exposed to the normal marginal tax rates; it comes from carried interest and capital gains. Some invest heavily in municipal bonds which are federal-tax exempt.
The latter, however, is not really "tax free" since the yield on those bonds is lower than the yield on taxable securities. While there is some tax benefit most of the "benefit" is just shifted to the state in the form of a lower interest rate they must pay.
The Republicans will have a serious problem opposing this, irrespective of the facts on who generates jobs in America. While the fact remains that I've never been given a job by a poor man -- it has always been a wealthy corporation or individual who has hired me -- it also remains true that public outrage at the idea of a rich bank CEO or hedge fund manager making $100 million a year and paying 15% in taxes while the ordinary guy pays 25% or more does indeed resonate with the common man, and he outvotes the rich bastard simply on the numbers.
The fight on this one ought to be quite interesting to watch.....