The Buffett Rule: A Balanced Breakdown

President ObamaI was part of a conference call today between Democratic National Committee Chairman Debbie Wasserman Schultz, Obama for America Deputy Campaign Manager Stephanie Cutter, and a group of prominent female bloggers. 

The topic: The Buffett Rule.

If you've not heard of it, it's a centerpiece of Obama's re-election campaign and was inspired by the revelation that billionaire Warren Buffett's secretary pays a higher tax rate than he does.

Basically if Obama gets his way, millionaires would all pay 30 percent in taxes, while the average middle class American would pay 20 percent.

Read on to see a list of pros and cons to this idea ... then tell me in the comments what you think about it.

Advertisement

Stephanie Cutter and Debbie Wasserman Schultz used the phone call to talk about all things wonderful regarding the Buffett Rule. The term "fair share" (as in everyone-needs-to-pay-it) was bandied about quite a bit (get used to it -- you'll be hearing that term A LOT from Mr. Obama in the upcoming election) and it also provided them with the opportunity to showcase the differences between Obama and his presumptive opposition. “The Buffett Rule closes loopholes and ends special tax breaks that currently allow millionaires like Mitt Romney to pay lower tax rates than middle class families,” asserted Cutter. The women also touted new tools on the Obama campaign website, which explain the Buffett Rule in much greater detail.

The reason you're seeing so much talk about the Buffett Rule now is that the Senate is scheduled to vote April 16 on whether it will debate the bill, which is technically known as the Paying a Fair Share Act. Doesn't really roll off the tongue, does it?

All of this seems great on its surface -- I mean, why shouldn't millionaires pay more in taxes than the rest of us? They don't really need all of that money, right?

Yet there are a few points to consider before you make up your mind about whether the Buffett Rule really is a good idea.

First off, the reason that Mitt Romney and many other wealthy Americans pay a lower tax rate is that they're earning most of their income through capital gains, which is taxed at a lower rate than wages or income.

Capital gains, according to Wikipedia, are profits "that result from investments into a capital asset, such as stocks, bonds, or real estate, which exceed the purchase price."

In other words, Mitt Romney was taxed on his earned income just like everyone else. He took some of that money after taxes and invested it. Now he's profiting off that investment. And it seems reasonable that those profits should be taxed at a lower rate -- after all, he already paid taxes on the money when he earned it, right? If he invests it and the investment does well, why should he be penalized for that?

Under the Buffett Rule, though, Mitt Romney and anyone else making more than a million dollars a year would be taxed 30 percent on all income, even capital gains. For the rest of us, capital gains would continue to be taxed at the lower rate. Is that really "fair"? That's for you to decide.

George W. Bush brought up another interesting point in a speech yesterday. This from the Washington Times:

“Most small businesses pay taxes at the individual income tax level,” Mr. Bush said, adding that 70 percent of new jobs are created by small businesses. “Therefore, if you raise taxes on the so-called rich, you’re really raising taxes on the job creators.”

This point was brought up today during the call. According to a finance expert from the Obama campaign, most small businesses would be unaffected by the Buffett Rule. The expert said that less than 2 percent of small businesses have income over one million dollars -- and added that the Obama administration continues to move forward with tax breaks and incentives for small business owners and people who want to own small businesses.

Now that you know the facts from both sides of the issue, what do you think of the Buffett Rule? Is it truly "fair"?


Image via Chip Somodevilla/Getty Images

Read More >