The tax code of the United States is some of the most complicated legal writings in the entire world and because of this tax season is one of the most stressful times for most Americans. It has also recently become the subject of much debate as American politics begin to heat up for the 2012 election season. One issue that Democrats have thrust to the forefront of the election is how eventual Republican Presidential nominee Mitt Romney pays a lower income tax than many middle-income families. President Obama recently began focusing on a new tax rule dubbed “the Buffett rule” that aims to adjust for this disconnect that allows many millionaires to pay lower income taxes than many middle class families.
The curious name of the act comes from multi-billionaire Warren Buffett. Warren is the second richest man in the United States and has recently come into the limelight for proposing to his fellow million and billionaires that they need to step up their contributions to society. When it comes to taxes specifically he recently discovered that because of his assets and the current tax code he was actually paying a significantly lower percentage in taxes than his secretary. He became a vocal proponent of the idea that the richest of the rich should be paying a higher percentage in taxes and the White House immediately attached his name to the proposal. The suggested rule’s motivation is that thousands of millionaire families in the United States pay significantly less in income taxes in recent years than millions of middle-income families. The White House reported that in 2009 at least 22,000 households that had reported income of greater than $1 million paid less than 15% in federal income tax. Even Mitt Romney’s reported income tax for this past year was about 14%. Individuals and families such as the Romney’s are able to do this because the tax code has become so overcomplicated with rules built upon rules. Income from interest on certain accounts, tax loop holes and deductibles, and even off-shore holdings can all allow the richest of the rich avoid paying in the higher tax bracket that they should be in. They can also pay tax experts to find these savings for them. The Buffett Rule attempts to close these loopholes for the richest Americans who in the past have been able to take advantage of a lax tax code. The act would put into law that millionaires should pay at least a federal income tax rate of 30% every year, therefore limiting the amount of manipulations individuals could do to their tax bracket.
In reality however, what are the chances a bill such as has at being signed into law and actually making a difference? Unsurprisingly the Republicans in the Senate recently blocked the bill from being introduced on the floor. Regardless it is almost a sure thing that numerous other bills exactly the same or very similar to the Buffett rule will be attempted to be brought into Congress in the coming months. If any such bill were to pass however, it seems unlikely that there would be a huge effect on this nations revenue stream, at least when compared to the yearly deficit. Although it is impossible to tell the exact amount the rule would produce, the trickle of a few billion dollars does little in the river of trillions of dollars of debt.
Overall it appears the Buffett rule is more of a political and election season gimmick than real solution to this nation’s tax code and bulging debt. That does not mean that it is without its merits though. A political move such as this may be what this nation needs to begin the movement towards a more balanced budget in the years to come.
Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.
In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
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