The Buffett Rule is a term used to describe President Barack Obama's 2011 plan to tax the rich, or Americans who earn more than $1 million a year. It was named after billionaire investor Warren Buffett, who argued that wealthy Americans are "coddled" and that middle-class wage earners often paid a higher percentage of their income in taxes.
The plan to tax the rich was among those considered by the Super Congress, the select group of 12 members of both the U.S. House of Representatives and U.S. Senate chosen to identify ways to reduce the national debt by $1.5 trillion over 10 years. The Buffett Rule would prevent millionaires from paying lower tax rates than middle-class Americans earning less than $250,000.
"Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake and where everybody pays their fair share," Obama told a joint session of Congress in September 2011.
The Buffett Rule to tax the rich would affect nearly a quarter million American households, federal data show. In 2009, 236,883 households reported earnings of at least $1 million. The Obama administration said the plan to tax the rich would impact only 0.3 percent of the 144 million taxpayers who filed returns in 2010.
Buffett Rule to Tax the Rich
Buffett, the chairman and chief executive officer of Berkshire Hathaway and one of the world's wealthiest men, urged Obama to tax the rich an an effort to reduce the nation's growing national debt. The Buffett Rule plan to tax the rich would raise hundreds of millions of dollars over a decade.
"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks," Buffett wrote in an August 2011 op-ed piece in The New York Times.
See also: Obama and the Transaction Tax
Buffett paid $6,938,744 in federal taxes in 2010, which was only about 17.4 percent of his taxable income of about $40 million. Buffett said his coworkers paid 33 percent to 41 percent of their income in federal taxes.
In other words, one of the world's wealthiest men shelled out a smaller percentage of his income to the federal government than did many people who earned less. How can that be?
"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," Buffett wrote.
What the Rich Pay in Taxes
Many of the wealthiest Americans pay income taxes at a rate of 15 percent on most of their earnings including capital gains and dividends. They pay a relatively small portion of their income in payroll taxes because of a cap on earnings subject to the levies; American workers pay Social Security payroll taxes on earnings up to $106,800, for example.
By comparison, middle-class taxpayers pay between 15 and 25 percent of their income to the federal government - and that's not including payroll taxes.
According to Internal Revenue Service data cited by Buffett, the 400 wealthiest Americans earned $16.9 billion and paid federal taxes of 29.2 percent on that sum in 1992. By 2008, however, the wealthiest 400 Americans earned a stunning $90.9 billion but were paying a substantially smaller portion in taxes - 21.5 percent.
Obama and Buffett
Buffett has been a visible and outspoken supporter of Obama over the years, and the president has relied on the successful investor's advice in pulling the United States out of The Great Recession and its lingering effects on the economy. The two were in agreement on the need to allow the Bush tax cuts to expire and increase taxes on the wealthiest Americans.
Obama proposed his plan to tax the rich before the Super Congress, or super committee, which was created under the Budget Control Act of 2011. The law was passed by the U.S. Congress in the first two days of August 2011 to increase the nation's $14.294 trillion debt ceiling in order to avoid a potential default. It was the fourth increase of the mandatory borrowing cap in Obama's first term.
"We need a commonsense approach to reduce the deficit and create jobs," Obama said in August 2011. "We can't reduce the deficit on the backs of those who can least afford it and continue to give tax breaks to millionaires and billionaires, corporate jet owners and hedge fund managers ... It just doesn't make sense. We know, they know it, and experts like Warren Buffett have said it."