tag:blogger.com,1999:blog-2135788133426971614.post6535435126527225747..comments2024-03-28T01:09:48.303-07:00Comments on 21st Century Taxation: Buffett Rule, Upper Income Taxpayers and Errors and OmissionsProfessor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-2135788133426971614.post-64311008087031552282012-04-14T17:20:08.920-07:002012-04-14T17:20:08.920-07:00I agree with Professor Nellen that President Obama...I agree with Professor Nellen that President Obama’s proposal for tax increases on “upper income” individuals and the Buffet rule need clarification. The lack of details in the National Economic Council’s Buffet rule report suggests that the National Economic Council does not know how it will achieve the desired result, which is to have individuals making over $1 million per year to have a higher effective tax rate than taxpayers in the middle class. If that is the case, I recommend that the National Economic Council focus on reforming the provisions of the tax code that have caused millionaires to have such low effective tax rates instead of adding more complexity to the Code through adding yet another code section. To increase millionaire’s effective tax rates, I recommend having capital gains and qualified dividends taxed at the same rate as ordinary income and adding another tax bracket for individuals making over $1 million per year.<br /><br />My recommendation to reform provisions of the tax code that contribute to the undesirable result of millionaires paying lower effective tax rates is from a tax policy perspective than adding a surtax for millionaires. Applying the same tax rates for capital gain and ordinary income promotes fairness because taxpayers with similar amounts of income will pay the same tax rates regardless of how the income was derived. Applying the same tax rates to capital gains and ordinary income simplifies the tax code because one rate structure would apply to both categories of income. My recommendation would decrease the tax gap because wealthy taxpayers, such as hedge fund managers, would not be able to game the tax system and pay less in taxes by misclassifying their salary as capital gain income. <br /><br />In contrast, adding a Buffet rule may actually be unfair to certain millionaires. The Buffet rule doesn’t appear to consider the possibility that millionaires may have made a portion of their fortunes from foreign source income, on which they have already paid considerable foreign taxes. These taxpayers would qualify for the foreign tax credit and this could lower their effective U.S. tax rate considerably. Is it fair for these taxpayers to pay a minimum tax rate on their income when they have already paid their share of taxes to the foreign governments?Clark W. Griswoldnoreply@blogger.com