Thursday, March 1, 2012
President Obama's Fiscal Year 2013 Budget proposes the "Buffett rule" -- those making over $1 million should pay at least 30% of their income in taxes. Legislation introduced in both houses of Congress would implement the Buffett rule by imposing a new alternative minimum tax of 30% of adjusted gross income for individuals whose adjusted gross income is more than $1 million.
But the Buffett rule is all but avoidable for Warren Buffett and many other of the wealthiest Americans.
So who would really bear the tax?
Jeremy Lin and others who earn a high salary and live in New York, New Jersey, California or another high-tax state and don't have cash to invest in tax-exempt bonds or tax havens. Because the Buffett rule would almost certainly affect Jeremy Lin more than Warren Buffet, perhaps we should start calling it the "Lincome tax."
Here's a quick guide on how to avoid the Buffett rule if you're a large shareholder in a public company or have some extra cash to invest. But, unfortunately, these strategies won't help much if you're Jeremy Lin.
- Never Sell
- Hold Your Portfolio Through Tax Haven Companies
- Move to a Low-Tax State
- Buy Tax-Exempt Bonds
- Defer Your Income
A fundamental principle of sound tax policy is that similarly-situated taxpayers should be taxed the same. This is called horizontal equity. Although the Buffett rule would apply only to the wealthy, it hits Jeremy Lin with full force but is avoidable by other wealthy taxpayers and hardly applies at all to Warren Buffett. And so the Buffett rule fails the test of horizontal equity.
Perhaps the Buffett rule isn't really a proposal. The Administration is hinting that this may be the case. It now says that the rule is merely a guideline that should apply only in the context of a broader overhaul of the tax code.