Star Gazette: Tax fight continues after vote on Buffett Rule

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(Original Post)

Written by
Brian Tumulty

7:55 PM, Apr. 18, 2012

WASHINGTON -- Senate Democrats lost a skirmish this week when they failed to win approval for raising income taxes on millionaires, but the larger battle over tax policy is far from over.

On Monday, Republicans defeated attempts to move a Buffett Rule bill forward that would impose a 30-percent tax rate on people earning more than $1 million.

New York Sen. Chuck Schumer vowed that Democrats will bring up the proposal again and will pitch using its projected $47 billion in revenue to help pay for "college, rebuilding our aging infrastructure, creating jobs, and giving small businesses incentives to hire people.''

Congressional Republicans show no signs of supporting the Buffett Rule. The proposal is named after investor Warren Buffett, who has famously noted that he pays a lower tax rate than his secretary.

Republican Reps. Tom Reed of Corning and Chris Gibson of Kinderhook say they prefer comprehensive tax reform that would eliminate numerous deductions and lower tax rates as part of a larger plan to raise new revenues and reduce deficit spending.

Reed thinks comprehensive tax reform is inevitable.

"A lot of people are talking about the middle of 2013, after the elections,'' he said. "To me it's about making our code simpler, making it more fair, and making it more competitive.''

In the meantime, the deadlock over tax policy shows no sign of easing through Election Day.

The debate will escalate later this year because high earners face the return of a 39.6-percent income tax rate in 2013 if the Bush-era tax cuts are allowed to expire.

Congress voted in 2010 to approve a two-year extension of the tax cuts, but many Democrats oppose another short-term extension.

Democratic Rep. Kathy Hochul of Amherst said Wednesday she is holding to her campaign pledge to oppose renewing the tax cuts for people making more than $500,000.

President Barack Obama campaigned four years ago against renewing the Bush tax cuts for households making more than $250,000. The Buffett Rule -- with a much higher income threshold -- is popular among New York Democrats because it would be less onerous on the state's many affluent households.

Democratic Rep. Nita Lowey of Harrison, Westchester County, said there's no doubt people in households earning at least $1 million should pay their fair share.

"If you are making $200,000 and are a fireman and a teacher, you are not feeling too rich with all the property taxes and all your expenses,'' Lowey said. "But when you are making over $1 million, you ought to pay your fair share so we can support basic services in our communities.''

The current maximum income tax rate is 35 percent, but many high-income people pay a lower rate because of itemized deductions or because they receive most of their income from capital gains or dividends, which are taxed at a lower rate.

Senate Majority Leader Harry Reid, D-Nev., has justified the Buffett Rule as a way to promote tax fairness, telling reporters at a news conference Tuesday "7,000 people making more than $1 million a year last year paid zero taxes.''

New York has a significant share of the nation's millionaires, although it's not clear how many of them have avoided paying any federal income taxes.

The New York State Department of Taxation and Finance reports 27,844 tax filers had incomes of $1 million or more in 2009, the most recent year for which data is available. Manhattan (12,415) and Westchester (5,145) had the largest concentrations.

Millionaires aren't alone in facing the possibility of higher taxes.

Without congressional action, New York households with taxable incomes as low as $75,000 could be subject to the onerous Alternative Minimum Tax, which hits hardest in states such as New York and New Jersey where people who itemize their deductions frequently claim large deductions for state and local taxes and mortgage interest.

The AMT was enacted in 1969 because 155 high-income households were found to have owed no federal income taxes.

The justification for the AMT was similar to the argument now being advanced for enacting the Buffett Rule, according to Len Burman, a professor of public affairs at Syracuse University's Maxwell School and a former Treasury official in the Clinton administration.

"Basically it's an unwillingness of politicians to address the fundamental problems,'' Burman said, adding that supporters of the Buffett Rule are engaging in "a bit of double-speak'' because they are advocating a more complicated tax code while saying their goal is tax reform.

Simplifying the tax code, by eliminating popular tax breaks, is an uphill battle because lawmakers keep proposing new breaks.

Schumer told reporters Wednesday he is proposing renewal of a bonus depreciation write-off for businesses that make capital equipment purchases.

Although Schumer said renewing the tax break would especially help small businesses upstate and on Long Island, it also applies to major Fortune 500 corporations that are already highly profitable.

A study released late last year by Citizens for Tax Justice, a liberal advocacy group, found 67 out of 280 of the nation's largest corporations paid no taxes, on average, between 2008 and 2010, while 71 paid an average rate of 30 percent.

One of the major contributing factors in the wide variation is that capital-intensive companies can use the bonus depreciation write-off to reduce their tax rate significantly, while other industries can't.

Rebecca Wilkins, one of the authors of the report, says Citizens for Tax Justice doesn't believe the tax break serves as an incentive for new investment.