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Three Senate Republicans (two of whom have signed Grover Norquist’s infamous no-tax-increases pledge) joined their Democratic colleagues Wednesday to support a bill that would use the “Buffett Rule” to raise taxes on millionaires and offset the cost of easing student loan repayments.
Introduced by Sen. Elizabeth Warren (MA), the bill had the support of 57 senators, three short of the threshold for cloture in the Senate.
The three Republicans voting in favor were Susan Collins (ME), Bob Corker (TN) and Lisa Murkowski (AK). Corker and Murkowski have publicly said they do not feel bound by the Norquist pledge.
The “Buffett Rule” started out as the principle, proposed by President Barack Obama, that the tax code should be reformed in a way that ensures that millionaires don’t pay lower tax rates than middle-income people. It was inspired by the billionaire investor Warren Buffett, who famously argued that it was unfair that his effective tax rate was lower than his secretary’s rate.
As a CTJ report explains, some millionaires have lower effective tax rates than middle-income people mostly because investment income that mainly goes to the wealthiest Americans is subject to lower rates under the personal income tax and is not subject to the Social Security tax. The simplest remedy is to eliminate the special, low personal income tax rates that apply to two types of investment income, capital gains and stock dividends.
The tax provision in Sen. Warren’s bill, which was first introduced by Senate Democrats in 2012, takes the more roundabout approach of imposing on millionaires a minimum effective tax rate (including personal income taxes and health care taxes) of 30 percent. It is projected to raise $73 billion over a decade.
In 2012, CTJ called this measure “a small step in the direction of tax fairness” and explained it would raise much less revenue than simply taxing capital gains and dividends like other income under the personal income tax. One reason is that taxing capital gains and dividends like other income would subject them to a top personal income tax rate of 39.6, plus an additional 3.8 percent under the Obamacare tax, rather than 30 percent. Another reason is that there is a great deal of capital gains and dividend income that goes to taxpayers who are among the richest five percent or even one percent but who are not millionaires and therefore not affected by the Senate Democrats’ proposal.
Sen. Warren’s proposal is a good start that should be enacted and built upon one day with a more comprehensive reform.