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Coburn Report on Hand-Outs for Millionaires Misses the Worst of All

Republican Senator Tom Coburn of Oklahoma, who made news earlier this year when he broke with right-wing ideologues by suggesting that Congress could raise some amount of revenue greater than zero dollars, has issued a report this week claiming to lay bare the various spending subsidies and tax subsidies benefiting millionaires. There are many problems with this report but the most enormous is that it ignores the biggest and most unfair tax subsidy for the rich — the lower tax rates that apply to investment income like capital gains and stock dividends.

Remember, the entire reason why Warren Buffett complains that he pays a lower effective federal tax rate than his secretary, and the inspiration for President Obama’s Buffett Rule, is this tax subsidy for investment income.

It is quite a feat to write a 37-page report about various government hand-outs for millionaires and yet fail to mention the one that the Buffett Rule is designed to address. But Senator Coburn’s staff has done exactly that.

Investment income is taxed less than other types of income in two ways. First, the personal income tax has special, low rates for two key types of investment income (long-term capital gains and qualified stock dividends), including a top rate of 15 percent. The majority of this income goes to the richest one percent of taxpayers. Second, the payroll taxes that apply to wages do not apply to investment income.

A previous report from CTJ explained how these tax breaks for investment income allow millionaires in some situations to pay lower effective federal tax rates than many middle-income people. Another CTJ report compared taxpayers making between $60,000 and $65,000 with taxpayers who make over ten million annually. In the first group, only about 2 percent receive most of their income from investments, while in the second group, about a third receive most of their income from investments and consequently have a lower average effective federal tax rate than most of the $60,000-$65,000 taxpayers.

This is an outrageous situation and the Buffett Rule is the principle that tax reform should reduce or eliminate this unfairness. Any plan to end hand-outs for millionaires that fails to implement the Buffett Rule is not worth the paper it’s written on.