Buffett Rule Fails in Senate
by AccountingWEB on
By Deanna C. White
By blocking the so-called "Buffett Rule" with its April 16 vote, the Senate suppressed the Democratic push to level the income tax playing field between the 1 percent of wealthiest Americans and the remaining 99 percent of taxpayers.
According to Larry Evans, CPA, tax partner, and tax technical resource leader for Eide Bailly LLP in Oklahoma City, Oklahoma, the Buffett Rule would mandate high-wealth individuals be taxed at a rate of 30 percent based on an adjusted gross income of more than $1 million.
The Buffett Rule is named for billionaire Warren Buffett, who has argued the wealthy should be required to pay higher tax rates, famously citing the example of his secretary who pays a higher tax rate than he does.
Democrats and President Obama, in what many pundits considered to be an opening round election-year salvo on the economy, have lobbied for a version of this legislation since 2011, in an effort, they argue, to shatter the basic inequality of the American tax system.
That basic inequality between wealthy Americans and the remainder of the taxpaying public exists, they say, because many wealthy Americans benefit from tax deductions and lower tax rates on capital gains and investments which are taxed at a maximum rate of 15 percent.
The April 16 vote was mainly cast along party lines. Fifty-one senators – fifty Democrats and one Republican – voted to keep the bill alive, while forty-five senators voted not to proceed with the bill. The measure needed sixty votes to advance.
Before the vote, Democratic lawmakers said they were willing to force repeated votes on the Buffett Rule to press their case.
Senate Majority Leader Harry Reid (D-Nevada) said on the chamber floor, "Republicans in Congress would rather end Medicare as we know it and slash education funding than ask the richest of the rich to contribute even a penny more."
Republicans called the measure little more than an election year "gimmick" designed to stir class resentments instead of solving the true faults in the economy.
In an official White House statement released after the vote, President Obama said the Republican's refusal to advance the legislation is simply one more attempt to "protect tax breaks for the wealthiest few Americans at the expense of the middle class."
"The Buffett Rule is common sense," President Obama said in the statement. "At a time when we have significant deficits to close and serious investments to make to strengthen our economy, we simply cannot afford to keep spending money on tax cuts that the wealthiest Americans don't need and didn't ask for. But it's also about basic fairness – it's just plain wrong that millions of middle-class Americans pay a higher share of their income in taxes than some millionaires and billionaires."
However, some CPA analysts, like Evans, question whether the Buffett Rule, if ever enacted, would make any significant impact on the federal budget.
"The bottom line is this is not going to be a major factor in reducing the deficit," Evans said. "You've got to remember there is a very talented group of CPAs out there, and the group of people the Buffett Rule targets has the resources to hire them. They know the law better than the people in Washington who are trying to construct the law, and they will take care of their clients accordingly."
Evans also questioned how the Buffett Rule would offer any much-needed reform to the nation's calcified and cumbersome tax code.
"The reality is they are doing nothing more than what was done back in the 80s. They are simply trying to capture more tax on a certain group of people," Evans said. "They've done nothing to reform the tax code, which is what we should be doing. We should be driving real reform."
Ultimately, Evans said that in his role as a CPA, it is not his job to like or dislike pending legislation; he simply has to apprise his clients accordingly.
"Right now, I would tell my clients that fit into this bracket they have been targeted, they need to keep vigilance, they need to make comments (to their lawmakers), but until a law is written, there is nothing we have to do," Evans said. "We don't plan for something that doesn't have the likelihood of passage."