Even if Buffett Tax Passes, Middle Class Could Still Get Hit

Even if Buffett Tax Passes, Middle Class Could Still Get Hit On Monday, billionaire investor Warren Buffett appeared on CNBC's Squawk Box to discuss the so-called "Buffett Rule," a proposal to increase taxes on America's richest households.

Buffett's plan, as he outlined it, would largely affect the top 1% of families. For those who make $1 million or more, he has proposed a tax rate of 30%, including payroll taxes, while those who make $10 million or more would pay 35%. But even if Buffett's plan passes -- a long shot, given the Republican Party's refusal to consider tax increases on the rich -- experts say that balanced budgets will still require sacrifices across the board.




The Buffett Rule would increase taxes for households that make most of their money from investments. The billionaire's own tax return is a fair example: In 2010, he paid just 17.4% of his income in federal taxes, largely because most of his income was taxed at the 15% dividend and capital gains rate. In other words, the Buffett proposal would more than double his tax rate, increasing it to 35%.

Filling a Big Gap

But Buffett's proposal, while significant, wouldn't fill the hole in the federal budget. According to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, to do that will require increasing taxes on the middle class. "There aren't enough really rich people to generate the kind of money we need," Williams notes. "To cut the deficit in half, we would need to levy a 90% tax on everyone who makes more than $250,000 per year."

Sponsored Links
So where can the rest of the money come from? In a recent article in The New York Times, Adam Davidson noted that increasing middle class taxes by 8% "would actually have a bigger impact than taxing millionaires at 100 percent." But middle class tax increases are staggeringly unpopular, especially in light of continued high unemployment and wage stagnation. Not surprisingly, many politicians have focused on cutting the federal budget rather than trying to increase tax revenue.

Democrats have responded by trying to create a direct link between middle class jobs and upper class taxes. The most explicit version of this argument was presented by Vice President Biden: Defending the "Teachers and First Responders Back to Work Act," a proposal to levy a 0.5% tax on all millionaires, he argued that the relatively minor increase in taxes would put "400,000 school teachers back in classrooms ...18,000 cops back on the street, and 7,000 firefighters back into firehouses."

Ultimately, there is no painless way to balance the budget: Doing so will require some combination of spending cuts, middle class tax increases and tax hikes on the wealthy. The solution, whatever it is, will leave everybody somewhat unhappy.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

Driving for Lyft? Use This Tax Preparation Checklist

So, you decided to become your own boss (at least part-time) and start driving for a ride-sharing company like Lyft. Use the Lyft tax preparation checklist below to organize your income and deductions to make filing your taxes a breeze. Remember, not all items listed will apply to you, but it will give you a good idea on what you need to report as income and what you can claim as a deduction.

Read More

Brought to you by TurboTax.com

Video: The Alternative Minimum Tax (AMT) Explained

Originally created to make sure the wealthy paid taxes even after using tax breaks and loopholes, the Alternative Minimum Tax (AMT) has never been updated and continues to impact middle class Americans more and more each year as a result of inflation. To compensate for inflation, the AMT now includes an exemption amount. This exemption is indexed for inflation so it changes every year.

Read More

Brought to you by TurboTax.com

Energy Tax Credit: Which Home Improvements Qualify?

Taxpayers who upgrade their homes to make use of renewable energy may be eligible for a tax credit to offset some of the costs. As of the 2018 tax year, the federal government offers the Nonbusiness Energy Property Credit. The credits are good through 2019 and then are reduced each year through the end of 2021. Claim the credits by filing Form 5695 with your tax return.

Read More

Brought to you by TurboTax.com

Top 5 Reasons to File Your Taxes Early

Every April, many taxpayers wait until the last minute to file their federal income tax returns. Despite this tendency, there are many reasons to file your taxes early. If you will receive a refund, you may want to submit your return as quickly as possible. Additionally, there are benefits to filing early for those taxpayers who have a balance due.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.