How Buffett's Plan Cuts Taxes for Some of the Wealthy

How Buffett's Plan Cuts Taxes for Some of the WealthyOver the past few months, as President Obama and congressional Republicans have battled over taxes, spending cuts and the deficit, billionaire Warren Buffett has repeatedly been cited -- both as a prime example of the country's unbalanced tax code and as the author of one of its most progressive tax proposals. Among tax reduction proponents, his name has become somewhat anathema, but Buffett's plan -- which he discussed on CNBC's Squawk Box last week -- is hardly radical.

In fact, it could potentially cut taxes for many high-income households.




Under Buffett's plan, households that make $1 million or more per year would pay an overall tax rate of 30%, and families that make $10 million or more would pay 35%. These tax rates are significantly lower than the current levels: In the 2011 tax schedule, the 33% tax rate kicks in at $174,401 and the 35% bracket starts at $379,151. In other words, people who bring home $1 million or more per year are already supposed to pay 35%, so Buffett's proposed 30% rate would be a 5% cut.

But actually, the cuts are even deeper: On Squawk Box, Buffett claimed that the tax rates he was proposing would include payroll taxes. Normally, these taxes -- which are about 1.4% of income for the wealthiest earners -- are added to regular income taxes, so an executive with a $1 million salary pays 36.4% of his salary in taxes. Under Buffett's plan, however, that executive would pay just 30% -- a tax cut of 6.4%, or $64,000.

Sponsored Links
So why is Buffett's plan so widely criticized by Republican policymakers? According to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, the problem is that there are actually two very different types of high-income people -- those who are salaried, and those who make their money through investments. The first group already pays the full 35% income tax rate. The second group, on the other hand, pays most of their taxes at the steeply discounted 15% rate now charged on dividends and capital gains.

Buffett himself fits into the second group: In 2010, he made most of his money through investments, and paid income taxes of just 17.4%. By comparison, the 20 employees in his office -- who derived most of their income from their salaries -- paid taxes at rates ranging from 33% and 41%. Under his proposal, Buffett's rate would increase to 35%, more than doubling his taxes and putting his payout to the IRS more in line with those of his employees.

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.

The 10 Most Overlooked Tax Deductions

Don't overpay taxes by overlooking these tax deductions. See the 10 most common deductions taxpayers miss on their tax returns so you can keep more money in your pocket.

Read More

Brought to you by TurboTax.com

How to Find a Good CPA for Your Taxes

Finding a good CPA for your taxes is simple with these seven tips: 1. Ask about their specialization; 2. Verify their identification number, 3. Look up their license, 4. Consider their experience, 5. Confirm their willingness to sign, 6. Ask for advice, and 7. Determine their fees.

Read More

Brought to you by TurboTax.com

Reporting Self-Employment Business Income and Deductions

Self-employed taxpayers report their business income and expenses on Schedule C. TurboTax can help make the job easier.

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.

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.