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SALT LAKE CITY -- President Barack Obama announced Monday his plans to overcome the nation's debt problems with rich Americans expected to make up some of the deficit with higher taxes. But the call to tax the rich has taken heat from Republicans who claim higher taxes for wealthier individuals will actually hurt the economy more, spurning future economic growth.
The so-called "Buffett plan," named after billionaire Warren Buffett who said he should be paying more taxes, is the idea of using a progressive tax system to pay for the nation's growing debt and making the system more "equal."
"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said in Monday's address. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
Citing statistics that middle-class Americans pay more in taxes than wealthier Americans, President Obama plans to cut deficits by more than $3 trillion. Additionally, the plan would provide $1.5 trillion in new revenue, with much of the revenue coming from a repeal of the Bush-era tax rates.
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," President Obama said Monday. "That's pretty straightforward. It's hard to argue against that."
Middle-class families shouldn't pay higher taxes than millionaires and billionaires. That's pretty straightforward. It's hard to argue against that.
–President Barack Obama
Republicans, however, bemoan the president's plan, saying it is class warfare, with President Obama quickly pointing out: "This is not class warfare. It's math," he said. But many have criticized the plan as a Marxist approach to make society more equal. Despite cries from the left about wealthy citizens paying lower tax rates, recent data may suggest otherwise.
On average, however, the wealthiest people in America pay a lot more in taxes than the middle class or the poor, according to the non-partisan Tax Policy Center. This year, households making more than $1 million will pay, on average, 29.1 percent of their income in federal taxes. A household making between $50,000 and $75,000 will pay 15 percent of its income in federal taxes, which includes income taxes and Social Security payroll taxes.
The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.
Nevertheless, because of loopholes, deductions, exemptions and credits, some wealthy families and individuals pay lower tax rates than middle-class families. But the exemptions and credits are there to benefit families and individuals of every income level.
In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. But that's less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.
- Under $20,000: 12.1%
- $20,000-$50,000: 28.3%
- $50,000-$100,000: 33.6%
- $100,000-$250,000: 23.2%
- $250,000 and above: 2.8%
"People who are doing quite well and worry about low- income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out," said Roberton Williams, a senior fellow at the Tax Policy Center. "People at the bottom of the distribution say, ‘But all of those rich guys are getting bigger tax breaks than we're getting,' which is also the case."
But several Republican presidential hopefuls have laid out opposing plans, which they claim, would promote growth in the economy at a faster rate. Former Massachusetts Governor Mitt Romney recently released the most detailed tax program using a 59-point program to increase the annual economy by 4 percent.
Romney, former Utah Governor Jon Huntsman and U.S. Representative Michele Bachmann want a 10 percentage point reduction in the corporate tax rate, calling for 25 percent instead of the current rate of 35 percent. Bachmann has recently said she would like to see it drop even lower.
Recent studies by the Heritage Foundation have backed up Republican claims, saying a cut in the corporate tax rate by 10 percentage points would boost job growth by approximately $581,000 per year.
But as the gap between middle-income families and high- income families and individuals grows wider, many are asking the government to address economic growth, and quickly. Many are frustrated that partisan politics are interfering with economic prosperity.
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Written by Josh Furlong with contributions from the Associated Press.
