Mendoza School of Business

INTERVIEW: Buffett Rule a ‘Fair Share’?

Published: April 13, 2012 / Author: Kyle Editor

On Monday, the Senate is scheduled to vote on the “Paying a Fair Share Act,” commonly known as the Buffett Rule, which would require people earning more than $1 million per year to pay at least a 30% federal tax rate.

However, the “lower” taxes these high-earners currently pay aren’t necessarily cut-and-dry, and the concept of whether they aren’t a “fair share” is up for debate.

InvestorPolitics recently took a few minutes to talk to Brad Badertscher, Assistant Professor of Accountancy at the University of Notre Dame’s Mendoza College of Business and an expert on tax liabilities of private equity firms, about the taxation of the “1%,” several aspects of the Buffett Rule and the consequences of its passing. Here’s what he had to say.

Q: The Buffett Rule’s basic premise is that households making more than $1 million a year should pay no less than 30% of their income in taxes. You contend this already is the case. Please explain.

A: According to a recent study by the nonpartisan Congressional Budget Office, if you add up all the taxes paid to the federal government — individual, capital gains, payroll, corporate taxes, etc. — the top 1% have an effective tax rate of 30.4%, while the top 20% have an effective rate of 25.5% and the bottom 20% have an effective rate of 4.3%.

My view is that one should consider the total amount of taxes paid to the federal government, not just in the form of income taxes. If one pays a lower income tax (i.e., as a result of capital gains) but they allocated money to a business that pays a significant amount of corporate taxes to the federal government, then that should be considered when examining the amount of taxes paid to the federal government for that individual. Despite the difficulties in measuring total taxes paid, I think it provides a more accurate picture of the tax burden for individuals.

To read the entire interview visit: INTERVIEW: Buffett Rule a ‘Fair Share’?


Topics: Mendoza