How ‘Buffett Rule’ could still be escaped by highest-earning households
The highest-earning U.S. households have ways to escape President Barack Obama’s Buffett rule with tax-planning techniques that would limit their liability and undermine the proposal’s purpose.
Those affected taxpayers -- the fewer than 0.5 percent of Americans with annual incomes exceeding $1 million and tax rates of less than 30 percent -- could take advantage of tax-free investments such as municipal bonds to escape the Buffett rule’s bite. They also could time asset sales for maximum tax benefits, engage in transactions that don’t result in taxable income and make charitable contributions that yield deductions.
“Largely, the Buffett rule is going to be manageable,” said David Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. “That is, with tax planning, people will be able to avoid it.”
The proposal would deny high-income taxpayers many deductions and other breaks they use to drive down their average tax rate without closing out the tactics employed by the wealthiest, most sophisticated taxpayers.
The Buffett rule, named for billionaire investor Warren Buffett, would require that taxpayers with at least $2 million in adjusted gross income pay a minimum rate of 30 percent and would impose the increase on a sliding scale for those with income between $1 million and $2 million.
Obama has been campaigning for the proposal in advance of an April 16 procedural vote in the U.S. Senate. He had television interviews yesterday in four states with one Republican senator. Also, the White House website posted a Buffett rule calculator with which taxpayers can compare their tax rate to millionaires’ rates.
Republicans are expected to block the Buffett rule bill, which requires 60 votes to advance in the Senate. Democrats will continue to campaign on the issue of tax fairness.
Preferential tax treatment for capital gains and dividends is among the reasons why some high-income households have relatively low effective tax rates, and one result of the Buffett rule would be to raise effective tax rates on capital income. Of the top 1 percent of households, 10 percent have effective tax rates of 8.7 percent or less, including income, payroll and corporate taxes, according to the 2012 Economic Report of the President.
Much more here:http://www.washingtonpost.com/business/how-buffett-rule-could-still-be-escaped-by-highest-earning-households/2012/04/13/gIQADsAwET_story.html