What is the Buffett Rule?

The Buffett Rule refers to a share of tax proposed in 2011 by the former U.S. president Barack Obama. The term Buffett Rule is named after a U.S. billionaire investor known as Warren Buffett. Buffett was concerned why a wealthy person like him would pay less federal tax than that of his employees like the secretary. In 2011, Buffett openly stated that it was unfair for rich people like him to pay less federal tax, while middle-class people were paying more. For this reason, Buffett proposed and supported the idea of increasing wealthy people's income tax. Senator Harry Reid later proposed a 5.6 percent increase on every person who makes $1 million dollars a year. The Buffett Rule is generally against the unfair tax system being practiced in the United States. The rule intends to put more tax burden on investment income than it does on the income of middle-class earners. Therefore, the main purpose of coming up with the Buffett Rule is to try and mitigate the bias that exists in the federal tax payment system. Note, that the rule later led to the creation of legislation called Paying A Fair Share Act. The initial introduction of this legislation was done in 2012 by Congress. However, the act has been rejected several times. In other words, there has been a subsequent rejection of this bill by congress.

How Does the Buffett Rule Work?

The Buffett Rule affects only those taxpayers who get most of their income from hedge-fund partnerships or investment. Such taxpayers are usually taxed 15%, and the rule would make them pay even more. Note that the BuffettRule does not affect millionaires who earn the majority of their income from salary.

Buffett Rule Criticism

Buffett Rule has received a lot of criticism from tax experts. Those criticizing this rule argue that the rule of increasing tax on capital earnings is going to negatively affect business growth. However, those who support the Buffett Rule are positive that if passed, it will eliminate the existing tax loopholes. They are also positive that with Buffett rule in place, it is set to reduce the tax burden of middle-class taxpayers. In the long run, it will ensure that wealthy people also pay a big share of tax from their income just as middle-class earners do.

The Impact of the Buffett Rule

In general, the Buffett Rule will affect several individuals the moment it is effected. Some of the effects are explained below:

• According to tax experts, the implementation of the Buffett Rule will lead to additional tax revenue. The increase in revenue is estimated to move from $36 billion to somewhere around $50 billion every year.
• Secondly, the Buffett Rule will bring changes to in investment-related tax. According to experts, things such as a bond, stock, and real estate markets are going to be negatively affected. For this reason, investors will be forced to make adjustments to their portfolios in order to mitigate effects related to tax increment.
• Also, if the Buffett Rule is implemented, it will relieve middle-class earners from the heavy tax burden imposed on their salaried income.

Key Takeaways

• The Buffett Rule refers to a share of tax proposed in 2011 by the former U.S. president Barack Obama.
• The term Buffett Rule was named after a U.S. billionaire investor known as Warren Buffett. Buffett was concerned why a wealthy person like him would pay less federal tax than his employees such as his secretary.
• The main purpose of creating the Buffett Rule is to help mitigate the biases that exist in the federal tax payment system.
• The Buffett Rule affects only those taxpayers who get most of their income from hedge-fund partnerships or investment and not the salaried millionaires.