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What the 'Buffett rule' reveals about Obama tax reform plans

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In addition to raising taxes on some millionaires, the Buffett rule would achieve two other tax-reform goals of Democrats.

First, it would blunt the impact of a full extension of the Bush-era tax rates. If Republicans succeed in maintaining the Bush tax cuts for all taxpayers, the Buffett rule would nonetheless ensure that wealthy Americans pay more – $162 billion more over 10 years, according to the congressional Joint Committee on Taxation. And if Congress lets the Bush tax cuts expire, most Americans' income-tax rates would go up, but under the Buffett rule it will go up more for the wealthy than it would otherwise, to the tune of $47 billion over a decade.

Republicans criticize the Obama administration for proposing a tax increase during a period of slow economic growth. But Obama officials argue that such a change results in greater economic efficiency.

“In addition to fairness, in fact it’s a step in the direction of economic efficiency,” said Alan Krueger, chairman of the Council of Economic Advisors. The Buffett rule allows people to "devote more effort what their focus should be, which is to their jobs and job creation … rather than restructuring their income to minimize their taxes.”

Second, the proposed rule would in effect raise taxes on dividends and capital gains income, funds currently taxed below the 35 percent statutory rate for ordinary income over $1 million.

“It’s just saying, in effect, you can’t run the tables and take advantage of all the different tax breaks,” said Jason Furman, principal deputy director of the National Economic Council, on a call with reporters Monday.

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