Political Think Tanks Ponder: Are Millionaires Really Taxed Less Than Average Workers?

The political move by President Obama to shrink the country's deficits, known as the "Buffett rule,” would amend the federal tax code so that anyone earning $1 million a year or more doesn't pay a lower tax rate than middle-income Americans, such as their lower-wage secretaries.

The big question hitting political think tanks today is: “Do millionaires really pay lower taxes than their secretaries?”

Obama has said, "Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett."

He proposed this week that Congress overhaul the tax code and impose what he called the "Buffett rule," named for the billionaire investor.

“There is no justification for it," Obama said. "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.”

What started the issue was a piece Buffett wrote in The New York Times that said the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.

"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."

Political experts say the problem is that not every taxpayer can be compared to Buffett’s employees.

On average, the wealthy people in America pay a lot more taxes than the middle class or the poor, according to private and government data.

High-income Americans pay taxes at a higher rate, and as a group, they contribute a much larger share of all taxes collected by the federal government, the Chicago Tribune reported.

Households making more than $1 million this year will pay about 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a think tank in Washington.

"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, according to The Associated Press.

"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."

Williams has stated that taxing the rich by itself won’t bridge the budget gap, and raising taxes on capital gains is a complicated policy option.

Nearly half (46 percent) of households, mostly low- and medium-income households, will pay no federal income taxes this year, the Tax Policy Center estimates.

There are wealthy people better at avoiding taxes because of loopholes. In 2009, 1,470 people with incomes of more than $1 million a year paid no taxes, according to the Internal Revenue Service.

“Raising the taxes of millionaires may be the fair thing to do, but it will not bring in much revenue,” ABC News reported.

The 15 percent capital gains rate is "a loophole for hedge managers, pure and simple," said Jonathan Karl of ABC News. "That's the main reason Buffett and the other 399 top U.S. earners pay just 18.11 percent of their income to the feds. It's also outrageous that nearly 1,500 millionaires paid no income tax in 2009."

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes. According to the Tax Policy Center, households making between $40,000 and $50,000 will pay about 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.

The vast majority of those earning more than $1 million a year pay at a higher rate, which is why the average tax rate for this group is 29.1 percent of taxable income. Lower-income households also get tax breaks, and some millionaires get big tax breaks because of the loopholes in the tax code.

“To clarify the distinction between tax obligations and benefits, I suggest that the IRS produce a tax and subsidy report for all filers showing what their true tax liability is before tax expenditures as well as the value of their tax subsidies,” Leonard Burman, a member of the Bipartisan Policy Center Debt Reduction Task Force, said in his testimony before the Senate Committee on Finance on tax reform options affecting high-income taxpayers earlier this month.

“The optimal top tax rate really depends on social norms and the government's revenue needs.”