Wednesday, August 17, 2011

Another analysis of the Buffett proposal's revenue implications

[Warren] Buffett called for two new tax brackets for high earners — for income above $1 million a year and another above $10 million. While Mr. Buffett’s proposal did not suggest a rate, the Tax Policy Center has estimated that a 50 percent tax rate on income over $1 million would raise $48 billion over the next decade.

But one of the biggest factors reducing the comparatively low tax rates on investment income is the 15 percent for dividends, capital gains and “carried interest,” the money paid to hedge fund managers and private equity investors. Eliminating the carried interest provision alone would raise $21 billion over 10 years, according to the Congressional Budget Office.

And restoring capital gains and dividend rates to the levels before the Bush tax cuts — when capital gains were taxed at a top rate of 20 percent and dividends were treated as ordinary income — would bring the Treasury an additional $340 billion over the next decade.
--David Kocieniewski, NYT

The upshot: a large tax increase on the $1 million+ earners plus carried interest generates $6.9 billion in extra revenue per year over the next decade, which is 0.4% of the $1.65 trillion deficit in 2011 alone. Increasing the tax rate on dividends and capital gains only generates $34 billion per year—which is a little bigger than what you get from the new tax brackets because this is a tax that is also paid by the middle class.