Study:25% of Millionaires Pay Lower Tax Rates than Many Middle-class Americans

By: Lucy Madison, CBS
By: Lucy Madison, CBS

Roughly 25 percent of American millionaires pay a lower tax rate than millions of middle class earners, according to a new study by the nonpartisan Congressional Research Service.

According to the report, which was based on 2006 data, about a quarter of millionaires (about 94,500) paid less than 26.5 percent of their income in federal taxes, while about 10 percent of moderate-income taxpayers (about 10.4 million taxpayers) paid more than 26.5 percent in taxes. Moderate-income taxpayers were defined as those with an adjusted gross income less than $100,000.

The study validates claims recently touted by billionaire investor Warren Buffett, that the percentage he paid on his taxable income in a given year was "a lower percentage than was paid by any of the other 20 people" in his office. Buffett argued in an August opinion piece that lawmakers in Washington should raise taxes on the "mega-rich" who have been "coddled long enough by a billionaire-friendly Congress."

His comments inspired the so-called Buffett Rule, an Obama administration initiative that endeavors to change the tax code so that "no household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay."

According to Thomas Hungerford, who authored the report or the Congressional Research Service, Buffett's claims of disparity in the tax code are not without basis.

"The current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers," he writes.

The study points out that the while, on average, millionaires do pay more in taxes than middle-class earners (about 30 percent compared to about 19 percent), the use of average tax rates in discussions surrounding the issue "hides a great deal of variation in the tax rates that taxpayers actually face."

"The primary reason for this is the higher-income taxpayers with low tax rates receive a very high proportion of the income from long-term capital gains and qualified dividends, which are taxed at low tax rates and not subject to payroll taxes," Hungerford says.

Lower-income taxpayers, however, earn most of their income from wages - which are subject to payroll taxes.

Congressional Republicans have argued that the proposed Buffett Rule is just one example of Democrats waging "class warfare" against wealthy Americans.

Mr. Obama has flatly rejected that notion while pushing his jobs bill - which contains a version of the Buffett Rule -in appearances across the country.

"This is not class warfare -- it's math," Mr. Obama said in a September speech attempting to rally support for his bill. The money has to come from some place... If we're not willing to ask those who've done extraordinarily well to help America close the deficit... the math says everybody else has to do a whole lot more, we've got to put the entire burden on the middle class and the poor."

The Senate on Tuesday blocked Mr. Obama's jobs bill, but the president has vowed to push its measures through Congress piecemeal.


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