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Key Context on Obama's Vague Proposed Millionaires' Tax

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Here, a run-through of what's actually known about Obama's tax proposal, the impact it might have on the deficit, and the history behind it all.

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Yesterday morning, as part of his broader deficit reduction plan, President Obama called for a new rule that would raise taxes on the the wealthiest Americans. The proposal was quick to spark reaction from Republicans, who labeled it "class warfare."

But politics aside, we thought it would be helpful to run through what's actually known about the proposal, the impact it might have on the deficit, and the history behind it all.

So What, Exactly, Is the Plan?

President Obama's plan would require households making more than $1 million annually -- and the president is one of them -- to pay a certain minimum percentage in taxes that matches the rate at which middle-class households are taxed. (Think of it as a simpler version of the overly complicated alternative minimum tax, which was enacted to ensure that even with their many deductions, rich taxpayers still paid a minimum percentage in income taxes.)

Are There Any More Details?

Nope. The White House has left it quite vague. In fact, it's unclear how serious the proposal is at this stage.

The president hasn't yet specified at what rate the millionaires should be taxed. And as the New York Times puts it, administration officials have said that the plan is more of a guiding principle for negotiations. Indeed, they haven't included its potential revenue in the president's larger plan to trim $3 trillion from the deficit.

Here's the White House's own description of what it's calling the "the Buffett Rule" [PDF]:

The plan calls for the Congress to undertake comprehensive tax reform that lowers tax rates, closes loopholes, boosts job creation here at home, cuts the deficit by $1.5 trillion, and observes the Buffett Rule -- that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.

Of course, however vague the plan, it plays to the preferences of voters 2014 the majority of whom support raising taxes on wealthy Americans in order to reduce the deficit, according to recent polls.

Why Is It Called the Buffett Rule?

Warren Buffett, an investor and America's second wealthiest person, has repeatedly argued that it's wrong that he and his other "mega-rich" friends are taxed at a lower rate than middle-class taxpayers -- including the secretaries and receptionists who work for them.

In a New York Times op-ed this spring, Buffett wrote that his tax burden is only 17.4 percent, while workers in his office paid double that (presumably including Social Security and Medicare taxes). He advocated increasing the tax rates for anyone with an income higher than $1 million, and increasing the tax rates even more for those who make more than $10 million a year.

Buffett has been making this argument for years, and in 2007, Greg Mankiw, the former chairman of George W. Bush's Council of Economic Advisors, argued that his numbers were misleading. Buffett's tax burden was proportionally low not because of tax rates, but because he was clever enough to keep his taxable income low, Mankiw suggested. He also said Buffett's calculations don't apply to millionaires who make most of their income through their actual salaries, which would be taxed at rates approaching 35 percent.

Other critics have said Buffett's proposal amounts to class warfare -- essentially, ganging up on the rich and successful. To that argument, Buffett responded in a 2006 interview: "There's class warfare, all right. But it's my class, the rich class, that's making war, and we're winning."

What's the rationale behind the proposal to tax millionaires?

Obama's proposal is designed to focus attention on America's rising income gap and increase the "progressivity of the tax code" to balance it out.

Tax rates for the richest Americans today are at or near the lowest they have been for most of the last fifty years.

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