Ever since Warren Buffet said he paid tax at a higher rate than his secretary, there has been a lot of discussion about the need for a “Buffett Rule”. In this case it means that all taxpayers with adjusted gross income in excess of $1 million will pay an effective tax rate of at least 30%.
In essence, what this does is adds another type of alternative minimum tax computation. The idea is that special tax rates on dividends and long-term capital gains are negated because there is an alternate tax you pay, no matter what.
Will it work? Of course not. I’ve got clients making over $1 million a year, and I can already see a dozen ways around it. The key to remember, it’s the income at your personal level. Move income off your personal return. Maximize your pension plans. Start a C Corporation. Qualify as a real estate professional. There are dozens of ways to avoid this tax and I’m afraid it’s going to turn into another alternative minimum boondoggle, as inflation inches up tax brackets and the definition of rich moves downward.
At this point, it’s hard to say if it will pass. I’m guess it will someday because it’s just too good to pass up – a tax law change that looks great on paper and doesn’t mean a real thing in the real world.