The White House's new campaign banner/economic principle is the so-called "Buffett Rule," which holds that no millionaire should pay a lower effective tax rate than a typical middle class family. Sound sensible, yes? Of course it does. The tax code is progressive and purposefully so. Marginal income tax rates increase with income. The more you make, the greater share of income you pay. Disagreeing with this general principle puts you to the right of a typical Republican.
But the Buffett Rule wasn't meant to hold up to strict constructionism. "You cannot build a tax code on the principle that no millionaire, ever, should ever have an effective tax rate lower than their secretary," my Atlantic colleague Megan McArdle wrote this morning. Well, you could, she allows, but you'd have to give the IRS extralegal responsibilities to seize rich people's income beyond what they owe.
To understand why, consider the 76 million people who don't legally owe individual income taxes in 2011 (please, please note: does not include payroll, excise, state and local taxes). The vast majority of this group was poor. They didn't owe individual income taxes because they didn't owe a lot of money to start, and various exemptions, like the earned income tax credit, wiped out the rest.
But among families making more than $100,000, there were also half a million tax units -- enough to replace the population of Tucson, Arizona -- that also paid no income tax. Even more surprising, 7,000 millionaires also paid no individual income tax.
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