Washington — The so-called Buffett Rule, President Obama’s name for his plan to raise taxes on the wealthiest Americans, would have a greater impact in Connecticut than almost anywhere else.
Connecticut has more millionaires and billionaires per capita than all other states except New Jersey, Maryland and Hawaii, according to a 2009 study by Phoenix Marketing International.
But Connecticut’s rich needn’t worry, at least for now.
Legislation that would impose a 30 percent tax rate on all income earned by Americans making more than $1 million a year is not expected to be approved by Congress anytime soon.
But that won’t be the end of the issue.
Named after billionaire Warren Buffett, who says the current tax code allows him to pay a lower tax rate than his secretary, the Buffett Rule has become a key campaign issue for Obama. It’s also likely to be central to the campaigns of other Democrats this year.
Obama has been stumping on the Buffett Rule all week, framing it as an issue of economic fairness.
“At a time when the share of national income flowing to the top 1 percent of people in this country has climbed to levels we haven’t seen since the 1920s, these same folks are paying taxes at one of the lowest rates in 50 years,” Obama said in a speech Wednesday, flanked by a group of millionaires who support the tax increase.
Obama said the Buffett Rule would allow “everybody to play by the same rules.”
Democrats in the Senate, who say the Buffet Rule would bring in $47 billion to the U.S. Treasury, will make the tax bill a priority when they return from a two-week break next week.
The legislation is scheduled to be debated and subject to a procedural vote in the Senate Monday.
“(Millionaires and billionaires) should pay the same rates as hardworking middle-class Americans,” said Sen. Richard Blumenthal, D-Conn., a co-sponsor of the legislation.
One of Congress’ wealthiest members, Blumenthal said he wants to close a “loophole” that allows affluent Americans who have earned money from investments to pay a capital gains tax of 15 percent, “a lower effective tax rate than middle-class families.”
Sen. Joe Lieberman, I-Conn., has not made up his mind about the legislation, said press secretary Jeremy Kirkpatrick.
But even with Lieberman’s support, the Buffett Rule bill is not expected to win the 60 votes needed to clear a procedural hurdle because Republicans strongly oppose raising taxes, even on the very rich. The Republican-led House isn’t likely to touch the legislation.
Democrats hope the debate over making the rich pay more taxes, which polls say has strong support, will hurt former Massachusetts Gov. Mitt Romney, who has paid less than 15 percent of his income in federal taxes because most of it comes from investments.
With Monday’s vote in the Senate, Democrats are also trying to put Republican lawmakers on the record as opposing tax increases for millionaires and billionaires. Democrats say Republicans would rather balance the budget through cuts in food stamps, Medicaid, Medicare and other domestic programs that help poor and middle-income Americans.
Thomas Foley, president of an investment firm in Greenwich and a Romney supporter, said the president is practicing “cheap politics” and “class warfare.”
He said taxing capital gains at a higher rate would discourage investments, which would slow the economy and put people out of work.
“The president may think this is good politics, but it’s not good policy,” said Foley, a former ambassador to Ireland who failed in his race for governor against Democrat Dannel Malloy.
If the Buffett Rule were to take effect, more than 9,000 Connecticut tax filers who reported incomes of $1 million or more would likely be affected.
But some of those millionaires and billionaires could try to skirt the Buffett Rule by putting their investments in tax-free municipal bonds or waiting to sell stocks and other assets in the hopes that a future Congress would repeal the law. Capital gains are only taxed when an asset is sold.
“I have no doubt that some very, very high I.Q. lawyers at some very highly paid law firms are figuring this out as we speak,” said Henry Aaron, Senior Fellow in Economic Studies at the Brookings Institution.
Other Connecticut taxpayers may not be able to avoid new taxes.
At least 94,000 of Connecticut’s 1.4 million filers would pay more federal taxes next year if some Bush-era tax cuts are allowed to expire in December.
Obama wants to end the cuts to individuals who earn more than $200,000 and married couples who earn more than $250,000.
Democratic leaders in Congress also insist on letting those cuts expire. They say the money that would generate is needed to avoid sequestration, or automatic cuts, to the federal budget.
If Congress can’t reach an agreement on $1.2 trillion in cuts to federal programs or new revenues by Dec. 31, domestic programs will be slashed by $700 billion and defense programs by $500 billion.
“Come year’s end, there’s going to be all sorts of proposals and pressures on Congress to do something other than simply sit there,” Aaron said.
He said lawmakers are likely to finally agree on a plan to raise taxes in a “lame duck” session after November’s elections.
But, Aaron cautioned, “the political fight is going to be bloody.”