The Buffett Rule - What about Averages

There are figures and then there are figures.   The President has been trying to make a case that the richest Americans pay less than the average joe.   Based on the data of averages by decile the American tax system, even when you include payroll taxes is progressive.    Rich people actually do pay more as a percentage of income than poor people do.   There are all sorts of charts that prove that.  But recently, among some of the writers on the left a new argument has emerged.  Indeed, these people say that the variability of tax rates among the highest income taxpayers is higher than for people in lower brackets.  (That is undoubtedly true because of the sources of income.)  AND, these same people argue that some middle income taxpayers may actually pay more than some very high income taxpayers.  (That may also be true.) 

But there are some serious caveats to the analysis.   First, averages are exactly what they are purported to be - averages.  And so there is some variation.  Second, part of the variation on tax rates, especially for the middle income taxpayers may be as a result of the alternative minimum tax (AMT) which affects people in the upper reaches of middle income hood or in the lower reaches of upper income hood.   For those taxpayers so affected their average rates rise.  A major difference between the two groups is the involuntary nature of the AMT.   Buffett argues that people in his lofty place on the income totem use the preferences for capital which can lower effective rates.  That is discretionary, the AMT is mostly not.

A final comment should be added about Buffett's fairy tale.  It is almost impossible to get to the percentages that Buffett claims for his employees.   Effective rates of 33-41% do not occur for people who are firmly in the middle class.   Either his co-workers were in a strange tax year (possible) or Buffett was merely creating the data (probable).

Ultimately, the best tax system is one which intrudes little in the lives of citizens - that would mean lower rates and a broader base.   But then that is not the point that the President or his tax raiser lapdog is trying to make.