President Barack Obama proposed legislation that Congress failed to enact that would have included the so-called "Buffett Rule," named after billionaire Warren Buffett, who noted that he was paying a lower tax rate than his secretary. The Buffett Rule would set a new tax rate for those earning incomes of more than $1 million per year.
a. Looking at the table on page 603 for the percentage of federal taxes paid by the different income categories, is Mr. Buffett's situation of paying a lower tax rate than his secretary typical of the highest 1 percent of U.S. income earners?
b. According to an article in the New York Times, "[Buffett's] income comes mostly from his investments, which are taxed at the capital gains rate of 15 percent. His secretary is most likely paid a salary and bonus, which would be taxed as ordinary income, at a rate that goes as high as 35 percent." What are capital gains? Which goals and principles of evaluating taxes are relevant to considering whether the federal government should continue to tax capital gains at a lower rate than ordinary income? Briefly explain.