Mr. President, we are in an age of tight budgets and tough choices, and I rise today to introduce legislation that would address some loopholes in the Tax Code that provide ways for Americans with superhigh incomes to pay lower tax rates than are paid by regular hardworking, middle-class families. These middle-class families feel they are struggling to get by but then find that some people with extremely high incomes are actually paying a lower, all-in federal tax rate than they are. To them, it defies common sense, and I think for all of us it defies common sense.
Americans deserve a straight deal, and right now they are not getting one from our tax system.
To see the unfairness of our current tax system, we don't have to look much further than the national headlines. According to a Forbes magazine report last fall, billionaire Warren Buffet “paid just 11.06 percent of his adjusted gross income in Federal income taxes” in 2010. Mr. Buffet is the first to express his dismay at this circumstance and acknowledges that the rate he pays is lower than the tax rate paid by his own secretary. Mr. Buffet has called for a correction of this anomaly, and I agree with him. So does President Obama, who, in his State of the Union Address, said Washington should stop subsidizing millionaires. I agree.
We should celebrate the success of people who are earning $1 million and more a year, but we don't--particularly in this time of tight budgets and hard choices--need to subsidize that. The legislation I have introduced today, the Paying a Fair Share Act of 2012, would ensure that those with extremely high incomes pay at least a minimum Federal tax rate of 30 percent. I thank Senators Akaka, Begich, Leahy, Harkin, Blumenthal, and Sanders for being initial cosponsors of this measure.
The structure of our bill is pretty simple. If your total income--capital gains included--is over $1 million, you calculate your taxes under the regular system. If your effective tax rate turns out to be greater than 30 percent, you pay that rate. If, on the other hand, your effective tax rate is under 30 percent, like Warren Buffet's 11 percent, then you would pay the fair share tax rate.
After collecting input from some of my colleagues, I have also included a provision to allow the fair share tax to be gradually phased in for taxpayers earning between $1 million and $2 million per year. Taxpayers earning less than $1 million--which is 99.9 percent of all Americans--wouldn't be affected by this bill at all. Taxpayers earning over $2 million would be subject to the 30 percent minimum Federal tax rate, and those in between $1 million and $2 million would pay , on a phased-in basis, a portion of the extra tax required to get up to the 30-percent effective tax rate. This way we make sure no taxpayer faces a tax cliff where earning an additional $1 of income increases his or her taxes by more than $1.
In his State of the Union Address on Tuesday, President Obama called for legislation to ensure that the highest earning taxpayers pay at least a 30-percent tax rate. The Fair Share Act would do just that. To call our tax system fair , I believe the highest income Americans should pay a higher rate--not a lower one--than middle-income taxpayers. For more context, let's take a look again--because I have given this speech over and over on the floor--at how superhigh-income-tax payers fare under our current system.
This is the Helmsley Building in New York, as I have pointed out before. It is on Park Avenue, and it has a unique characteristic, which is that it is so big it has its own ZIP Code. Because the Internal Revenue Service publishes information about tax payment by ZIP Code, we can see what the tax payments are that come out of this building. What we find with the latest information that the IRS has published is that the average filer has an adjusted gross income of over $1 million in the Helmsley Building, but the average tax payment out of that building is only 14.7 percent.
To provide a little context for that, if we look at what the average New York City janitor or the average New York City security guard pays in terms of an effective all-in Federal tax rate, it is 28.3 percent for the security guard and 24.9 percent for the janitor. So at this point it looks as if the people who are the very successful occupants of the Helmsley Building pay an actual lower Federal tax rate than the people who come in and clean the building, and that does not seem fair or sensible.
One might say, well, maybe it is just something about the Helmsley Building that causes it, but it is not. Despite Leona Helmsley's infamous line that it is only the little people who pay the taxes, it is a broader issue than that. Take a look at the income tax information about the 400 highest earning Americans.
In the same way that the IRS aggregates information by ZIP Code, it also takes the highest income earners and reports on them in aggregate. The 400 top incomes for 2008--which is the last year the IRS has assembled--had an average income each of $270 million, which certainly is something to be proud of and to celebrate if one can achieve that kind of success. But the average tax rate paid by the 400 was only 18.2 percent, which is--apart from the discussions we have been having in the Senate--about what the top income tax rate should be.
We discuss often whether the top income tax rate should be 35 percent or should be 39.6 percent. It was 39.6 percent, for instance, during the booming Clinton economy. It is now 35 percent. Depending on where the tax cut discussion goes, it may go back up again. But that is not what a large number of these very high income earners pay . In fact, the top 400 aren't anywhere near that. They are at half that, at 18.2 percent. We are supposed to have a progressively graduated Tax Code, with people who earn more paying a higher rate.
Let's see who else pays at the 18.2-percent rate. We looked at Bureau of Labor Statistics information for a single filer earning $39,350. That is where you hit an 18.2-percent tax rate, just like the 400 who made $ 1/4 billion each, on average. They are in the same position as somebody who is earning a little less than 40,000 who pays 18.2 percent under our present system. If we look at the type of jobs that hit that area, according to the Bureau of Labor Statistics, in the Rhode Island labor market a truckdriver earns on average $40,200. So we have a truckdriver paying the same rate of Federal tax as somebody earning $ 1/4 billion in a year.
So I think there is plenty of room for correction and to bring our tax system in line to the principle that I think we all espouse theoretically, which is that it is a progressive tax system. The more you earn, the more you pay and indeed the higher rate you are supposed to pay . It is not supposed to be at the other way around where, at the other high extreme, you end up paying lower rates than regular Americans.
The Helmsley Building was one building that has a little story to tell all of us. Here is another building with a story to tell. This is a building that is called Ugland House, and it is in the tax haven Cayman Islands. It doesn't look like much, does it? I don't want to say it is a crummy little building, but it certainly doesn't compare to a lot of other business buildings. But it does have something remarkable happening within it. It has 18,000 corporations that claim to be doing business out of this location--18,000 corporations in this little five-story building. It gives a new meaning to the phrase “small business.”
As our budget chairman Kent Conrad has pointed out, the only business going on in Ugland House is funny business with our Tax Code, shell companies that hide assets and dodge tax liabilities. It does not make sense that our tax system permits the highest income Americans to pay a lower tax rate than a truckdriver pays , and it doesn't make sense that we allow Americans and American companies by the thousands to hide income in offshore tax havens.
If we look at the rates that are paid--Warren Buffet 11.6 percent, the occupants of the Helmsley Building on average 14.7 percent, and the 400 $ 1/4 billion-a -year earners on average 18.2 percent--and we look at the fact that we have multi-trillion-dollar budget deficits, it means the taxes they are not paying at the nominal 35-percent rate are taxes that somebody else ends up having to pay either through deficit or through additional taxation.
This is why the Fair Share Act makes a lot of common sense, and I hope Senators on both sides of the aisle will take a look at it. This bill would do a lot of good. It would simplify taxes. There is no point chasing loopholes if someone knows they are going to have to pay the 30-percent minimum. It will simplify that. It would discourage the exotic tax dodges that allow people to go down to 14 percent or whatever tax rates because they know they are going to get caught at 30 percent, so why do the effort. The exotic tax dodges will be discouraged. It will reduce the deficit. We don't have a number yet from the Joint Committee on Taxation, but the public reporting so far has suggested it is going to be in the $40 billion to $50 billion range per year. Of course, it will bring fairness , as well as common sense, to our tax system. It makes no sense for somebody earning $80,000 or $100,000 or $120,000 a year to be paying a substantially higher tax rate than somebody earning $ 1/4 billion a year.
There are a lot of advantages that come with enormous income, and that is a great thing because America thrives on capitalism, and we all love success. We celebrate success in America. We provide an economy and a culture in which people can accomplish remarkable things and create enormous fortunes and become enormously successful. That is part of what is good and what is right with America. They do it through hard work, they do it through being smarter than other people, they do it with a lot of good personal characteristics. But with all the advantages that do come with an enormous income, paying a lower tax rate than regular working families should not be one of those advantages.
I hope we can get together to correct this, and I look forward to working with my colleagues on this issue.