Buffett Rule

DEFINITION of 'Buffett Rule'

A tax rule proposed in 2011, by President Barack Obama, stating that individuals in the highest income bracket must pay at least 30% of their income in federal taxes. The Buffet Rule requires that no household earning more than $1 million should be taxed less on income than less-affluent families. The bill that was inspired by this rule, Bill S. 2059, known as the "Paying a Fair Share Act of 2012," was later rejected by the Senate in April 2012.

Also called the Fair Share tax.

BREAKING DOWN 'Buffett Rule'

The Buffett Rule was named after the legendary investor, Warren Buffett, who made a note that he pays a lesser federal tax rate than his secretary does. While some Americans believe the rich do not pay enough tax, the Rule was proposed as a measure of tax impartiality asking that everyone pay their fair share in taxes. Critics of the Buffett Rule state that there would be no significant difference to rich individuals' pockets if their income tax rates were increased, since the majority of their accumulated income and wealth is made through investment dividends and capital gains, not necessarily income. Supporters of the Rule, on the other hand, believe it is a first step in closing the loophole in the tax code.

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