None of us like paying tax, but we all accept that it’s part of life. However, tax rates are often inconsistent and unfair, which is why some suggest The Buffet Rule should be implemented to ensure that the nation’s top earners are paying their fair share of tax.
Often, those earning the most money are the smartest at avoiding or reducing tax with smart but complicated tax avoidance systems. The Buffet Rule aims to stamp this out by asking the wealthiest one per cent of Australians to pay more by reducing their ability to deduct significant amounts from their tax return.
Action group Get Up claims that Australia could claw back $2.5 billion in avoided tax per year by introducing the Buffet Rule – a cap on tax deductions for the wealthiest one per cent of income earners, requiring them to pay at least the same tax rate as everyday Australians.
Remember when the late media mogul Kerry Packer famously spoke about tax, saying that everyone tries to reduce their tax? People loved what Packer said but on the other side of the argument, they realised that Packer had the ability to reduce the tax he paid.
While the rule would not have stopped Packer from claiming deductions, it would have limited them. If, for example, Packer managed to get his effective tax rate below 35 per cent, the Buffet Rule would come into place, stopping the tax rate dropping further and hence forcing Mr Packer to pay the highest tax rate for everyday Australians.
So, where did the Buffet Rule come from? US billionaire Warren Buffet one day discovered that his secretary paid a higher tax rate than he did. It was obvious that it didn’t make sense, so Buffet suggested the minimum effective tax rate for the top one per cent of earners, closing loopholes and excessive uses of deductions.
There is another side to the argument, with some suggesting it could hurt investment and job creation, but given the rule only applies to the top earners, there would be general widespread support.
While America knows the Buffet Rule well given the significant publicity it has received, it has had very little traction in Australia. But with the Federal Budget in deficit and the knowledge that it would most likely be well supported by the voting public, it would be unsurprising to see the Buffet Rule become part of political policy in the near future.