Obama's position is that, as the government tightens its belt via expected spending cuts, it should also gather some $1.5 trillion over the next decade from higher taxes on the wealthiest Americans. He says this isn't class warfare, but that budget math won't allow America to "have it both ways" – an adequately funded government and low taxes for the rich.
His proposed "Buffett rule" holds that millionaires shouldn't have a lower effective tax rate than their secretaries – and that they should pay at least 30 percent of their income in federal taxes. (Romney and billionaire Warren Buffett are among the wealthy who have paid at about half that rate, because investment income is taxed at a lower rate than wage income.) The Buffett rule would replace the AMT.
Obama would continue a 15 percent tax rate on dividends and capital gains for families making less than $250,000 a year. For people above that income level, the rate would jump to 20 percent. He would also put ordinary-income rates on "carried interest," a form of income often earned by hedge-fund and private-equity managers. (Currently that income is taxed at the 15 percent capital gains rate.) He would also reduce deductions available to high earners.
Whereas Obama would let the top bracket be taxed at the pre-Bush marginal rate (39.6 percent), Romney would cut the top tax rate to 28 percent. Romney would also keep capital gains and dividends taxed at the rate at 15 percent for individuals with annual income above $200,000, while eliminating those taxes entirely for individuals below that income level. And if Romney is successful in his bid to repeal Obama's health-care reforms, he would end an investment income surtax that is embedded in that law.
Romney said in a June interview with CBS that he supports a progressive tax code, and that under his plan "people at the high end will still pay the same share of the tax burden they're paying now."
The debate surrounding the rich affects about 2 percent of US households, but it carries big implications. Tax experts say the US budget deficit can't be fixed solely by taxing the rich more, but that doing so could put a meaningful dent in the red ink.
An important side debate is whether capital gains should continue to be taxed at a preferential rate. Supporters say the policy encourages saving and investment, while critics say it's an unfair and unnecessary privilege for the wealthy.
Some context on how the tax burden is apportioned: America's rich have grown richer, but they’ve also been paying a rising share of federal taxes. The top 1 percent of households, by income, accounted for 17.4 percent of all income-tax liabilities in 1980, the Congressional Budget Office found. By 2007 that share had risen to 39.6 percent. The middle quintile of households saw its share of liabilities fall from 10.7 percent to 4.6 percent during that period.