But would such a millionaire have less incentive to create jobs? No, quite the contrary, because the Buffett rule lowers the marginal tax rate paid by the millionaires it affects, from 35 percent to 25 percent, even as it increases their total tax burden.
Consider, for example, a millionaire whose income consists of $1 million in capital gains and $100,000 from a chain of hot dog stands. This millionaire pays taxes of 15 percent on capital gains and 35 percent on net income from the hot dog stands, for a total of $185,000 ($150,000 plus $35,000.) This amounts to an average tax rate of 16.8 percent, less than the 25 percent marginal rate paid by many middle earners.
Under the Buffett rule, he would have to pay 25 percent of all income in taxes, for a total of $275,000. However, he would be keeping 75 cents of every additional dollar generated by the hot dog stands, compared with 65 cents of every dollar without the Buffett rule. So this millionaire would have more incentive to expand his hot dog business, hire more workers, and so on.
So, for the millionaires it would apply to, the Buffett rule would effectively cut marginal tax rates 10 percent even as it raises the overall tax burden. Compare this with the Bush tax cuts, which lowered the marginal tax rate on the highest earners by about 5 percent. Anyone who argues that eliminating the Bush tax cut for the highest earners will destroy jobs must therefore acknowledge that the Buffett rule would create jobs.
It's not clear whether extending the Bush tax cuts for the wealthy would have a significant effect on business investment and job creation. If not, the cuts should probably be allowed to expire as part of a broader package of measures to address our fiscal challenges, especially given today's historically low tax rates.
On the other hand, if Republicans are correct that eliminating the cuts would hurt job creation, there's a reasonable argument for their extension, at least temporarily. In that case, however, the Buffett rule would also boost job creation.
Either way, because the Buffett rule raises revenue while lowering marginal tax rates, it's exactly the sort of tax reform that economists - and Republicans - should be able to get behind.
David McAdams is an associate professor at Duke University's Fuqua School of Business.