The highest-earning U.S. households have ways to escape President Barack Obama's Buffett rule with tax-planning techniques that would limit their liability and undermine the proposal's purpose.
Those affected taxpayers -- the fewer than 0.5 percent of Americans with annual incomes exceeding $1 million and tax rates of less than 30 percent -- could take advantage of tax-free investments such as municipal bonds to escape the Buffett rule's bite. They also could time asset sales for maximum tax benefits, engage in transactions that don't result in taxable income and make charitable contributions that yield deductions.
"Largely, the Buffett rule is going to be manageable," said David Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. "That is, with tax planning, people will be able to avoid it."
The proposal would deny high-income taxpayers many deductions and other breaks they use to drive down their averagetax rate without closing out the tactics employed by the wealthiest, most sophisticated taxpayers.
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