What is the Buffett Rule?

The Buffett Rule is a principle of basic fairness. It's the principle that households earning more than a million dollars per year shouldn't be paying a smaller share of their income in taxes than people below them on the income scale.

President Obama named it the "Buffett Rule" after the billionaire investor Warren Buffett. Buffett paid only 11 percent of his income in taxes - less than millions of middle-class Americans, including his secretary.

Why do we need a Buffett Rule?

The Buffett Rule is badly needed for at least three reasons:

First, our budget challenges present some hard questions over the long term. Do we want to reduce the deficit exclusively by cutting investments and services for the American people, as Congress has done so far? Or are we going to ask the wealthy to contribute as well.

Second, millionaires can afford it. The after-tax incomes of the top 1 percent have risen by 281 percent over the last three decades - 10 times as fast as the incomes of people in the middle. And millionaires were paying 30 percent on average as recently as the 1990s, during a period of sustained growth. So asking them to pay at least that much now isn't a huge imposition.

Third, the Buffett Rule would help restore people's faith that our tax system is fair, or at least not grossly unfair.

What are the prospects for implementing the Buffett Rule?

President Obama has framed the Buffett Rule as a guiding principle of tax reform. That is, he believes that the tax code needs a fundamental overhaul, ending the loopholes and special rules that have resulted in millionaires not paying their fair share.

Recently, Senator Sheldon Whitehouse of Rhode Island and several other senators introduced the Paying a Fair Share Act of 2010. That bill would make the principle behind the Buffett Rule into a rule of the U.S. tax code, requiring that millionaires pay at least 30 percent of their income.