Eye on the Market I October 17, 2011 J.P.Morgan Topic: Do U.S. millionaires, as a group, pay lower tax rates than their receptionists? Recent US data (payrolls, retail and vehicle sales, manufacturing surveys) have come in a bit better than expected (see p2); we'll know more when we get October business and employment reports in early November. We maintain the view that the US will avoid a recession, despite substantial austerity in 2012. As for Europe, Godot is finally scheduled to arrive next week (in the form of a bank recap/ sovereign debt backstop plan, just in time for a European recession and credit contraction). We will have more to say when he does; there is scope for considerable disappointment here after the recent 16% rally in European equities. The Tell-Tale Heart. Warren Buffett, perhaps the best-known investor and philanthropist in the US, participated in the creation of his eponymous rule out of concern that the ultra rich "as a group, are paying less of their income to the federal government than their receptionists". It would be quite an indictment of the progressivity of the US tax system dating back to the 16th amendment in 1913 if it were true. Given the controversy, the Congressional Research Service (which analyzes these issues for congressional committees) took a look at the Buffett Rule as described in the President's deficit reduction plan: Buffett Rule: no household making over $1 million annually should pay a smaller share of its income in taxes than middle class families pay. This rule will be achieved as pan of an overall reform that increases the progressivity of the tax code. The CRS study provides effective tax rates (including payroll taxes) for a range of incomes. We created the chart below, with each line representing the distribution of tax rates within that category; the dot is the average. Example: tax rates range from 25% to 34% for those making $500k to $1mm per year, with an average of 30%. CRS excluded the