The “Buffett rule,” the principle that a millionaire should never pay a lower rate of tax than his or her secretary or anyone else working in the middle class, has excited many on the left. There is a legitimate issue of effective middle class tax rates being higher than a non-trivial segment of the millionaire class. Russ Feingold plans to press the Super Committee from his outside perch at Progressives United on the Buffett rule. “I just want to say how pleased I am that the President is taking a strong stand with this Buffett rule,” Feingold said. And millionaire Dallas Mavericks owner Mark Cuban summed up the many rebuttals and cries of “class warfare” on the right by saying that having a million dollars and wondering if you might have to pay a higher rate of tax is a great problem to have.

There’s only one thing: just what is the Buffett rule? I looked at this conundrum yesterday, and so did Kevin Drum. He concluded that it was an amalgam of strategies that would arrive at more of a “Buffett ideal,” than something like the alternative minimum tax, which would be a “Buffett rule.” And without changes to the capital gains tax rate, which is not mentioned in the actual proposal from the White House, such an ideal would be a pretty weak nudge. Changing the carried interest loophole is nice, but it doesn’t touch people who just collect from capital gains rather than those who manage money.

Gene Sperling tried to clear this up yesterday with a blog post at the White House website. He’s batting down largely conservative complaints about the rule, but he reveals a few things:

Claim: This rule would raise taxes while the economy is weak.

Fact: The President’s plan does not raise anyone’s taxes in 2011 or 2012. The President believes that the most well-off Americans should contribute to deficit reduction by paying more, but under the President’s plan, all measures to raise additional revenue — including fundamental tax reform — are effective starting in 2013 [...]

Claim: This is a new tax rate on millionaires.

Fact: This is not a new tax rate on millionaires; instead the rule should be incorporated as part of fundamental tax reform that lowers overall rates. Currently, the highest-income Americans pay far less than the top marginal tax rate. Therefore, reform that meets the Buffett Rule should focus on limiting the degree to which the most well-off can take advantage of tax expenditures and preferences.

Claim: This is a broad-based tax on investors.

Fact: Not at all. The vast majority of investors in the U.S. will be unaffected by this rule. This rule applies to only three out of every 1,000 Americans. And, as noted, it would actually affect even less than that since some of these wealthy Americans already pay near the top marginal rate. Currently, for example, there is a preferential rate for capital income which many people making over $1 million take advantage of on a portion of their income without violating the Buffett Rule.

First of all, this wouldn’t hit until 2013, just as a reminder. Second, Sperling writes that there would be no new tax rate on millionaires, and that overall tax rates would be LOWER under the type of tax reform the White House would like to see. This means that the Buffett rule would just nudge toward a higher effective tax rate for millionaires by eliminating or capping deductions.

So basically, several things that the White House supports – closing the carried interest loophole, allowing the high-end Bush tax cuts to expire, capping itemized deductions for individuals over $250,000 at 28% and killing some other loopholes used by the rich, would come together to make up the Buffett “rule.” And this comes close to being explicit on capital gains, by saying that “the vast majority of investors in the U.S. will be unaffected by this rule.” If capital gains tax rates were going up, all investors who sold a security at a profit would be affected.

So I’d have to agree with The Economist that this policy is trivial, even if you agree (as I do) with the component parts. “Our economy is riddled with a multitude of deeply-embedded structural flaws that allow the well-connected to enrich themselves at the expense of the rest of us, but nobody will do anything about it.” And yes, that was on the website of The Economist.