At the moment the ALP is having a fight over the merits of a Buffett rule for income tax. It is a high-profile battle involving two former treasurers. What perhaps has been ignored is that the ALP has also come up with a policy that might achieve some of its aims with much less tinkering with the tax system.

The Buffett rule of tax comes from the US billionaire Warren Buffett, who in 2011 was surprised that, because of deductions and differing tax rates, he paid a lower average rate of tax than did his secretary. The rule generally involves setting a floor on the average tax that must be paid by very high income earners.

In Australia, the Greens have a policy of a minimum of 35% tax for those earning over $300,000 – in line with that proposed by the progressive think tank the Australia Institute in 2015.

Bill Shorten rejects Labor MPs' push for 'Buffett rule' as policy at next election Read more

The ALP is rather split over the issue.

Two frontbenchers, Terri Butler and Andrew Giles, recently argued in an essay titled Tax and Equality that the Buffett rule is “a readily understandable symbol of what’s wrong with the present arrangements”. The left wing of the party is pushing for it to be debated at the next ALP national conference. Wayne Swan has also been advocating for a debate on the idea.

However, both Bill Shorten and the shadow treasurer, Chris Bowen, have ruled out taking a Buffett rule policy to the next election.

You can see why the Buffett rule is appealing.

Because of our progressive income-tax system, the average amount of tax you pay rises the more your earn. Those earning around $300,000 pay roughly 36% tax – just above the 35% minimum proposed by the Buffett rule advocates:

But the problem of course is that tax is paid on taxable income, not total income. Deductions and tax strategies can enable people’s taxable income to actually be much lower than their total income.

As Gareth Hutchens recently reported, in 2014-15 48 millionaires paid no tax at all.

The Buffett rule would catch such people and, in theory at least, force them to pay 35% tax on their income.

One issue Bowen has with the rule is that while we may dislike the ability for people to reduce their taxable income to zero, society does benefit from some of the ways they do – for example, donations and angel investor funding.

Such a reasoning is especially pertinent in light of the $400m donation made this week by Andrew Forrest, for which it has been reported he will claim a $200m tax deduction.

Now I have no issue with him doing that, although I do take issue with the prime minister’s assertion, made on Monday, that donations are somehow better than taxes because they are made with “love”. Personally I’d prefer to rely on our hospitals and schools being built from money that comes from people and companies paying their fair share of taxes rather than wait for love to come to town.

Bowen is right to be concerned about the impacts on other areas of the tax system. I wonder at the complexity of such a rule within the tax code, which would see some people be able to claim deductions but others not because of their total income.

I suspect it would make for a tax lawyers’ picnic.

Bowen has argued instead that if the issue is deductions themselves, get rid of or limit those deductions. The most obvious of these is negative gearing.

But in Shorten’s budget reply he announced a new one, which I think is almost a Buffett rule by stealth.

When you look at the 48 millionaires who paid no tax, one aspect really sticks out – they claimed a combined $20.2m in deductions for managing tax affairs. What the ALP is proposing to do is limit the amount you are able to claim for such a purpose at $3,000.

Wayne Swan: Labor must consider 'Buffett rule' as part of inequality agenda Read more

The reasoning is clear. The average amount spent by people managing their tax affairs in 2014-15 was just $378 and yet the millionaires who reduced their tax to zero paid an average of $1.1m.

When the policy was announced the deputy PM, Barnaby Joyce, took to Twitter suggesting it was an attack on all accountants’ incomes. But Joyce incorrectly assumed the policy applied to businesses, whereas the ALP’s policy will only apply to individuals.

And the fact is it will apply to only a very small fraction of people. Most people don’t even claim anything. In 2014-15 only 86,066 people out of 13.2 million claimed more than $2,500 for managing their tax affairs:

And if we look at the average amount claimed according to total income, the $3,000 average only occurs for those earning over $500,000:

But these averages can hide what is really occurring – and fortunately the taxation data gives us more detailed breakdown, which allows us to see a very strong link between the amount claimed for managing tax affairs and the lack of tax paid.

Take for example the 33,813 people who earned between $500,000 and $1m. Most of these individuals stayed in the $180,000 plus tax bracket, and they paid on average just $3,145 on their tax affairs. But 118 of them were able to avoid paying tax by reducing their taxable income below $18,200. For these people the average cost of their tax affairs was $128,000:

The desire to get below $18,200 and thus pay no tax is strong and is led by paying for your tax accountant.

In 2014-15 there were two and half million people who earned between $80,000 and $180,000. They claimed an average of $416 on their tax affairs, but the 2,663 of them who were able to get below the tax-free threshold claimed an average of $20,482:

Even among the two and half million people who had a taxable income below $18,200, 473,000 people claimed for management of tax affairs – and it is clear that the more you actually earned, the more you paid an accountant to help you get below the tax-free threshold:

The importance of having an accountant to get your taxable income down as opposed to, for example, charitable donations is highlighted by the fact that while the millionaires who avoided paying any tax in 2014-15 accounted for just 0.4% of all millionaires, they claimed 3% of the total donations made by millionaires but a staggering 20% of all money spent on tax affairs:

The Buffett rule certainly is appealing and is definitely worth debating. But the ALP’s policy of limiting deductions for managing tax affairs will go some way to limiting the ability of the very wealthy to avoid paying tax.

It is not a cure-all but it certainly is a sharp way to target those who pay people vast sums of money to avoid paying even more vast amounts of tax.