The White House offered a white-board presentation on the need for the Buffett Rule, the surtax on the uber-rich — a term actually used by the White House in its presentation — that claimed that the effective federal tax rates on the wealthiest Americans falls slightly below that paid by teachers and cops. As Douglas Holtz-Eakin points out in this clip, however, a review of these cases shows a much lower income-tax rate in all of these categories except for the uber-rich. Why? As Fox News’ Jim Angle reports, that’s because the White House didn’t disclose that they added in Social Security and Medicare taxes:
With the executive system we didn’t come up with 16%, we got 7%. And when we look at the teacher and the cop, we couldn’t get 19%, we got 10% and finally when we got to our doctor not 23…16%. And if you will notice, that looks like tax fairness. 7,10,16,18. More income you have, higher your tax rate.
Why shouldn’t the FICA taxes be counted? Those funds go to the government-mandated retirement accounts and health-insurance coverages whose benefits and payouts are capped. Because the government (and both political parties) are determined to maintain the pretense that Social Security and Medicare are not welfare programs, the contributions are linked to the capped payouts, which means that any income over a certain level becomes exempt from FICA taxes. The explanation is that the wealthiest Americans are entitled to no more than the capped benefit amounts, so forcing them to pay over the capped contribution amounts would transform these programs into wealth-redistribution welfare programs.
Whether you buy that nonsense or not, that’s the way the program is structured. Its progressivism is built into the distribution of benefits, not the seizure of capital, as in the income tax system. That’s why the White House argument is equally nonsensical. If the issue is that FICA contributions are capped, then raise or eliminate the caps, and deal with the political fallout of making Social Security and Medicare explicitly welfare systems. The income tax system is already sufficiently progressive — in fact, it’s overly progressive, considering that around 40% of Americans don’t pay anything at all.
The most nonsensical part of this entire debate? We’ve been arguing for months over a proposal that would seize capital in a stagnant economy from those who have succeeded in using it, as a means to add $4.7 billion in revenue a year at best while spending $3800 billion, with a deficit of over $1000 billion this year. That’s as intelligent and useful as the Ate Vs Crate Dog Wars.