“The Obama administration is emphasizing ‘fairness’ over deficit reduction in its renewed pitch for the ‘Buffett rule’ ahead of next week’s scheduled Senate vote.
“Introducing a minimum 30 percent income tax on millionaires ‘was never our plan to bring the deficit down and get the debt under control,’ Jason Furman, the principal deputy director of the White House National Economic Council, told reporters on a conference call Monday afternoon. ‘This is not the president’s entire tax plan. We’re not trying to say this solves all our economic problems, all our budget problems.’
“Making the argument for the rule based on billionaire investor Warren Buffett’s argument that it’s wrong for him to pay a lower tax rate than his secretary, President Barack Obama said in the State of the Union address in January that paying the ‘fair share of taxes’ was necessary for a ‘sense of shared responsibility. That’s how we’ll reduce our deficit.'”
“‘This comes down to values,’ said Rep. Tammy Baldwin (D-Wis.), who has sponsored the House version of the Buffett Rule legislation and is running for Senate this year. ‘This isn’t class warfare.’
“But it seems clear that the Democratic effort is intended to remind voters of Romney’s background, with an Obama campaign email sent to supporters on Monday explicitly calling out the former Massachusetts governor.
“‘When it comes to our broken tax system, Romney is proposing additional breaks for the folks in the very highest brackets (folks like him, incidentally),’ the email said.”
“It turns out that most Americans do not think that 35% or anything close is a fair tax rate, even for bizarre windfalls such as winning a lottery. In February, the online pollster YouGov asked a representative sample of 3,500 American adults what they thought would be a ‘fair amount of tax’ to pay on lottery winnings. The survey specified different amounts of winnings, ranging from $1 million to $100 million. (The amount shown to each respondent was selected at random from a set of seven possible values.) Respondents gave their answers in dollars, and YouGov computed the implied percentage tax that they thought was fair.
“Less than a quarter of respondents chose a tax rate of 30% or higher on any level of lottery winnings. The vast majority thought that a reasonable amount to pay was much lower, with the average being only 15%. Democrats and Republicans differed only a little: The average rate preferred by Republicans was 14%, compared with 17% for Democrats.”
“On the seventh and final page of its background report on the ‘Buffett Rule,’ out this morning, the Obama administration finally dives into what it calls ‘the economic rationale’ for imposing a new minimum tax rate on millionaires. If you’re an unemployed American, that placement should be your first red flag. The second should be the rationale itself…
“Voters overwhelmingly want the presidential election to focus on jobs and the economy. In Florida today and on the campaign trail for months to come, President Obama will attempt to narrow that focus to the idea that wealthy Americans should pay at least the same effective income tax rates as their middle-class counterparts…
“If the Buffett Rule was a serious pitch to help the jobless, it would deal with one of those main drivers of unemployment. It would boost persistently weak aggregate demand or incentivize business investment. It does neither. Instead, it tells America’s job-seekers, Don’t worry, we’re going to make the tax code look more fair to you. Lots of polls suggest that’s a good political argument. But that’s what it is: a political pitch.”
“‘Tax fairness is unlikely to either help or hurt the president with swing independents,’ said Matt Bennett, Third Way’s senior vice president for public affairs, referring to a term the think tank used to describe persuadable independents up for grabs by either nominee.
“‘Most of them — like most voters — support raising taxes on the wealthy,’ he told RCP. ‘But this just isn’t their major concern. They don’t believe that their lives will be made fundamentally better, or that the American economy will get back on top simply by taxing the rich a bit more. Our research shows that swing independents are keenly interested in messages and policies about restoring American economic health and providing more opportunity for them, but especially for their kids.’…
“A majority of 57 percent in the Third Way survey said they view American society as fair, and they put income inequality near the bottom of their worries. Sixty-two percent said they are ‘doing better than the average American.’ What they care about, according to the responses, is a president with a plan to provide economic opportunity so that Americans can succeed through hard work in the future. Opportunity, they found, trumps fairness.”
“The U.S. already has a Buffett rule. The Alternative Minimum Tax that first became law in 1969 was also supposed to make sure that millionaires pay their ‘fair share.’ The top AMT rate is now 28%. But the AMT has become a public nuisance, adding new complexity to the tax code and ensnaring more and more middle-class families because it isn’t indexed for inflation. The surest prediction in politics is that any tax that starts by hitting the rich ends up hitting the middle class because that is where the real money is…
“The century-long history of the federal income tax teaches us one lesson over and over: The higher the tax rates, the more loopholes Congress inserts as a way around those rates. This is why the government collected roughly as much tax revenue as a share of GDP when the top tax rate was 70% in the 1970s as it did when the rate fell to 28% in 1986…
“The only investment and hiring the Buffett rule is likely to spur will be outside the United States — in China, Germany, India, and other competitors with much more investment-friendly tax regimes. The Buffett rule would give the U.S. the fourth highest capital gains rate among OECD nations, according to a new study by Ernst & Young, to go along with what is now the highest corporate tax rate (a little under 40% for the combined federal and average state rate). That’s what happens when politicians pursue fairness over growth.”
“But Operation: Reverse Reagan is already under way. In additional to cutting marginal tax rates, Reagan indexed tax brackets to inflation, stopping the automatic, inflation-induced tax hikes that were so notorious in the ’70s. But as AEI economist Jim Capretta points out, the Obamacare tax hikes associated with Medicare — 0.9% on wages and 3.8% on non-wage income — are not indexed for inflation. While they will start out only hitting high-income taxpayers (individual with incomes exceeding $200,000 and couples with incomes above $250,000), every year they will affect more and more Americans, rich and middle-income alike. Bracket creep is back.
“And don’t forget about the tax hike plans of liberal House members. Their recent ‘Budget for All’ proposal would a0 allow the top-end Bush tax cuts to expire, b) create five new tax brackets — 45%, 46%, 47%, 48%, and 49% — for ‘millionaires and billionaires, c) slap a European-style wealth tax of 0.5% on fortunes of $10 million or more, d) raise income taxes on the broad middle by allowing the ‘28% and 25% brackets to sunset once the economy is on solid footing, in 2017 and 2019, respectively.’ That means higher taxes on families making over $70,000 a year.
“The Buffett Rule? It would be just the beginning for Obama.”
“I think people think the Buffett Rule is sort of budget pixie dust.”