Talk about your mixed messages! While Barack Obama goes on the campaign trail trying desperately to drum up support for a jobs plan that will cost $450 billion, the President will also deliver at the same time his plan to reduce the spiraling federal deficit and slow the runaway growth of the national debt. And while claiming that he’s not engaging in class warfare, Obama wants to target a new tax at one segment of society in order to protect and amplify his redistributionist policies. Care to guess what that segment of society is?
President Barack Obama, in a populist step designed to appeal to voters, will propose a “Buffett Tax” on people making more than $1 million a year as part of his deficit recommendations to Congress on Monday.
Such a proposal, among suggestions to a congressional supercommittee expected to seek up to $3 trillion in deficit savings over 10 years, would appeal to his Democratic base ahead of the 2012 election but likely not raise much in revenues.
White House Communications Director Dan Pfeiffer said in a tweet on Saturday the tax would act as “a kind of AMT” (Alternative Minimum Tax) aimed at ensuring millionaires pay at least as much tax as middle-class families.
The “Buffett Tax” refers to billionaire U.S. investor Warren Buffett, who wrote earlier this year that rich people like him often pay less in tax than those who work for them due to loopholes in the tax code, and can afford to pay more.
The AMT? Say, isn’t that the “millionaire’s tax” that Congress passed decades ago that now has to be “patched” each year so as not to hammer middle-class families? What a great model to use for the new “millionaire’s tax”! And inevitably, it won’t generate “much in revenues,” which I’ll explain in a moment.
Besides, if Warren Buffett wants to pay taxes, he can start with the billion dollars his company already owes the federal government.
Let’s take a year-long look at the tax policy of this administration. Before the midterm elections, Obama and Democrats refused to produce a budget because in doing so, they would have had to address the expiring Bush-era income tax rates. In the lame-duck session immediately afterward, Democrats pressed to let the Bush tax rates expire, which would have created the biggest tax increase in history, or at least the top rates that would have hiked taxes on anyone earning $250,000 a year or more. By December, Obama agreed to keep the rates as they are for the next two years — in order to get the economy going and job creation restarted.
Yet Obama immediately denounced his own plan and insisted that he would fight to raise those same rates in 2013, effectively killing any stimulating effect the deal might have had. (Maintaining status quo was less about stimulation and more about avoiding damage, of course.) Now, just as Obama wants to promote a jobs bill that contains a half-priced rehash of the Porkulus failure of 2009, he announces that he wants to seize more capital from the very people who we need to put capital into private-sector investments to create jobs. This is especially true of this so-called Buffett Tax, which targets the very income derived from capital risk:
The Buffett Tax could help energize Obama’s base by highlighting a feature of the U.S. tax code that allows the super rich to pay lower rates of tax than less wealthy Americans because the bulk of their income is capital gains, dividends and the ‘carried interest’ earnings of hedge fund managers.
What happens when the cost of risk equals the cost of relatively risk-free income? People stop taking risks and shelter their capital. When capital stops being risked in new ventures, economic growth slows and stops, jobs either never get created or start disappearing, and we get stagnation or recession. That capital doesn’t sit on the sidelines forever, either; eventually capital moves to other markets, which means that even when conditions improve, we won’t see that capital return to our markets. On top of that, the vacillation on tax policy and hostility towards capital holders amplifies the incentives to move capital out of the US.
That’s why the “new AMT” won’t end up generating anywhere near what the Obama administration will claim. It’s a nakedly political act designed to bolster Obama’s class-warfare demagoguery and credentials, and it’s a policy that will inevitably lead to a deeper economic crisis in the US.