Facts about the Buffett Rule
BY MIKE BROWNFIELD
Friday, April 13, 2012
4/13/12 at 4:01 AM
President Obama recently laid out his case for the Buffett Rule, a plan to raise taxes on successful Americans and small businesses. The core of his argument: The rich aren't paying their fair share.
It makes for great populist rhetoric, but the result is terrible policy. Worse, it's a distraction from the big issues facing the nation, such as the deficit, the economy, jobs, gas prices and health care.
Will the president's tax hike at least tackle the country's fiscal problems? No, it won't. According to a recent analysis by the congressional Joint Committee on Taxation, the Buffett Rule would raise a mere $47 billion over 10 years. Meanwhile, President Obama's budget calls for adding $6.7 trillion to the national debt. That means that the Buffett Rule will only cover one-half of 1 percent of the president's new spending.
Soaking the rich cannot get deficits down; only spending reductions can do that.
When it comes to the biggest problem America is facing - a weak economy and high unemployment - the Buffett Rule would weaken the economy and make matters worse. The tax would fall most heavily on job creators (who pay taxes at the individual rate) and confiscate resources that would otherwise be used to start new businesses, grow existing businesses and hire more workers. As a result, economic growth will slow down right along with job creation.
The president says, "This is not about a few people doing well. We want people to do well, that's great. But this is about giving everybody the chance to do well." Really? Raising taxes on the rich, weakening the economy, somehow gives everybody the chance to do well? Raising taxes on anybody somehow gives everybody the chance to do well? This is absurd even by the low standards of American political rhetoric.
Here's what you really need to know about Obama's plan.
Under the Buffett Rule, businesses and families earning $1 million will pay a minimum 30 percent effective tax rate. The president says those Americans aren't paying enough. As proof, he points to billionaire Warren Buffett's secretary, who reportedly pays a higher tax rate than her uber-wealthy boss. But he's distorting the facts.
Many wealthy Americans who have done well, such as Buffett, receive dividends and capital gains - a form of investment income that is subject to multiple levels of tax. First, the investment income results from investment. This capital didn't appear out of thin air. It was earned and taxed previously, often many times over at rates up to 35 percent.
Then, once invested, it generates income that is taxed at the corporate level at a 35 percent rate. And then it's taxed again, at the individual level at a 15 percent rate on dividends and capital gains. The combined rate on corporate earnings alone is more than 45 percent, and this is all after the first layer of tax.
One way to think about this is to imagine you're driving down a toll road, and you pay three separate tolls. The first toll of $3.50 is when you get on the highway. Then after a few miles you pay another $3.50 toll, and when you exit, there's a final toll of $1.50. A reporter asks you as you leave the last tollbooth how much toll you paid.
What's the most accurate answer - what you paid at the last tollbooth, or what you paid altogether? Obviously, feeling some $8.50 lighter in the wallet, the correct answer is to respond with the total.
Conveniently for him, President Obama only talks about the last level of tax, the 15 percent portion, leaving out the rest. He only wants to talk about the last toll paid, not the total, and that's how he makes his disingenuous argument. And all of this leaves out the final tax that many wealthy Americans pay - the death tax, which is set to return to its 55 percent level in 2013.
Then there's the inconvenient fact that if you look at only the last level of tax, the data show clearly the highest-earning families and businesses in America are already shouldering the vast majority of the country's tax burden. The top 1 percent of income earners - those earning more than $380,000 in 2008 - paid more than 38 percent of all federal income taxes while earning 20 percent of all income.
Meanwhile, those in the top 10 percent ($114,000 and above) earned 45 percent of income and paid 70 percent of all taxes. By comparison, the bottom 50 percent of income earners - those earning less than $33,000 - earned 13 percent of all income and paid less than 3 percent of federal income taxes.
Instead of offering solutions, the president is offering class warfare branded as the Buffett Rule.
Mike Brownfield is assistant director of strategic communications at The Heritage Foundation.
President Barack Obama speaks about the Buffett Rule on Wednesday in the Eisenhower Executive Office Building in Washington. CAROLYN KASTER/Associated Press