You wouldn’t know it from Occupy Wall Street’s angry rants against America’s tight-fisted 1 percent, but a surprising number of fat cats are eager to give their money away. Billionaire investor Warren Buffett is the most visible member of this club, but a poll taken in September of last year found that a full 68 percent of American millionaires support higher taxes on themselves.
By and large the rest of America agrees, with 60 percent of those polled supporting an increased tax rate on the relatively affluent. These sentiments have recently coalesced into President Obama’s newest policy initiative, the Buffett Rule. Inspired by the revelation that Warren Buffett’s secretary was taxed in a higher bracket than the investment guru himself, the law would put in place a minimum 30 percent tax on income in households with funds equal to or greater than $1 million.
The White House pushed the proposal, which failed to pass in the Senate last week, hard; on April 11, President Obama gave a press conference in the Rose Garden extolling the virtues of the Buffett Rule and urging its swift passage. Surrounded by billionaires, the president spoke of the wealthy paying their “fair share” and stressed the need for increased taxes on the wealthy as a way to shrink the debt and correct “the inequities of the tax system.” There are many examples of President Obama ignoring good policy in favor of good politics, but his championing of the Buffett Rule is without doubt one of the most egregious.
First is the contention that the Buffett Rule would help conquer the national debt. The Joint Committee on Taxation estimates that such a tax would raise around $4 to $5 billion a year. Our national debt is quickly approaching $16 trillion, and the deficit for the year 2011 alone was over 250 times greater than the paltry sum the Buffett Rule would contribute. The ultimate in small-ball politics, the Buffett Rule represents a very small drop of revenue in a very large bucket of government debt. For a president supposedly committed to reducing a rapidly-ballooning debt, Obama seems oddly content to tinker around the margins of the problem. And to sell such an unambitious, irrelevant plan as a debt-buster illustrates what little stock the administration places in the deductive powers of the average voter.
Then there’s the argument that the Buffett Rule represents the first step in reforming America’s monstrously complicated and overgrown tax system. What rubbish. The new tax contains no provisions about closing loopholes, ending subsidies or simplifying the government gobbledygook that eats away at American productivity. Raising taxes on one small slice of the electorate isn’t “reform,” it’s just raising taxes. This administration’s delusions of grandeur are by now well-documented, but that doesn’t mean the White House’s penchant for making mountains out of molehills is any less infuriating.
With debt reduction and tax reform discredited as motives for the Buffett Rule, President Obama has fallen back on the “fairness” mantra. To the president (and he is certainly not alone), it is fundamentally unjust that the ultra-wealthy should pay a lower tax rate than their employees. What is forgotten by many in the debate, however, is that the vast majority of millionaires already pay their “fair share” of 30 percent or more in income taxes. Warren Buffett, and others whose jobs involve the movement of large amounts of capital, pay a lower rate because the capital gains tax in this country is set at around 15 percent. Highly-paid secretaries, of which Warren Buffett’s secretary is undoubtedly an example, would be in a higher tax bracket because their income is earned through wages taxed at a higher rate.
In effect, President Obama has proposed a hike in the capital gains tax, not a tax on millionaires. Why shroud his intentions in “fair share” rhetoric instead of merely proposing a higher tax rate on investment revenue? For one thing, increasing capital gains tax is a little like economic heresy in the United States. That’s because over the last 50 years, an increase in the tax has always led to a drop in government revenue, while a decrease shows the reverse. That’s because raising taxes on investment revenue earned causes highly mobile capital that might’ve been invested in the United States to instead seek refuge in regions with more lucrative tax codes.
The Buffett Rule only applies to millionaire investors, but these are precisely the people who have the most discretion in the size and allocation of their investments. The United States already has the highest corporate tax rate in the world, and to jack up capital gains tax to the fourth highest would hinder debt reduction and economic recovery by scaring away hundreds of thousands of crucial investors.
For the president, however, the only numbers that matter in an election year are poll numbers. Those given above show that the majority of American voters, even the wealthy themselves, believe that the Buffett Rule represents a “fair” system. Possibly without meaning to, President Obama has tapped into widespread anxiety concerning the growing wealth gap between the richest Americans and the middle class. Now that he knows he has a winning issue, he is content to use it as a wedge to divide the electorate in his favor, and he seems genuinely unconcerned about promoting legislation that would actually resolve the wealth gap and a variety of other systemic problems.
Simple populist politics lie behind the administration’s push for “fairness,” and voters would do well to recognize that a disguised capital gains tax can only bring further economic hardship to Americans of every socio-economic class.