President Barack Obama is making his reelection about raising the taxes of an Omaha billionaire who is volunteering for the honor.
The so-called Buffett Rule to make millionaires and billionaires pay at least 30 percent in taxes is such an obvious exercise in poll-driven populism, it should come with cross-tabs attached. It shows that as an economist, David Axelrod is a hell of a political consultant. It is a non-solution to a non-problem, the intellectual basis of which is a badly distorted anecdote repeated over and over.
By now, if you haven’t heard that Warren Buffett pays a lower tax rate than his secretary, you have never turned on a TV news program or checked your Twitter feed. Surprisingly tightfisted for perhaps the world’s third-richest man, Buffett reportedly pays his secretary only about $60,000 a year, yet she supposedly pays a higher rate than his roughly 17 percent.
Buffett benefits from lower rates on investment income. Capital gains and dividends are taxed at 15 percent, whereas the top rate on income is 35 percent. Cue the plutocrats in top hats rubbing their hands together and cackling. But investment income is subject to taxation at the corporate level, at a top rate of 35 percent, before it becomes capital gains or dividends. The real rate on investment income can be closer to 50 percent than 15.
For all his advocacy in favor of raising his own taxes (and those of people, by definition, less wealthy than he is), Buffett is careful to minimize the government’s take through such expedients as not paying himself much of a salary and making shrewd use of a trust. Buffett could easily institute his own personal version of the Buffett Rule by giving himself a nice, fat raise. Regardless, his tax burden is substantial. Buffett is the primary shareholder of Berkshire Hathaway, which paid $5.6 billion in corporate taxes in 2010, according to Forbes magazine.
Conceived in the spirit of a bill of attainder — let’s tax that guy — the Buffett Rule makes about as much public-policy sense as one would expect. How would it affect the federal fisc? Although the Obama administration hasn’t yet bothered to write down its signature proposal, it is estimated it will raise roughly $40 billion a year. With the Buffett Rule in effect, the deficit in fiscal year 2011 would have been $1,240,000,000,000 instead of $1,280,000,000,000.
Will it make the tax system fairer? The system is already fair, if by that you mean steeply progressive. According to the Congressional Budget Office, the top 1 percent pays on average 18.8 percent of its income in federal income taxes, the broad middle pays 4.2 percent, and the bottom 20 percent gets more money back than it pays in. When all federal taxes are taken into account, the top 1 percent pays almost 30 percent — Obama’s magic number.
Do taxes on capital gains desperately need raising? They are already scheduled to go up, whatever happens to Warren Buffett. Obama’s health-care reform alone will bring the capital-gains rate in 2013 to 18.8 percent. If the Bush tax cuts expire, as they are set to do in 2013, the rate will hit 25 percent.
The Buffett Rule is politically seductive dressing for another increase in taxes on investment income at a time when too many businesses are sitting on cash instead of investing it. It will further complicate a tax code so intricate that, according to the New York Times, even Mitt Romney’s fearsome accountants couldn’t accurately figure out his liabilities and had him pay $44,000 more than he owed last year. It could well have perverse effects like its forebear in writing applause lines into the tax code, the alternative minimum tax; sold as a way to hit 155 rich people, the tax grew into a monster targeting the upper middle class in blue states.
The Buffett Rule, in short, is a suitably meretricious proposal for a meretricious presidency.
— Rich Lowry is editor of National Review. He can be reached via e-mail, [email protected]. © 2012 by King Features Syndicate.