The Corner

‘Buffett Rule’ Would Barely Impact the Deficit

The Atlantic’s Daniel Indiviglio explains with a handy chart:

He writes:

Let me explain what’s going on here. I used IRS data for 2009* adjusted gross income (which I know isn’t perfect, but it was the best they had). I then calculated the effective tax rate based on its data to be 29.1% for all Americans who earned more than $1 million. I consequently took the total income of the group and multiplied by different tax rates (as shown). I subtracted the taxes already paid (at the 29.1% effective rate) to figure out how much additional revenue they’d provide to the U.S. government at those new tax floors.

As you can see, the short answer is: some, but not enough to make a dent in the deficit. If you put a floor at their current marginal tax rate of 35%, the government would obtain $37 billion more dollars. That might sound like a lot, but it amounts to just 2.5% of the 2009 $1.5 trillion deficit (which is the red line shown). If you increase the floor to the pre-Bush-tax-cut marginal rate of 39.6%, the additional revenue grows a bit — to $66 billion, or 4.5% of the year’s deficit.

In fact, even if Obama decided to tax millionaires at a rate of 100 percent, that would cover less than a third of this year’s deficit. And it goes without saying that these figures are purely theoretical and do not take into account the negative impact that such high tax rates would have on economic growth, which is ultimately the most effective means by which to reduce the deficit. Indiviglio concludes by stating the obvious:

So this Buffet Rule is a great populist proposal if the president wants to score some political points, but it has little practical value. It might provide the government a little bit of additional revenue, but unless extremely aggressive, it wouldn’t make a dent in the nation’s deficit problem. To do that, you’ll need to cut entitlements and/or raise taxes much more broadly.

But as Rich points out in his column today, “taxes on the rich are the only deficit-reduction measure that [Obama’s] base can abide.”

More here.

Andrew Stiles — Andrew Stiles is a political reporter for National Review Online. He previously worked at the Washington Free Beacon, and was an intern at The Hill newspaper. Stiles is a 2009 ...

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