The “Buffett Rule”

The Senate votes on the so called Buffett Rule today, a tax law that the President says will “stabilize our debt and deficit for the next decade”.  He also argues that it is “fair” in that it will make those that don’t pay a fair share of taxes do so.  That sounds like a plan worth checking out, so let’s look at the numbers…

According to the Dept of Treasury, the Buffett Rule will raise less than 5 billion dollars per year which is less than a half percent of the projected deficit, or to look at it another way, less than it costs to operate the federal government for one day; less than 10 times the amount of money flushed down the Solyndra drain, not to mention the other failed “green” investments.  So it’s not the financial panacea that the President indicates, rather it’s an amount that the government could easily save by not making bad investments in green energy companies and paying for studies on the sexual habits of monkeys.

But independent of the fiscal ramifications, we need to tax the rich more just because it’s the fair thing to do.  Is it?  According to the Congressional Budget Office the top 1% of income earners who are targeted by this law are already paying nearly 40% of the income taxes paid in the United States while 90% of earners pay roughly 30% of the taxes and nearly 50% of workers pay no income taxes at all even though they enjoy the same government provided services as everyone else.  Is it really fair to tax that top 1% even more when it won’t do anything to help the fiscal mess we’re in?  *

When the President talks about the percentage of taxes paid by people like Warren Buffett, he’s referring to their dividend income which is taxed at a lower rate than normal income, but in order to understand why this is fair, one must understand that dividend income is money distributed by a corporation to its shareholders after it has already paid corporate income taxes, and the United States has the highest level of corporate income taxes in the industrialized world.  So when a corporation makes a profit that profit is taxed, and then the corporation might pay out some of its left over profit in dividends to its shareholders, and those dividends are taxed again; so it’s understandable that money that has already been taxed should not be taxed as normal income when it’s taxed the second time.

It’s said by supporters that the Buffett Rule only hurts those who can afford it, but if the dividend income tax rate is doubled for those huge investors as this law proposes, then billions of dollars will leave the stock market and go into such investments as treasury bills and municipal bonds.  This huge blow to the stock market would adversely affect every retirement account and 401K in America, and might well trigger another major recession.

So why is the President pushing a bill that, if passed, would have no measureable positive effect and would instead damage the investments of every middle class American and quite likely hamper the already anemic economic recovery?  Because he knows it won’t pass, and the not passing will help him reinforce his position that the Republicans are all for the rich and they refuse to help him solve the country’s financial problems.  The President hopes to win reelection by promoting class warfare; he knows that many of the people that pay little or no taxes will vote for him if he targets the rich while painting his opposition as supporters of the rich, no matter how unfair or unwise his proposals may be.


* http://www.heritage.org/budgetchartbook/top10-percent-income-earners