Reducing Spending, Not Taxing Millionaires, Is a Real Solution
"Buffett rule" does nothing to solve long-term fiscal challenges, would raise little revenue, and is actually unfair
April 16, 2012
President Obama hit the campaign trail with renewed calls for the "Buffett rule" last week. The rule would require millionaires to hand over a minimum 30 percent of their income to the federal government. Although the rule is supposed to increase fairness and raise a lot of revenue to narrow the budget deficit, it appears the Buffett rule is actually a campaign tactic that would accomplish neither of these goals. Instead of focusing on good policy, the president is focused on shifting the debate about the nation's deficit problem from cutting government spending to increasing taxes.
A millionaire's tax will not solve our fiscal problems—there aren't enough millionaires. According to the Congressional Budget Office, tax rates would have to more than double for everyone, not just "millionaires and billionaires" if we are to close the budget gap with tax increases. According to the Congressional Joint Committee on Taxation, the official authority for tax legislation, the Buffett rule would raise only $47 billion over a decade. Further, using the most recent IRS data shows that even if a 10 percent millionaire surtax were implemented it might increase revenues by only $70 billion. That is a far cry from even the $1.2 trillion deficit we face this year alone.
President Obama is painting millionaires as the top "1 percent" who avoid paying their fair share. However, with respect to fairness, the tax burden for the top 1 percent as a share of total federal income taxes is near its highest in decades. The top 1 percent pay nearly 40 percent of all federal income taxes, while the bottom 50 percent account for only 3 percent. For the wealthy, that's higher than it was during the Clinton years even after the Clinton tax hikes. To qualify for the top 1 percent requires an income of around $380,000. That's a great salary, but probably not what springs to mind when you hear the term "millionaire."
What we really need are solutions that decrease the nation's deficit, and the Buffett rule isn't that solution. Instead, we should reduce spending to between 18 and 19 percent of GDP, a level that matches the U.S. long-run average level of taxes collected since World War II. By addressing government spending as the true source of our problem, rather than claiming we can tax the rich as a way out, our nation can get back on the path of fiscal sustainability.