By Robert Schlesinger |
The "Buffett rule" that the Senate will soon consider is nothing more than a contrived talking point masquerading as tax reform. Concocted by President Obama and billionaire financier Warren Buffett, this targeted tax increase ignores progressivity already built into the tax code while subjecting investment to multiple, punitive, layers of taxation.
In a recent pitch for the tax hike, the president said, "If you make more than $1 million a year, you should pay at least the same percentage of your income in taxes as middle-class families do." Yet, a 2010 Congressional Budget Office report showed that the middle quintile of U.S. households (average income around $60,000 per year) face an effective income tax rate of 3.3 percent—or around 14.3 percent with payroll and excise levies. That is less than half of the proposed 30 percent "millionaire tax" the president seeks.
Despite heated rhetoric demanding they "pay their fair share," the truth is that "the rich" already shoulder the largest share of financing government. CBO data indicated that the top 1 percent of income earners made 19.4 percent of pre-tax income in America but paid 28.1 percent of all federal taxes and 39.5 percent of all income taxes.
By primarily targeting individuals with large amounts of capital gains and dividend income, the Buffett rule would set us on a course to crushing tax rates. Next year, some Americans will be hit with a new 3.8 percent surtax on investment income thanks to the 2010 "Obamacare" legislation. That provision will rocket capital gains rates to 23.8 percent and dividend taxation to 43.4 percent, when combined with other increases built into current law. Making matters worse, the income thresholds exposed to these rates won't be adjusted for inflation.
[Read What the Buffett Rule Gets Wrong.]
Piling the new Buffett rule tax on top of that, especially considering that investment income is often already taxed at the corporate level with a 35 percent marginal rate, would yield staggeringly high penalties on the very activity our economy needs for a robust recovery. It would also place us out of step even with high-tax European countries, virtually all of which give preferential treatment to investment income to reduce the impact of double-taxation.
In short, the Buffett rule is but a rallying point for the campaign trail, not a policy that belongs in our already mind-numbingly complex and burdensome tax code.
About Andrew Moylan Vice President of Government Affairs for the National Taxpayers Union
Jason Fichtner Senior Research Fellow at the Mercatus Center at George Mason University
Chuck Collins Senior Scholar at the Institute for Policy Studies
Alan D. Viard Resident Scholar at the American Enterprise Institute
Jonathan Collegio Communications Director for American Crossroads
Chuck Marr Director of Federal Tax Policy at the Center on Budget and Policy Priorities