The 'Buffett Rule' Is Bogus

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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.

[See a collection of political cartoons on the economy.]

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.

Andrew Moylan

About Andrew Moylan Vice President of Government Affairs for the National Taxpayers Union

Tags
federal taxes
Buffett, Warren
deficit and national debt

Other Arguments

#1
208 Pts
Reducing Spending, Not Taxing Millionaires, Is a Real Solution

No – Reducing Spending, Not Taxing Millionaires, Is a Real Solution

Jason Fichtner Senior Research Fellow at the Mercatus Center at George Mason University

#2
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The 'Buffett Rule' Moves Us in the Right Direction

Yes – The 'Buffett Rule' Moves Us in the Right Direction

Chuck Collins Senior Scholar at the Institute for Policy Studies

#3
-6 Pts
'Buffett Rule' Not a Serious Response to Budgetary Problems

No – 'Buffett Rule' Not a Serious Response to Budgetary Problems

Alan D. Viard Resident Scholar at the American Enterprise Institute

#5
-24 Pts
'Buffet Rule' is a Good Start

Yes – 'Buffet Rule' is a Good Start

Isabel Sawhill Senior Fellow at the Brookings Institution

#6
-26 Pts
Tax Dollars and (Common) Sense

Yes – Tax Dollars and (Common) Sense

Tammy Baldwin U.S. Representative

#7
-28 Pts
The 'Buffet Rule' Is a Hypocritical Political Ploy

No – The 'Buffet Rule' Is a Hypocritical Political Ploy

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#8
-36 Pts
We Need a Tax Code That Better Fits the Values of the Country

Yes – We Need a Tax Code That Better Fits the Values of the Country

Chuck Marr Director of Federal Tax Policy at the Center on Budget and Policy Priorities

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