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Why the Buffett Rule? Why Now?

Patch columnist Ben Cathey analyzes references to the Buffett Rule during the State of the Union address.

The other night in his address President Barack Obama talked about a plan to “reduce our deficit” and “make an America that is built to last.” He called his plan the Buffett Rule.  The Buffett Rule would “change our tax code so that people like me and an awful lot of members of congress pay our fair share of taxes.” 

The Buffett Rule, according to President Obama, has one main policy point.  The goal is that nobody who makes over one million dollars a year should pay less than 30 percent in taxes.  He called this arrangement “fair” because people who make less pay a higher tax rate.  President Obama chose a word that is hard to argue against to argue for his plan.  Who does not like fairness?  That’s like saying you don’t like puppy dogs, babies, and panda bears.  Many left leaning political pundits have picked up the fairness mantra demanding an increase while many right leaning folks have punched holes in the plan quickly noting that there is a difference between capital gains tax and income tax. 

Left. Right. I’m all for differences of opinion. In the end, if we approach our arguments with character and honesty then differences of opinion make us stronger. What I’m not for is being disingenuous. When we approach an argument for some sort of gain other than the core principle of the argument then it is disingenuous. Why the Buffett Rule?  Why now? I believe the Buffett Rule is disingenuous for several reasons

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#1 – President Obama gave a warning if his plan is not followed. His warning split America into two adversarial camps, those who have and those who don’t have as much. His split is not even. There are not many people in America who make more than one million dollars a year. He said that the loop holes in the current tax code will add to the deficit if not closed and “someone else” will have to make up the difference. Those who will make up the difference were, in his words, “a senior on a fixed income”, “a student trying to get through school”, and “a family trying to make ends meet.” Along with that he said, “a billionaire should not pay less in taxes than his secretary.”  With these words he told us that senior citizens, college students, and middle income families subsidize billionaires who pay only a 15 percent tax rate instead of his recommended 30 percent tax rate. In the same breath he said that some people might call this “class warfare” implying that those people would be wrong. 

I have a question. Who subsidizes a tax rate of 30 percent if it is not 45 percent? Wouldn’t a 45-percent tax rate help the deficit more? How about 60 percent?  Wouldn’t Warren Buffet still have more money than his secretary if he was taxed at a rate of 99 percent? Why would that not be fair? What is the optimal tax rate for economic growth and adequate funding for government services? Why don’t we argue those points instead of inciting class warfare while saying we are not inciting class warfare?

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#2 – Mitt Romney might as well be Warren Buffett. Mitt Romney is the most likely candidate to compete against Barack Obama later this year. I was left to wonder if the point of the speech was really to help the economy or if it was to campaign against Mitt Romney. Especially because the Buffett Rule was not proposed with any specifics attached. What portion of the tax code will be changed to reach the 30 percent mark for someone who makes a million dollars in one year? The Buffett Rule is mute about anything remotely recognizing an actual plan. If Capital Gains taxes are too low then give be a reason other than “Warren Buffett makes too much money” while the camera pan over to his secretary dutifully attending the President’s speech.

#3 - President Obama didn’t bother to make a distinction between Warren Buffett’s CAPITAL GAINS tax and his secretary’s INCOME TAX. This one sort of stunned me. Tell me capital gains taxes are too low and give me good reasons to raise them . . . I’m listening. But please don’t incite a purely emotional reaction based on a general idea of fairness. There is a difference between an income tax, capital gains tax, retail tax, property tax, advelorum tax, inheritance, gambling, gas, cigarette, utility tax, etc., etc. If we are to just say one person is taxed at 15 percent and another is taxed at 30 percent then what are we talking about?  There is no single payee tax system in America. There are a myriad of taxes and government entities that collect them. It’s disingenuous to withhold the word “capital” for the purpose of spinning an argument and attempting to create an emotional response.

#4 Why are we talking about tax rates when we need to be talking about job growth, unemployment, under-employment, and the shrinking number of jobs available in America? We can’t tax anyone if they don’t work. How will the Buffett Rule create jobs?  I fear that jobs were not mentioned because the Obama presidency has been an era of job loss instead of workforce expansion. Was he trying to solve a problem or deflect criticism and position himself for re-election?

Lastly, the answer to these questions might actually be helpful to the debate:  Are Capital Gains taxes exactly the same thing as Income taxes? What is the difference? Why are they structured differently? What structure would be best for the common good? Do people pay capital gains taxes and income tax or just one? What is the history of income tax rate and capital gains tax rate changes?  What events or ideologies spurred change in rates in the past? If we are going to be honest about a general tax rate then shouldn't consumption taxes, property taxes, local taxes, advelorum taxes, and other special taxes be part of the discussion? My take, if Barack Obama is serious about the Buffett Plan he will begin answering some of these questions. But I don’t think he is serious and I don’t think we will hear much more than emotional appeals for fairness in the days to come.

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