Economics, Taxes and Spending

Shouldn’t the Buffett Rule be 14%, not 30%?

OK, so here is President Obama’s Buffett Rule, via the White House;

What is the Buffett Rule?

The Buffett Rule is simple principle that everyone should pay their fair share in taxes. No household making more than a $1 million should pay a smaller share of their income in taxes than middle-class families pay. For the 98 percent of American families who make less than $250,000, taxes should not go up.

Now in practice, says the NYTimes, “The Buffett Rule would set a minimum tax rate of 30 percent for individuals on their annual income above $1 million.” (Note the word “minimum.”) But as the above chart from the Congressional Budget Office shows, the average tax rate for middle-incomers is more like 14%.  So why isn’t that the Buffett Rule? Here’s why:

1. My revised Buffett Rule would be an ineffective cudgel with which to hammer Mitt Romney, the whole purpose of the Buffett Rule. A 14% tax rate is exactly what Romney paid in 2010.

2. Obama wants tax rates to go up, particularly investment taxes. As it is, letting the Bush tax cuts expire and adding his new Obamacare investment tax takes cap gains to 24% and dividend taxes to 45%.

3. A lower Buffett Rule rate would raises even less dough than the $5 billion a year projected for the Obama Buffett Rule — although experience suggests that it won’t raise even that much.

In the end, the Buffett Rule is about politics and not economics, so I guess I shouldn’t expect it to make much economic sense.



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