The Buffet Rule: The Wrong Idea at the Wrong Time

President Obama reiterated his plan to raise taxes on the wealthy at a Florida Atlantic University speech on April 10 by calling for the Buffet Rule.  The so-called “Buffet Rule” would require the wealthiest taxpayers in the US to pay a 30 percent income tax.  Raising taxes on the wealthy (or anybody) is the wrong idea at the wrong time.  Raising taxes is the wrong way to bring in revenue and a tax increase will not bring in the needed revenue to close the budget gap.  Taking more money out of the economy and putting it into the hands of the government will weaken an already frail recovery.  It seems that not even President Obama thinks this idea is about revenue.  According to the San Francisco Chronicle, “The detailed description of the bill states, ‘Billionaire Warren Buffett and many wealthy Americans pay a lower tax rate than middle-class families do. That’s just not fair. Warren Buffett knows it and President Obama wants to fix it…’”  Fairness (like beauty) is in the eye of the beholder.  Warren Buffet (and any other millionaire) is free to write the Treasury Department a check if they don’t believe that they are paying enough.

A tax increase will not bring in the needed revenue.  According to the Joint Committee on Taxation, a 30 percent tax rate on income earned over $1 million would only raise $30.7 billion in tax revenue over the next ten years.  And, according to Americans for Tax Reform, “To put that in context, that is less than one-tenth of one percent of all tax revenues that CBO expects the federal government to collect over that time period, and this assumes (wrongly) that no one would change their behavior as a result of the tax.”  Even Democrats are acknowledging this lack of revenue.  According to The Hill, “Sen. Chris Coons (D-Del.) on Wednesday acknowledged GOP criticisms that the Obama administration’s Buffett Rule ‘isn’t going to balance the budget,’ but he argued that the proposal was important as a matter of ‘values’ and ‘fairness.’ ‘This is an issue about fairness,’ Coons said on MSNBC. ‘It isn’t going to balance the budget, but it is important for values and for showing some fairness.’”

Last week’s disappointing jobs numbers should be a warning that the economy is still in critical condition.  Any tax increase will hurt any sort of economic growth.  According to the National Journal, “If the Buffett Rule was a serious pitch to help the jobless, it would deal with one of those main drivers of unemployment. It would boost persistently weak aggregate demand or incentivize business investment. It does neither. Instead, it tells America’s job-seekers, Don’t worry, we’re going to make the tax code look more fair to you.”  If President Obama were serious about job growth he would make cutting the corporate tax rate a priority.  On April 1, 2012, Japan has lowered their corporate tax rate leaving the United States with the highest corporate tax rate, making this more and more urgent (read previous blog postings on cutting the corporate tax rate here and here).

Economic growth will come about through lower taxes.  Increased government spending and higher taxes will just burden people and businesses more and continue to slow down any economic recovery.  President Obama’s “Buffett Rule” is a political ploy that will do more harm than good to the financial well-being of the country.