Posts Tagged ‘buffett rule’

Yesterday evening, the initial iteration of the Buffett rule died a quick death on the floor of the Senate. While the Democratic-controlled Senate voted 51-45 in favor of the rule, the proposal failed to garner the 60 votes necessary to defeat a filibuster and advance. The vote was almost exactly upon party lines: one Democrat voted no, one Republican yes, with four Senators absent. 

This much is certain, however; we have not seen the last of the Buffett Rule. Despite the fact that the proposal is unlikely to ever pass the Senate — and has zero chance of advancing past the Republican-controlled house — Democrats have already vowed to retool and reissue the proposal in the name of social equitability. Thus, like a legislative version of Jason Vorhees or Brett Favre, the Buffett Rule is destined to return again and again and again despite being doomed to failure, haunting our dreams until we all just wish it would disappear forever.   

Around the time the Senators were casting their votes, an excellent question made its way from a reader into my inbox:

If the Buffett Rule eliminates the Alternative Minimum Tax, doesn’t that help most Republicans as well as the Democrats?  (Assuming the Buffett rule is only for $1,000,000 plus in AGI.)  I don’t see why the Republicans wouldn’t be jumping all over this?

Great question. Let’s take a look at the numbers: In 2009, only 236,883 taxpayers managed to pull in more than $1,000,000 of AGI, so the reach of the Buffett Rule is obviously limited. The existing AMT, on the other hand, increased the tax liability of over four million Americans in 2011. So why wouldn’t all taxpayers, Republican and Democrat alike, be in favor of the Buffett Rule?

Well, first things first…most voters do appear to support the Buffett Rule: 6 in 10 if you believe the CNN-Gallup Poll. So the real question is, why don’t powerful Republicans support the Buffett Rule? Even though it may represent a personal tax increase to Mitt Romney and other well-to-do Republicans, in light of the tax break a good deal of America would enjoy as a result of the end of the AMT, shouldn’t the Buffett Rule have bipartisan appeal?

The reasons, in my opinion, are two-fold; the first revolving around questions surrounding the fiscal responsibility of the proposed law, while the second speaks to deeper ideological concerns. Of course, I’m a guy who’s learned everything I know about the two-party system from this episode of The Simpsons, so perhaps it’s best to take my opinion with a grain of salt.

Reason #1:  Tax Cuts Mean Little Without Controlled Spending

While trading the AMT for the Buffett Rule would lower the tax liability of many Americans, that may not be what’s best for the country right now. It’s easy to view tax legislation with a singular, personalized focus; because tax cuts mean real dollars in our collective coffers, we often forget that lower taxes are not the final destination of a nation. Rather, tax reductions, if properly and timely employed, are merely one means to the desired end: a strong, stable economy.

And I don’t know if you’ve noticed, but our country’s got a bit of a debt problem right now. The deficit is climbing to unprecedented heights, and while eliminating the AMT in favor of an increased tax on the super-wealthy sounds great to the rank-and-file, a net reduction in tax revenue would only add to our deficit.

This is perhaps the aspect that most infuriates many Republicans about the Buffett Rule; they feel it obfuscates the real problems: our mounting debt and reckless spending. And they may well be right.

The number of taxpayers earning more than $1,000,000 yet paying an effective tax rate below 30% is not significant, the statistics show. For the top 1 percent of taxpayers, if you add up their income, payroll and corporate taxes, the average effective rate is 29.6 percent, according to the 2012 Economic Report of the President. Granted, within that top 1% there is 10% who pay an effective rate of less than 9%, but to quote Detective Captain Ed Hocken from Police Squad, there’s only a 40% chance of that.

As the studies have revealed, however, normalizing the tax paid by this 0.1% of taxpayers would stand to raise only $47 to $161 billion over the next ten years, depending on the baseline comparison. This amounts to a meaningless dent in the deficit, but as the argument goes, the debate surrounding the Buffett Rule and the current administration’s cries for tax “equality” serve to distract the nation while the government continues to spend money it doesn’t have. 

Thus, the proposal amounts to nothing more than a Red Herring, Republicans insist, arguing that the deficit can be pared down without raising the rates on the rich provided government spending is curtailed and measures are enacted to kick-start job growth.  

Reason #2: The Buffet Rule Divides Instead of Unifies

Moving on to reason number two, it’s my contention that many Republicans believe that the Buffett Rule would require the party to compromise deep-rooted party principles. Specifically, it would mean conceding to a tax increase targeting only the nation’s wealthiest taxpayers, which is tantamount to class warfare in many Republican’s eyes.

The party was founded in part on the principles that achievement shouldn’t be penalized; that the nation’s richest shouldn’t have to feel guilty or persecuted for their success. Doing so, Republican’s contend, further divides a nation by pitting poor against rich, with Mitt Romney welcoming the opportunity to discuss tax fairness with President Obama, stating, “Is it fair for the government to pick the winners and loser?”

Again with the caveats: this is just the opinion of one guy who knows frighteningly little about how the real world works. Maybe I got lucky and I’m right about a lot of this. Or maybe the two-party system is simply broken. Who knows. But whatever comes of the Buffett Rule, and whatever happens in November, don’t blame me. I voted for Kodos.

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As the filing deadline draws mercifully closer, the nation’s tax geeks are finally free to go on a Robert Downey-sized bender turn their attention to what promises to be the most  tax-driven presidential election in recent memory.

Right on cue, the Senate will be spending this evening voting on the first iteration of the Democratic-sponsored Buffett Rule, which would require taxpayers earning over $1,000,000 to pay a minimum 30% effective tax rate. The vote is being dismissed as largely symbolic, because as I discussed previously, the Buffett Rule is much more of a mechanism for the current administration to cast roles in the upcoming election — A vote for Obama is a vote for fairness, puppies, and rainbows! A vote for Romney is a vote for rich white guys, unjust tax breaks, and Aspen ski homes! — than it is reflective of potentially impactful legislation.  

On the Republican side of the campaign trail, Mitt Romney has at long last started to show his hand regarding where he will make up the increase to the federal deficit caused by his proposed 20% across the board reduction of the current tax rates.  From the Wall Street Journal:

Mr. Romney, the presumptive Republican nominee for president, said he would eliminate or limit for high-earners the mortgage interest deduction for second homes, and likely would do the same for the state income tax deduction and state property tax deduction.

Ok, that should raise some revenue. But historically, Republicans have been fiercely protective of their home mortgage interest deduction. It’ll be interesting to see how those claims evolve should Romney’s party members push back the way I imagine they will.

Of course, increased tax revenue is only one way to skin the deficit cat. What about spending cuts?

He also said he would look to the Department of Education and the Department of Housing and Urban Development for budget cuts. Mr. Romney said he would either consolidate the education department with another agency or make it “a heck of a lot smaller.” “I’m not going to get rid of it entirely,” he said.

He also vowed to stand up to teachers unions and warned that unions would funnel dues to Mr. Obama’s reelection campaign. “The unions will put in hundreds of millions of dollars,” Mr. Romney said. “There’s nothing like it on our side,” he said, and he encouraged attendees to get their friends to donate, as well.

Now there’s a policy I can get behind. At the risk of sounding unpopular, if there’s one thing I’m sure of  it’s that educators are paid far too much. Personally, I’m sick of watching these kindergarten teachers cruise around in their Ferraris during spring break while I’m stuck in the office, counting their millions and preparing their tax returns.

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