Critiquing the Buffett Rule

The "Buffett Rule," advanced in legislation by Senator Sheldon Whitehouse and favored, in broad terms, in President Obama's budget has drawn its share of critique. This from a piece in the New York Times:

It seems like an appealingly simple way to ensure that the rich do not pay a smaller proportion of their earnings than many members of the middle class. But tax experts and even the White House itself contend it might be hard to carry out. 

The White House asked for numerous changes to raise more revenue from the wealthiest Americans in its budget proposal. Those include allowing the high-end Bush administration tax cuts to expire and taxing dividend earnings as regular income.

But the proposal stops short of suggesting an application of the Buffett Rule on top of that, instead listing it as a “principle” for future reform, alongside a repeal of the alternative minimum tax.

The much-hated alternative minimum tax was initially designed to do just what the Buffett Rule would: prevent the wealthy from using loopholes and deductions to lower their tax rates. But the tax was not indexed for inflation, and therefore, each year it ensnares more and more middle-class Americans.

Congress has “patched” the tax to prevent it from hitting the more than 30 million tax filers who should hypothetically pay it. Still, 4.3 million tax filers paid the alternative minimum tax last year, raising $39.1 billion in revenue.

Tax experts say creating a new alternative minimum tax for the wealthy might make for good political argument, but it is less compelling as policy.

“It just doesn’t make any sense to have one set of rules that applies to some people and one set of rules that applies to everyone else,” said Leonard E. Burman, a tax expert and professor at Syracuse University.

“It’s really complicated,” Professor Burman said. “I’m very sympathetic to taxing capital gains like ordinary income; that’s the issue this proposal is ostensibly addressing. But the idea that we have different sets of rules for different people? It undermines the tax code.”

William G. Gale, a director of the Tax Policy Center and a senior fellow at the Brookings Institution, said: “A well-designed tax system would as an artifact be consistent with something like the Buffett Rule. But trying to glom the Buffett Rule onto the current tax system? That’s going to be a mess.”

There is a second reason for not proposing the Buffett Rule in the budget: It would significantly reduce revenue if installed alongside a repeal of the alternative minimum tax.

According to Internal Revenue Service data, 236,883 tax filers made $1 million or more in 2009, and they paid an average rate of about 24 percent. Bringing that up to 30 percent would raise billions of dollars over time — but not nearly as much as the alternative minimum tax, experts say.

Trouble is, for those who would critique the rule, is none of this makes for a good sound bite. After weeks in the public sphere, it seems clear that Democrats win, politically, on this one.

| More

 Friends' Activity   Popular 
All Blogs
Follow the Phoenix
  • newsletter
  • twitter
  • facebook
  • youtube
  • rss
Latest Comments
Search Blogs
Not For Nothing Archives