Much as it grieves me to rally to the defense of Barack Obama, the latest AP Fact Check on his proposed Buffett Rule tax on millionaires seems to deliberately miss the point of Obama's pronouncements. From the AP:
WASHINGTON (AP) — President Barack Obama says he wants to make sure millionaires are taxed at higher rates than their secretaries. The data say they already are.
"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said as he announced his deficit-reduction plan this week. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.
None of that is surprising, and none of it addresses the point being made by Obama. His point was not that most, or all high-earners pay a low tax rate; his point was that some high-earners do pay a low tax rate, and need to have it socked to them. Let's cut to the White House website for a clarification:
Finally, the President calls on the Committee to undertake comprehensive tax reform and lays out five key principles. Reform should:... 5) comport with the “Buffett Rule” that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.
Obama's point is made clearly in his recent speech, which specifically cited the favorable capital gains rate:
So I am ready, I am eager, to work with Democrats and Republicans to reform the tax code to make it simpler, make it fairer, and make America more competitive. But any reform plan will have to raise revenue to help close our deficit. That has to be part of the formula. And any reform should follow another simple principle: Middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it.
It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million. Anybody who says we can’t change the tax code to correct that, anyone who has signed some pledge to protect every single tax loophole so long as they live, they should be called out. They should have to defend that unfairness -- explain why somebody who's making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that -- paying a higher rate.
To respond, as the AP does, that most millionaires (or the average millionaire) is in compliance with that higher-taxes principal is not relevant. Obama wants to reform the tax code so that all high-earners meet that rule. (The AP does eventually nod to the caital gains differential in their eighth paragraph).
As to how Obama would achieve this without raising the capital gains tax and eliminating any dividend exclusions, I have no idea. And such an approach ignores the fact that taxes are normally collected at the corporate level before any capital gains are realized by shareholders, so there are double-taxation issues. In short I doubt that raising the capital gains tax is either a sensible or politically viable strategy. But it is an utterly banal liberal squawking point of the type we have come to expect from The One, and the AP rebuttal misses his point.
Put another way, if Obama announced a Chappaquiddick Plan to reduce drunk driving, it would hardly be responsive to note that 99% of Americans drive sober.
I LIKE WHERE HIS HEAD IS, BUT... This isn't political warfare; it's math. But the math is wrong. Daniel Indiviglio of The Atlantic does yeoman work attempting to estimate the revenue that might be raised by Populist Obama. However, hs is muddling averages and minimums, so his results are suspect.
For example, using 2009 data we learn that the average millionaire paid taxes at a rate of 29.1%. By applying an additional 5.9% tax to that group's total income, Mr. Indiviglio then estimates the additional revnue to be gleaned with a new tax floor of 35%.
However, that 29.1% average may be deceptive. Imagine, in a simpler world, that there are only two millionaires; Smith is paying an average rate of 20% on income of $1 million and Jones is paying an average rate of 40% on $1 million. The average rate for the two of them is 30%.
But Obama is not proposing to cut anyone's taxes. After his Buffett Rule is imposed, Smith will see his taxes rise to 35%. But Johnson's tax bill will remain at 40%. The average for the two men, after imposition of a minimum rate on one of them, will be 37.5%. In this example, the Indiviglio method would have projected additional revenue of $100,000 (5% of $2 million). However, the actual revenue increase would be $150,000 (15% on Smith's million plus nothing new from Johnson.)
That said, I expect that the revenue estimates from Mr. Indiviglio are in the ballpark, which is to say, we aren't talking about a lot of money. But Obama isn't proposing this scheme to collect revenue; he is proposing this to collect votes.