In one of my political science/journalism courses,  my professor (also part of Medill), a former political journalist, assigned us an Op-Ed on any topic.  I chose the Buffett Rule.  No surprise there, right? (P.S. Received on A on this piece! Weee!)

The Buffett Rule is Not a Happily Ever After 
By yours truly (Christine)

Clichés attract people even in politics. In particular, economic clichés about “equality” and “fairness,” overused by proponents of the Buffett Rule, have drawn the support of numerous Americans. Hiding behind them, advocates neither address the doctrine’s risks nor educate the public about the current tax system.

While it is true that millionaires will essentially pay at least 30%[1] of their income in tax under the Buffett Rule, the sum of all the levied amounts will only accrue $5 billion a year. The $5 billion apparently accounts for a mere 0.5% of the recently reported $1.2 trillion deficit.[2] As economist Steve Moore asked, “What about the remaining 99.5%?”[3]

Well, resolving the nation’s financial situation remains less of a priority for the Obama administration. In fact, the White House acknowledged through a press call that rather than reducing the burgeoning U.S. deficit or generating revenue, the tax code aims to ensure “pure fairness and redistribution.”[4]

The common misperception is that if “everyone pays their fair share,”[5] then the poor will attain financial stability through the rich’s taxes. The truth is that the collected taxes, which penalize the highest earners, do not circulate to the bottom. Without winning the lottery or working a job for a ludicrous amount of money, the poor will still struggle economically.

Although it is understandable that the Buffett principle intends to stop those who manipulate tax loopholes by reporting income as capital gains, implementing the doctrine for the sake of punishing self- interested citizens will not produce fruitful outcomes in the long run.

Over time, businesses will experience the burdens of the tax and, consequently, seek capital investment and employees from abroad to lower their costs.6 If foreign investment exceeds domestic investment, then the supply side of economics will suffer. In other words, additional to a declining national GDP due to decreased levels of domestic capital investment, prices will rise by the law of supply and demand. As a result of these increasing costs, job- outsourcing threats will worsen. And no sensible American wants to see another episode of escalating unemployment rate.

Yet, despite these negative repercussions, why do the Obama administration and its supporters push for this tax policy?

They may find temporary pleasure in having millionaires and billionaires “pay their fair share.” The public, for one, certainly enjoys criticizing Mitt Romney for his 15% effective tax rate,[7]which should have brought attention to the true problem instead.[8]

The real issue lies in our country’s complicated tax system. Included in such confusion is double taxation, a code that implicitly encourages people such as Romney to protect their money.

How economic “equality” can exist in an environment that widens the income gap between executives of large firms and workers is difficult to understand, meaning convoluting the already complex system with the Buffett Rule will not remedy income disparities. After all, we still have an earlier version of the Buffett doctrine, called the Alternative Minimum Tax (AMT), in place. So, why are policymakers adamant about passing the Buffett Rule?

Like economists, such as Steve Moore, independent tax experts, too, express opposition against the proposal.[9] Tax experts say that the Buffett Rule would only cause greater confusion in the system. Furthermore, according to Roberton Williams, a senior fellow at the Tax Policy Center, “even without a Buffett Rule, most millionaires already pay more in taxes as a percentage of their income than those in the middle class… Not always as much as 30%, but a higher percentage of their income than the vast majority of the middle class.”[10]

Moreover, on average, the top 1% of income earners pay 40% of the federal income taxes, while the top 10% pay 70%.[11]The bottom 50% of income earners, on the other hand, pay about 3% of the federal income taxes.[12]

If “one goal is to tax the rich more, [policymakers] can do that in a simpler, more effective way than the Buffett Rule.”[13]

Now is the time for our nation’s leaders to come together and fulfill three main tasks. First, they need to restructure the tax system and eliminate double taxation. Second, policymakers should construct a policy that does more than just heavily taxes the rich. Third, they have to either create businesses that provide job opportunities, using taxes of the highest income earners, or appeal to firms to hire employees by compromising.

A cliché beginning requires a cliché ending. We might as well seek a happy and fair one then.

[1] 30% refers to the effective tax rate.
[2] “Video–Opinion Journal: The Obama Rule,” The Wall Street Journal, April 11, 2012, accessed April 14, 2012, http://online.wsj.com/video/ opinion-­‐the-­‐obama-­‐rule/888F7B5C-­‐9B89-­‐4441-­‐ 82C1-­‐7B4F3BFAD5C2.html.
[3] Idem.
[4] Idem.
[5] Office of the Press Secretary, “Weekly Address: Passing the Buffett Rule so that Everyone Pays Their Fair Share,” March 31, 2012, accessed April 14, 2012, http://www.whitehouse.gov/the-­‐press-­‐ office/2012/03/31/weekly-­‐address-­‐passing-­‐ buffett-­‐rule-­‐so-­‐everyone-­‐pays-­‐their-­‐fair-­‐share.
[6] “Video–Opinion Journal: The Obama Rule,” The Wall Street Journal, April 11, 2012, accessed April 14, 2012, http://online.wsj.com/video/ opinion-­‐the-­‐obama-­‐rule/888F7B5C-­‐9B89-­‐4441-­‐ 82C1-­‐7B4F3BFAD5C2.html.
[7] 80% of Americans pay an effective rate of less than 15%.
Jeanne Sahadi, “Is Romney’s Effective Tax Rate Lower than Yours?,” CNN Money, January 19, 2012, accessed April 14, 2012,
http://money.cnn.com/2012/01/18/news/econo my/Romney_effective_tax_rate/index.htm?iid=EL.

[8] Derek Thompson, “What’s Mitt Romney’s Real Tax Rate: 15% or 50%?,” The Atlantic, January 31, 2012, accessed April 14, 2012, http://www.theatlantic.com/business/ archive/2012/01/whats-­‐mitt-­‐romneys-­‐real-­‐tax-­‐ rate-­‐15-­‐or-­‐50/252243.
[9] Jeanne Sahadi, “Obama’s Buffet Rule: FAQ,” CNN Money, April 10, 2012, accessed April 14, 2012, http://money.cnn.com/2012/04/09/pf/ taxes/buffett-­‐rule/ index.htm?source=yahoo_hosted.
[10] Idem.

 

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