Verdict: Justia.com, February 3, 2012
The Buffett Rule Is an Imperfect Form of Tax Justice, but an Important Step
in the Right Direction
Neil H. Buchanan
Neil H. Buchanan is an economist and legal scholar, a
Professor of Law at The George Washington University, and a Senior Fellow at
the Taxation Law and Policy Research Institute, Monash. In a well written
article he opines:
We are-quite appropriately-once
again focusing on the extreme inequities in American life, in terms of both
how much the rich receive in income, and the surprisingly small amount that
they pay in taxes.
Anyone who looks at the federal income-tax brackets would find it impossible
to imagine that this version of the Buffett Rule is even necessary. The top
tax bracket rate is 35%, and it began when a taxpayerâ€™s 2011 income reached
... We impose a mere 15% tax rate on income
that is in the form of capital gainsâ€”that is, income that a person receives
from investments in property, stocks, bonds, and so onâ€”even when the
taxpayerâ€™s income would otherwise put him or her firmly in the 35% bracket.
... Why would our tax system countenance such an
apparent attack on the value of work? The theory is that it is necessary to
induce people to save their moneyâ€”putting it into the financial markets,
where entrepreneurs will borrow it and use it to generate jobs for everyone
in the future. This is sometimes referred to as â€œsacrifice,â€ ...
Describing what people like Mitt Romney are doing assacrifice,
however, reduces the definition of that word to a cruel joke. The Romney
family wants for nothing, and to say that we are taxing them at reduced
rates in thanks for their willingness to engage in self-denial is to drain
words of all meaning.
... it is unsupported by evidence ...
economists have been trying for decades to determine whether special tax
rates to encourage financial investment actually deliver what their
... If our goal in designing a tax system is
to reduce the incentives to game the system, therefore, we should tax
capital gains the same as regular income.
... In the broadest sense, therefore, we cannot define the fairness of
the tax system by comparing tax rates. In an extreme case, it could
even make sense for one wealthy person to pay for the entire governmentâ€™s
budget-because that personâ€™s wealth would not be possible without the
government, and because that person could still be quite comfortable, even
after paying his or her taxes.
The next step:
If the tax base and the various definitions of income
are not changed, Neil Buchanan and (I hesitate to say) even President Obama
may be correct about the Buffett Rule being an important step in the right
direction. Something like two steps forward, one step back. At least 30% is
about the same rate the low earners pay when Social Security and Medicare is
Itâ€™s not that I think the additional $40 or $50 billion
will be put to good use. President Obama has already said in his State of
the Union speech that he wants to have new incentives (i.e. redistribute the
wealth) for favored energy companies, certain job creation programs, etc. I
support high income tax rates for high earners because I would like to
convince the well-to-do that they (and the rest of us) would be better off
with a combined 2% wealth tax and 8% income tax.
At the risk of oversimplification, try to contrast a
30% income tax with an 8% income tax combined with a 2% wealth tax for each
of the next 11 years. The latter combined tax would permit an individual to
keep 22% more salary each year and tax another 2% of the amount not consumed
for the next 11 years. If one saved the 22% for 3 years it would be like
having a yearâ€™s take home in the bank on top of what might have otherwise
been saved under a 30% flat tax rate (conservatively assuming the 2% wealth
tax was offset by 4% investment interest).
Your article mentions the â€œOccupyâ€ protesters as if a
disparity in income tax rates were the main problem. I see the Occupiers as
being more concerned with not having a job, being deep in debt (credit
cards, collage loans, etc.) and having little upward mobility even if they
could get a job that paid minimum wage or even twice minimum wage, and
almost no chance of getting a job with a real retirement plan like congress
and other government workers have.
In August of 2006, I made the following suggestion to
the Presidentâ€™s Advisory Panel on Tax Reform: tax Net Individual Wealth at
2%, Consumption/Sales at 4% and Income at 8%. The exact same rates apply to
the rich and poor. There are no different tax brackets, credits, and no
favoritism. The three taxes would yield about $2.6 trillion per year
(slightly more than the current combination of Income, Social Security,
gasoline and other federal taxes and fees).
It is hard to imagine anyone that wouldnâ€™t welcome a 2%
tax on net wealth and a small 4% sales tax, in exchange for drastically
reduced 8% individual income tax rate. Even the "fair and balanced" Bill
O'Reilly (a/k/a the Factor) supports a national sales tax (of 3%) as a
necessary component of tax reform. The concurrent elimination of social
security, capital gains, estate and gift taxes; and a significant reduction
of the corporate income tax rate to 8% should guarantee near universal
support from social liberals and business conservatives alike (he defiantly
declared as he waited for some attorney or economist to find a flaw in the
plan rather than a lack of political will).
Eugene Patrick Devany