A “Fair” Alternative to the Buffett Rule

With Obama having very little to show for his first term in office, his strategy for reelection seems to be promoting tax “fairness.” The one and only plank in his tax fairness platform is the so-called “Buffett Rule” which is new type of alternative minimum tax that will require people who earn more than $1,000,000 per year to pay the same tax rate as “everyone else.” It's a nice sounding soundbite but it's a strategy that would be hard to execute.

First off, nearly ½ of the people in the US pay NO federal income taxes at all. So why should I take seriously any claim that it's millionaires who aren't paying their fair share? After all, even 10% of $1,000,000 is infinitely more than 100% of nothing. If we're aiming for fairness, it's those people who pay nothing who aren't paying their fair share. The millionaires are paying for many of the benefits that the free-loaders are using. The Occupy Movement should be happy they have it so good. Instead, they whine about needing more. They now want the 1% to pay for their college, their health care, and even their homes. I guess by “fair” they mean someone else should pay their bills.

When the President talks about fairness, he's not talking about the 50% that pay no taxes. He's talking about the rate that millionaires pay compared to the rate that middle class workers pay. According to the President, if someone makes $1,000,000 per year, he should pay at least 30% of his income in taxes. Hmmm. What about people who make $900,000 per year? Is is OK if they only pay, say, 20% when millionaires are paying 30%?

When Mr. Obama released his tax returns for 2011, we saw that he actually paid a lower rate than his secretary (source). White House spokesperson Amy Brundage said of Obama's return, “[this] is exactly why we need to reform our tax code and ask the wealthiest to pay their fair share.” That's odd. The Buffett rule would not have made a difference for the President since his income was less than $1,000,000.

In the US, we use marginal tax rates. Otherwise, a person who makes exactly $1,000,000 in one year would net less after taxes than someone who made $995,000. The way marginal tax rates work is that as people make more and more money, they enter progressively higher tax brackets and pay a larger percentage of taxes only on the amount they earn in the higher brackets. It's a rather cumbersome system but that's the way it works.

Liberals have taken advantage of the tax code to engage in social engineering. This way, they can entice people into buying an electric car, for example, by giving tax subsidies to people who buy them. With so many pages in the tax code, numerous tax credits, tax deductions, and loop holes, people in the higher tax brackets never pay taxes on their entire income.

The purpose of taxes is to raise money for the government but liberals don't give a whit about revenue. Even if passed, the Buffett Rule would only raise about .43% (less than half of one percent) of our current deficit. Democrats are trumpeting the Buffett Rule only out of some absurd sense of “fairness.” It will not address out of control spending. It will not create jobs. It doesn't do anything except punish millionaires and give the President something to run on besides his failed domestic policies. It's class warfare at its worst.

If tax fairness is the objective, then I have an even more “fair” alternative to the Buffett Rule. Let's do away with all tax deductions, tax credits, and tax loop holes, then go to a flat tax of 15%. This way, millionaires and billionaires pay the same as their secretaries; middle class workers will pay less taxes; and all those people who don't pay any taxes will finally end up paying their fair share.

What could be more fair than that?