Now that both Western and Eastern Orthodox Easter have been celebrated, it is time to come back from my sabbatical and turn my attention from the sacred to the profane. Fortunately, this two week hiatus has provided ample material to consider – the most obvious being yesterday’s Senate vote on “the Buffett Rule”.
Of course, this tidbit of proposed legislation had no chance of passage but provides the President, always the consummate campaigner, an opportunity to point to how the GOP is the party that protects the rich – while he as a Dem is on the side of the little guy. President Obama made this point in a speech in Florida in which he descried the fact that he pays a lower effective tax rate than his secretary and that raising the tax rate on the rich will put our budget in balance and we will finally all again start living the “American Dream.”
Sadly, the facts suggest something quite different – so either the President is simply very poor at math or is just misinformed. In either case, it makes the thoughtful person wonder why they would vote for him this November – at least if that person has an IQ that is higher than your average kumquat. So, for your review and consideration here are the facts about this proposal – and a brief review of how tax equity really works. Since this is “Tax Return Filing” day I thought this would be an appropriate subject.
First, “the rule” is intended to get the super wealthy (those individuals earning one million or more a year) to pay a higher percentage of their income in taxes. This should have broad appeal since most of us who are reading this (or for that matter writing it) don’t fall into that category. Most of us probably don’t even know anyone who fits into that income level – except perhaps for our tightwad Uncle Percival who has terrible halitosis and won’t even leave an honorable mention of us in his will. So what could be better than to have these wealthy people balance our budget – rather than taking the money out of our own pockets?
Well, according to all reliable sources, including the independent CBO, implementing this rule will actually raise approximately $47 Billion – over a period of ten years. According to President Obama, during that same time period, the national debt will increase by $600 Billion. Assuming that the President’s rosy projection is correct, that leaves a shortfall in revenue of a little over $550 Billion. (I say rosy because during President Obama’s short three year reign, the deficit has increased by nearly $5 Trillion).
So while implementing “the Buffett rule” might be a step in the right direction, it obviously will not resolve our budget and deficit problems. The only way that can happen is through a reduction in spending (something the Dems bitterly oppose) or increase taxes on a broader base (something the GOP abhors). Throughout the history of the world, governments have always taken the path of least resistance – and rather than make hard choices like curbing perks for lawmakers and their supporters – have always chosen to heap additional and inventive new forms of taxation on the rest of us. Let’s take a quick peek back into tax history in the United States.
This is not the first time that the question of tax inequity has surfaced. In 1969 the Congress was outraged that certain high net worth individuals were paying little or no taxes. They had primarily invested their assets in tax free municipal bonds issued by the states and various municipalities – the interest on those investments being exempt from Federal Income Tax.
The hue and cry of “tax equity and fairness” was heard in he halls of the Capitol Building and the Congress passed a change in the tax code so that these people had to pay something into the coffers of the Treasury to benefit the common good. This change in the tax code was known as the AMT (the Alternative Minimum Tax) – and you may be startled to learn that the number of taxpayers who were actually affected by this was a mere one hundred fifteen people in the entire country. Compare that to the number covered by “the Buffett rule” – estimated to affect over a million taxpayers initially.
Now here’s the tax history lesson. The AMT which initially was applied to a mere handful of people now affects over thirty-two million taxpayers. You see, once government gets a hold on a bad idea, there is no limit to how far they can and will extend it.
The GOP has “trickle-down economics”. This is a theory which may or may not work. But the history of taxation in this country is clear. The Dems have “trickle-down taxation” which, using the AMT as an example, clearly does work. So before you get on the “soak the rich” bandwagon, consider that you may well be the next in line for tax increases.
Until we get true leadership and honesty both in the White House and in the Congress we will continue to stumble along – putting a bandage here and tying a tourniquet there to try to staunch a gaping wound and a gushing flow of budgetary blood. But until that happens, perhaps both Mr. Buffett and President Obama can show us real integrity by voluntarily sending the IRS a check for the difference in the amount of their effective tax rates and those of their secretaries. If they were to do that I would take off my hat and say, “Wow!”
Otherwise, it’s hard for me to look at their statements as little more than a sham.