Issue of the week: The Buffett tax on the rich

Warren Buffett may be a brilliant investor, said Douglas Holtz-Eakin in Bloomberg​.com, but he’s a lousy tax reformer. The billionaire has long complained that it’s unfair that he pays a lower rate than his secretary does. That inspired President Obama to invite Buffett’s secretary to his State of the Union speech last week and to ask Congress to change the tax code to include a “Buffett rule,” which would require households making over $1 million a year to pay at least 30 percent in taxes. But this is “trying to solve a problem that doesn’t exist.” According to the Congressional Research Service, millionaires already pay an average effective tax rate of about 30 percent. The last thing we need is to complicate our already convoluted tax code with another special provision based on “bad information and misleading demagoguery.”

In reality, too many of the ultrarich just don’t pay their fair share, said The New York Times in an editorial. True, those who earn their wealth through salaries already pay 30 percent or more. But many of the country’s wealthiest, including Mitt Romney, earn mostly investment income, which is taxed at 15 percent—the lowest capital gains rate “since the Great Depression.” The Buffett rule simply asks the estimated 94,500 millionaires who reap this advantage to “pay at least the same rate as most middle-income taxpayers.”

Go ahead and tax the super-rich, said Robert Samuelson in The Washington Post. But let’s not pretend it would generate much new revenue. A Buffett tax would raise at best $700 billion over 10 years—only a “tiny help” in bringing down our estimated deficit of $8.5 trillion over that period. So what? said Scot Lehigh in The Boston Globe. Every little bit of extra revenue helps, and “most people favor hiking taxes on the wealthy” over cuts to popular government programs like Medicare.

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A millionaire’s tax would be terrible for the economy, said The Wall Street Journal. Low capital gains taxes encourage investment and wage growth, exactly what this country needs right now. Corporate profits are taxed at the corporate rate of 35 percent before investors like Romney get whacked again by the capital gains tax; it’s hardly fair to make this “double taxation” even more punitive. If this proposal passes, “that giant sucking sound you hear come January 2013 would be hundreds of billions of investment dollars fleeing to China, India, Korea, and other U.S. competitors.”