The nation's annual tax filing deadline this week should focus attention on Monday's vote in the Senate on the "Buffett rule," President Obama's proposal to require Americans with annual incomes of $1 a million or more to pay a minimum of 30 percent in income taxes. The rule is eminently fair: A lot of non-millionaire earners have to pay the top income tax rates of 25-to-35 percent, yet the super-rich often pay less than half that due to lower rates on to capital gains, dividends and other sheltered investments. Because politics takes precedence over tax fairness, however, Republican senators will probably defeat the Buffett rule with a filibuster.
Obama and the Senate's Democrats surely expect this outcome. Their point is to emphasize that Republicans continue to thwart measures to bolster tax fairness for America's working families, even as they wrap themselves in the banner of family values. The GOP's lockstep opposition the Buffett rule, named after its chief citizen advocate, mega-billionaire investor Warren Buffett, is an apt example.
Buffett has argued widely that it's wrong for his secretary -- and many Americans generally -- to have to pay a much higher percentage of their income in federal income taxes than he and many other multi-millionaires and billionaires pay. As Buffett laments, they typically escape with effective income tax rates of 15 percent (the tax rate on dividends) or less.
Mitt Romney, the likely Republican presidential nominee, is among the super-rich in this category. He disclosed in January that he paid just 14 percent in federal taxes on his $21 million income last year. Unfortunately, he thinks that's fine. If he wins the presidency in November, he proposes to continue cutting taxes on the rich while further slashing the nation's already crippled budget for education, health care and entitlement programs like Social Security and Medicare.
Romney's formula would further deprive the federal government of needed revenue and deepen the deficit, even as it would send an ever-greater share of the nation's wealth to the most affluent one percent, and especially the super-rich in the top tenth of the top one percent in earnings. This group already scoops up a larger share of the nation's income than they have had in the last 80 years.
Fixing a fairer minimum 30 percent tax rate for the nation's multimillionaires and billionaires would be reasonable. (The richest 1 percent of Americans make $1.5 million a year; it's the top tenth of their number who net most of the bounty of low taxes on investments.) It would not, however, make a significant dent in the federal debt.
The Buffet rule would produce roughly $160 billion in increased tax receipts over the next decade if the Bush tax cuts of 2001-2003 are not allowed to expire, or just $47 billion in the same period if the Bush tax cuts are allowed to expire. Republicans are playing a shell game by citing the lower number as a relatively insignificant gain from the Buffet rule, even though they will pull out all stops to extend the Bush tax cuts for the richest Americans -- and their biggest campaigns donors.
Regardless, the Buffett rule -- if Congress ever enacts it -- should not be used as a reason to keep the Bush tax cuts intact. They were never needed in the first place, and letting them expire would generate over $800 billion in revenue in the next decade. That would sharply curb deficit spending, and help restore a more reasonable level of tax revenue as a percentage of the nation's overall economy
In fact, deficit spending has soared mainly because the level of tax revenue dipped to a near historic modern low of 15 percent of GDP last year, down significantly from the more normal 18-to-21 percent level of prior years. Tax equality, and taxes generally, have to rise to restore a fair share of the benefits of economic growth for ordinary Americans, and for the infrastructure the country needs to move forward.
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