Three days before federal income taxes were due, President Barack Obama declared that tax increases can grow the economy. “Now, this is not just about fairness. This is also about growth,” Obama said in his weekly radio address. “It’s about being able to make the investments we need to strengthen our economy and create jobs.”
In other words, if taxpayers — and potential job creators — pay more taxes we can afford more Solyndras. Such boondoggles will create jobs, at least until they go belly up and lay everyone off. There is a word for an economic strategy of taxing some millionaires to give government loans to other millionaires. It can be found in the title of a new book by Grover Norquist and John Lott: Debacle.
Naturally, the president vowed to raise only a small number of very wealthy people’s taxes. His current gimmick is the “Buffett Rule,” which assumes that super-rich Warren Buffett pays a lower effective tax rate than his secretary and that this is normal under the current tax code.
It might be more accurately described as the “Buffet Rule,” as it advertises all the entitlements the middle class can eat at low tax rates. Think of the Golden Corral commerical where a family seeks steak, endless fried shrimp, and a vast salad bar and then stipulates a low $10 price. Only one restaraunt remains a viable choice as its higher-priced competitors are pushed offscreen.
Obama wants voters to believe he can offer universal health insurance coverage, fully funded Medicare and Social Security, and an all-you-can-eat salad bar of green jobs at a 10 percent middle-class tax rate. Mitt Romney can’t offer that bargain. The difference is that Golden Corral isn’t keeping its prices low by adding a surcharge to bills of families dining at Morton’s.
More importantly, buffets can actually offer cheap salad and fried shrimp. Obama’s tax increase won’t pay for all the government he promises. According to the Joint Committee on Taxation, the Buffett Rule would raise only $47 billion in ten years. The tax hike could fund about seven days of federal spending.
Smarter liberal wonks have pointed out that this baseline assumes the expiration of the Bush tax cuts. Keep the current tax rates and the Buffett minimum tax will raise somewhat more money. Return to the Clinton-era tax rates, Brian Beutler writes, and the “$47 billion would come on top of a flood of new revenue that would swiftly fill the country’s budget hole.” That flood is a $4 trillion tax increase that also soaks the middle class. Turn off the middle-class spigots by letting only the tax cuts for the wealthy expire and the Buffett flood starts to slow to a trickle.
Now it may be that once safely reelected, Obama will let all of the Bush tax cuts lapse and then blame congressional Republicans for not sending him a bill that preserved them only for the middle class out of their slavish loyalty to the rich. Some observers think he’ll do just that. Taken at face value, the president’s fiscal policy makes little sense.
The president wants the country to believe he can protect middle-class entitlements, along with other domestic spending priorities, without raising middle-class taxes. However much the wealthy exploit tax loopholes, the numbers suggest otherwise.
In his book about the Reagan economic recovery, The Seven Fat Years, the late Wall Street Journal editor Robert Bartley tells a story of how the country came to adopt the alternative minimum tax. In early 1969, Treasury Secretary Joseph Barr (an LBJ appointee) told Congress that 21 millionaires had paid no federal income taxes two years before as did 115 other tax filers reporting income in excess of $200,000.
To pursue those Bartley called “Joe Barr’s millionaires,” Congress concocted various minimum tax schemes. Eventually, the alternative minimum tax ensnared millions of taxpayers, not just 21 rich scofflaws. According to one estimate, 27 percent of those who paid the AMT in 2008 earned less than $200,000 a year. It takes direct congressional intervention to prevent the tax from hitting 20 million more taxpayers, mostly residing in blue state suburbs.
Think the Buffett Rule will turn out differently?
As you wave goodbye to your 2011 tax dollars, consider: Obama is campaigning on the idea that only Paul Ryan’s budget plan requires middle-class sacrifice. If the voters knew the benefits he pledges to protect will be paid for by their own tax dollars going to Washington, some of them would surely opt to cut out the middle man.