Today the president will unveil a multi-trillion-dollar deficit reduction package, which reportedly includes hundreds of billions of dollars in tax increases. These tax hikes could top $1.2 Trillion -- a figure that includes the $800 Billion in tax increases the president's plan will propose, plus the price tag for his unpaid-for $450 Billion "jobs plan." Careful -- these numbers should not be confused with the additional record-shattering $800 Billion across-the-board tax increases scheduled to take effect in 2013, when the current Bush rates expire. Two daunting tax cliffs; so little time. For a solid overview of why the president's deficit reduction plan is counterproductive, watch Paul Ryan's characteristically thorough appearance on Fox News Sunday, which Erika posted yesterday.
Ponder this statement: As President Obama traipses from state to state peddling a second stimulus we can't afford, he's simultaneously rolling out a "deficit reduction" scheme. As you contemplate that irony, let's take a peek at Reuters' summary of the president's newest new plan:
President Barack Obama, in a populist step designed to appeal to voters, will propose a "Buffett Tax" on people making more than $1 million a year as part of his deficit recommendations to Congress on Monday. Such a proposal, among suggestions to a congressional supercommittee expected to seek up to $3 trillion in deficit savings over 10 years, would appeal to his Democratic base ahead of the 2012 election but likely not raise much in revenues.
White House Communications Director Dan Pfeiffer said in a tweet on Saturday the tax would act as "a kind of AMT" (Alternative Minimum Tax) aimed at ensuring millionaires pay at least as much tax as middle-class families. The "Buffett Tax" refers to billionaire U.S. investor Warren Buffett, who wrote earlier this year that rich people like him often pay less in tax than those who work for them due to loopholes in the tax code, and can afford to pay more.
Let's fisk the bolded portions of these grafs, point by point:
(1) Credit Reuters for identifying this gambit for what it is -- an unserious electoral ploy. As the story notes, a new AMT levied on the super rich and successful small businesses (many of which file as individuals) will not raise much money in revenues. You would think that raising substantial revenues should be the ostensible goal of deficit reduction programs. Remember, even if the federal government taxed every single family earning over $100,000 this year at one hundred percent -- total confiscation -- the resulting revenue would not come close to paying down this year's deficit. Imposing an additional parallel tax system on far fewer individuals and businesses will reap fractional revenue at best. It would also be perceived by many as another broadside against America's investors and job creators.
We've heard over and over that $2 Trillion in capital is currently sitting on the sidelines due to paralyzing economic uncertainty and pessimism about the US economy's prospects for growth. Spasms of class warfare will not encourage investors to risk their capital, nor will they spur small businesses to expand. Obama's populist adventure may temporarily satisfy some people's class envy, but it won't create jobs. It won't jump-start America's economic engine. And it won't bring in much revenue to pay off the debt -- even if that was what supposedly deficit-reducing revenues actually did, which they don't. Then again, this president subordinates the priorities of revenue generation and fiscal soundness to his overarching goal of redistributive "fairness." Don't believe me? Watch this.
(2) The White House Communications Director likens the "Buffett Tax" to the Alternative Minimum Tax (AMT). What was the AMT again, and why is it such a headache today? Economist Veronique de Rugy reminds us:
Congress created the AMT in 1969 to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes. Here’s how it works. Taxpayers subject to the AMT must calculate their tax liability twice: once under regular income tax rules and again under AMT rules. If liability under the AMT proves higher, taxpayers pay the difference as an add-on to the regular tax. The difference paid is their AMT.
When the regular income tax was indexed for inflation in 1981, however, Congressthe AMT. So the AMT’s reach has expanded over time to hit middle-income people it was never intended to tax. As a result, the AMT affects a growing share of the population. And it could get worse.
The piece goes on to demonstrate that without Congress' annual "patches" to paper-over the mistake made in 1981, the AMT -- which was originally designed as a let's-make-the-super-rich-pay-their-fair-share measure -- would effect tens of millions of taxpayers today. Once taxpayers are subject to the AMT (the non-inflation adjusted trigger threshold is $175,000 for individuals and married couples), many end up facing an increased tax burden and are denied popular tax deductions. The $175K sum may have been huge bucks in 1969 or 1981, but it's not a boatload of cash anymore, especially in high-cost locales like New York, Massachusetts, and California. So the AMT was set up in such a way that, absent the cumbersome yearly corrections, it would punish millions of middle class families -- households it was never intended to affect. In other words, the AMT debacle is an example of soak-the-rich, "fairness"-seeking tax policy run amok. It's a monument to federal incompetence, unintended consequences, and tax "bracket-creep." And now the White House is citing it as a basis for Obama's new soak-the-rich "fairness"-seeking tax policy. Terrific.
(3) As I've written before, if patriotic millionaires and billionaires like Warren Buffett believe they aren't taxed enough (and omit double-taxation arguments to build that case) they are always more than welcome to voluntarily pay more -- far more, even -- than what they technically owe in taxes. Before they do, though, they might want to read this, which should be one of conservatives' top admonitions against any tax-hikes-to-reduce-deficits contrivance from Democrats. Also, if Buffett is so distressed over our depleted federal coffers, perhaps Berkshire Hathaway might consider ending its years-long dispute over back taxes with the government and cheerfully pay the amount the IRS says they owe. In full. With interest. And then some. That would be fair, right?
When President Obama delivered his awful jobs speech to Congress a few weeks ago, I made the following prediction about what his (then-unannounced) deficit reduction plan might look like: "This likely means very modest changes to unsustainable entitlement programs and big tax hikes on 'the rich.' Absolutely nothing new." Check, and check.