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Buffett Rule reality

Tribune-Review
| Friday, April 13, 2012 12:00 a.m

President Obama recently laid out his case for the Buffett Rule, a plan to raise taxes on successful Americans and small businesses. The core of his argument: The rich aren’t paying their fair share.

It makes for great populist rhetoric, but the result is terrible policy. Worse, it’s a distraction from the big issues facing the nation, such as the deficit, the economy, jobs, gas prices and health care.

Will the president’s tax hike tackle the country’s fiscal problems• No, it won’t. According to a recent analysis by the congressional Joint Committee on Taxation, the Buffett Rule would raise a mere $47 billion over 10 years. Meanwhile, President Obama’s budget calls for adding $6.7 trillion to the national debt.

Soaking the rich cannot get deficits down. Only spending reductions can do that.

When it comes to the biggest problem America is facing — a weak economy and high unemployment — the Buffett Rule would make matters worse. The tax would fall most heavily on job creators and confiscate resources that would otherwise be used to start new businesses, grow existing businesses and hire more workers.

The president says: “This is not about a few people doing well. We want people to do well, that’s great. But this is about giving everybody the chance to do well.” Really• Raising taxes on the rich, weakening the economy, somehow gives everybody the chance to do well• Raising taxes on anybody somehow gives everybody the chance to do well• This is absurd even by the low standards of American political rhetoric.

Here’s what you really need to know about Obama’s plan.

Under the Buffett Rule, businesses and families earning $1 million will pay a minimum 30 percent effective tax rate. The president says those Americans aren’t paying enough. As proof, he points to billionaire Warren Buffett’s secretary, who reportedly pays a higher tax rate than her uber-wealthy boss. But he’s distorting the facts.

Many wealthy Americans who have done well, such as Buffett, receive dividends and capital gains — a form of investment income that is subject to multiple levels of tax. First, the investment income results from investment. This capital didn’t appear out of thin air. It was earned and taxed previously, often many times over at rates up to 35 percent.

Then, once invested, it generates income that is taxed at the corporate level at a 35 percent rate. And then it’s taxed again, at the individual level at a 15 percent rate on dividends and capital gains. The combined rate on corporate earnings alone is over 45 percent, and this is all after the first layer of tax.

President Obama talks only about the last level of tax, the 15 percent portion, not the total, and that’s how he makes his disingenuous argument.

Then there’s the inconvenient fact that if you look at only the last level of tax, the data show clearly the highest-earning families and businesses are already shouldering the vast majority of the country’s tax burden. The top 1 percent of income earners — those earning more than $380,000 in 2008 — paid more than 38 percent of all federal income taxes while earning 20 percent of all income.

By comparison, the bottom 50 percent of income earners — those earning less than $33,000 — earned 13 percent of all income and paid less than 3 percent of federal income taxes.

Instead of offering solutions, the president is offering class warfare branded as the Buffett Rule.

Mike Brownfield is assistant director of strategic communications at The Heritage Foundation.

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