Obama’s Buffett Rule 101
Posted by FactReal on April 12, 2012
|BUFFETT RULE WILL ONLY COVER 0.5% OF OBAMA’S NEW SPENDING
According to a recent analysis by the congressional Joint Committee on Taxation, the Buffett Rule would raise a mere $47 billion over ten years. Meanwhile, President Obama’s budget calls for adding $6.7 trillion to the national debt. That means that the Buffett Rule will only cover one half of one percent of the President’s new spending. 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 weaken the economy and make matters worse. Heritage’s J.D. Foster and Curtis Dubay write that the tax would fall most heavily on job creators (who pay taxes at the individual rate) and confiscate their resources that would otherwise be used to start new businesses, grow existing businesses, and hire more workers. As a result, economic growth will slow down right along with job creation.
So how can President Obama get away with saying that Warren Buffett pays lower tax rates than his secretary? Many wealthy Americans who have done well like 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.
One way to think about this is to imagine you’re driving down a toll road, and you pay three separate tolls. The first toll of $3.50 is when you get on the highway. Then after a few miles you pay another $3.50 toll, and when you exit there’s a final toll of $1.50. A reporter asks you as you leave the last tollbooth how much toll you paid. What’s the most accurate answer — what you paid at the last tollbooth or what you paid altogether? Obviously, feeling some $8.50 lighter in the wallet, the correct answer is to respond with the total.
Conveniently for him, President Obama only talks about the last level of tax, the 15 percent portion, leaving out the rest. He only wants to talk about the last toll paid, not the total, and that’s how he makes his disingenuous argument…
Read more here.