The Harsh Realities Of a Buffet Tax

Real Clear Markets ^ | 01/30/2012 | Robert Samuelson

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Whatever else they are, the super-rich have now become political props. We can thank President Obama and Mitt Romney for this. Obama thinks he can ride resentment against the rich into the White House for a second term; and Republican Romney's fortune, estimated at $190 million or more, qualifies him as super-rich.

By all means, Congress should pass the "Buffett Tax," named after billionaire Warren Buffett, who noted that his 2010 tax rate (17.4 percent) was about half his secretary's. The explanation is that Buffett's income comes mostly from dividends and capital gains - profits on sales of stocks and other assets - that enjoy a preferential rate of 15 percent. This is neither socially just nor economically necessary.

Obama's still-vague Buffett Tax would apparently impose a minimum 30 percent tax rate on incomes exceeding $1 million. Republicans should support it. Economic incentives for risk-taking wouldn't collapse. Under President Reagan, the top capital gains rate was 28 percent. The economy did fine. And passing a Buffett Tax might improve political truth-telling.

For starters, don't pretend, as Obama does, that taxing the ultra-rich would solve the deficit problem.

Here's what he said in the State of the Union address:

"Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else, like education and medical research, a strong military and care for our veterans? Because if we're serious about paying down our debt, we can't do both."

We sure can't. In September, the Congressional Budget Office estimated the 10-year deficit at $8.5 trillion. The nonpartisan Tax Foundation estimates that a Buffett Tax might now raise $40 billion annually. Citizens for Tax Justice, a liberal group, estimates $50 billion. With economic growth, the 10-year total might optimistically be $600 billion to $700 billion. It would be a tiny help; that's all. "The purpose of the Buffett Rule is not to close the deficit gap," Buffett has said. Hard choices remain, in part because existing deficit estimates already assume steep defense cuts.

It's also a myth that all the ultra-rich enjoy low tax rates. In 2007, the richest 1 percent of taxpayers paid an average tax rate of 29.5 percent and provided 28.1 percent of federal revenues, reports the CBO. On their wages and salaries, many of the ultra-rich pay the top income tax rate of 35 percent plus a Medicare tax of 1.45 percent.

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190 million? Romney's a piker compared to John Forbes Kerry who clocked in at just under 1 billion in 2004.

Then again JFK made his money the old fashioned way:

"He Married It!"

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That does it! I’m staying away from Golden Corral, Luby’s, and Furr’s!!!