What the 'Buffett rule' reveals about Obama tax reform plans
President Obama is pushing Tuesday for the so-called Buffett rule – a proposal to ensure that millionaires pay a higher rate on federal income taxes than the middle class. He and Democrats see it as a guarantee that the rich will pay more, even if Congress again extends the Bush tax cuts.
When President Obama travels to Florida Tuesday to argue for the so-called Buffett rule, he’ll be emphasizing a cornerstone of his economic agenda that would likely define the White House’s approach to future tax reform, as well as drawing a stark contrast between himself and his likely Republican presidential rival, Mitt Romney.Skip to next paragraph
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White House officials call the Buffett rule "a basic principle of fairness." Jumping off billionaire Warren Buffett's assertion that he should pay taxes at a higher rate than his secretary, the proposed rule would require Americans making more than $1 million a year to pay at least 30 percent of their income to the federal government, with deductions allowed for charitable giving and payroll taxes.
The White House and congressional Democrats will use that basic principle to build their arguments for how to handle looming budget issues, namely that the payroll tax cut and the Bush tax cuts are set to expire at year's end. Mr. Obama has said he would like to extend such tax cuts for families making less than $250,000 per year, but would let the cuts expire for higher-earners.
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“Tax reform will be a long and difficult process, and so we think it’s appropriate not to wait to complete every aspect of reforming the tax system before locking in what should be the most simple, common-sense element of any tax reform, which is that no one who makes over $1 million per year is paying less than the middle class,” said Jason Furman, principal deputy director of the National Economic Council, during a conference call with reporters Monday.
In addition to raising taxes on some millionaires, the Buffett rule would achieve two other tax-reform goals of Democrats.
First, it would blunt the impact of a full extension of the Bush-era tax rates. If Republicans succeed in maintaining the Bush tax cuts for all taxpayers, the Buffett rule would nonetheless ensure that wealthy Americans pay more – $162 billion more over 10 years, according to the congressional Joint Committee on Taxation. And if Congress lets the Bush tax cuts expire, most Americans' income-tax rates would go up, but under the Buffett rule it will go up more for the wealthy than it would otherwise, to the tune of $47 billion over a decade.
Republicans criticize the Obama administration for proposing a tax increase during a period of slow economic growth. But Obama officials argue that such a change results in greater economic efficiency.