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February 01, 2012 3:44 PM Worst Excuse Ever For Opposing Buffett Rule

By Jonathan Bernstein

Is the Buffett Rule — that rich folks should pay at least as much in taxes as the middle class — a good idea? I’m sure there are reasonable arguments pro and con. But you won’t find any good ones in Douglas Holtz-Eakin’s Bloomberg column today; it’s an advanced class in hackery (via Wonkbook).

I’ll start right off with a brilliant piece of misdirection Holtz-Eakin puts at the center of his case against the Buffett rule: that comprehensive tax reform is better. This is, even if you accept every benefit that he claims for tax reform, about the worst excuse I’ve ever heard for opposing a tax change. Here’s the thing: comprehensive tax reform is really, really hard to get done. Impossible? No; after all, we do have one case of it happening, although that was 25 years ago and most of it unraveled rather quickly, which is why it’s supposedly needed again. That’s because comprehensive tax reform eliminates lots and lots…and lots and lots and lots of particular benefits in favor of general benefits. And that’s something that a Madisonian political system doesn’t do very well (nor, for that matter, do other democratic systems, but the US is perhaps especially prone to that one). So “comprehensive tax reform would be better” is a dodge. You don’t get that choice.

And at any rate, the Buffett rule is hardly something that would make future tax reform more difficult. The essence of bipartisan-style tax reform is to eliminate deductions and lower rates. The Buffett rule doesn’t exactly do that (and it’s not revenue neutral), but it is, essentially, anti-deduction, isn’t it?

So what else does Holtz-Eakin have? Well, he claims the problem “doesn’t exist” because the millionaires are already paying, on average, a 30% rate. That, of course, hardly shows that the fundamental unfairness (as Barack Obama argues, at any rate) of some millionaires paying low rates doesn’t exist; it just means that not all millionaires do so. So nothing there.

He also notes that the Buffett rule would be, in effect, a new Alternative Minimum Tax, and that the AMT we have has been a constant source of trouble because it’s not indexed for inflation. True! Solution: index the Buffett rule for inflation. That wasn’t tough! And again, he throws the “comprehensive tax reform would be better” attack at a permanent AMT fix. Now, it’s true that an AMT fix would be heavy lifting and would be a waste of energy if comprehensive tax reform was on the menu, but the AMT fix is heavy lifting only because it’s a revenue loser (at least the way CBO scores these things). The Buffett Rule, on the other hand, is a revenue raiser, so it doesn’t have that problem at all.

Which brings us to yet another specious argument: that the Buffett Rule wouldn’t balance the budget. Holtz-Eakin complains that it would only bring in $35B a year, which is, he points out, under 3% of recent deficits. Of course, the answer here is: so what? Again, he’s trying to frame the question as either-or (that is, either the Buffett Rule or comprehensive tax reform), but there’s just no good reason to believe that tax reform is going to happen anytime soon, or that passing the Buffett Rule this year would delay it in any way. Beyond that, saying that something wouldn’t eliminate the deficit is hardly a reason to oppose it.

And then, finally, Holtz-Eakin argues that cutting entitlement spending for rich people would be better than the Buffett Rule. Perhaps so: but it’s hard to see why the one would rule out the other. We should cut spending isn’t an argument against the fairness claim that Buffett, and Barack Obama, are making.

Again, I’m not arguing here for or against the Buffett Rule. But if that’s the best the opponents have, I’m guessing the case really boils down to Rich People Want Money, and that’s not much of a case at all.

[Cross-posted at A plain blog about politics]

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Jonathan Bernstein is a political scientist who writes about American politics, especially the presidency, Congress, parties, and elections.
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Comments

  • Steve Leishman on February 01, 2012 11:14 PM:

    I thought the premise of the rule was something along the lines that the millionaire should not incur a smaller %age of taxation than their secretary ?
    I've heard a 30% figure thrown around.
    - seems to me that is already indexed to inflation.

    Look, the way to reduce the overall %age of everyone's income being taxed is to increase the median wage. Increasing the median wage (at a rate greater than inflation which is currently VERY low) really is a tide that lifts all boats. We can tax everyone less because we have a broader base.

    It's that simple. Concentration of the gains at the top end of the food chain is never going to have a broad enough tax base.

    If you look at the charts of inflation, productivity and the gains of different quartiles of earners you can see the real problem.

  • meander on February 02, 2012 12:06 PM:

    Holtz-Eakin's game looks like fun, let me try a few:

    * We shouldn't increase the Medicare eligibility age because it won't balance the budget and isn't as good as comprehensive tax reform.
    * We shouldn't means test Social Security and/or Medicare because it won't balance the budget and isn't as good as comprehensive tax reform.
    * We shouldn't freeze federal pay rates because it won't balance the budget and isn't as good as comprehensive tax reform.

    Fun!