Editorial

may hut bui | school of medicine |

Mr. Obama and the 'Buffett Rule'

Published: April 10, 2012

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President Obama accomplished two things when he made the case on Tuesday for the so-called Buffett Rule, which would require millionaires to pay at least 30 percent of their income in taxes. He persuasively argued that it would be a step toward fairness in a tax code tilted in favor of the wealthiest Americans. Not incidentally, it allowed him to take an implicit shot at his virtually certain opponent, Mitt Romney, both personally and politically.

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Mr. Romney disclosed in January that his tax bill last year came to about 14 percent of his $21 million income, roughly the same percentage faced by middle-rung taxpayers. Even more important, Mr. Romney is determined to continue slashing taxes for the rich, starving the nation of needed revenue, while deepening the deficit.

The Buffett Rule, which would raise an estimated $50 billion over 10 years, would not make an appreciable dent in the deficit or provide a lot more for essential programs. By comparison, letting the Bush-era tax cuts expire for taxpayers making more than $250,000 a year, as the president has also called for, would raise $800 billion over 10 years.

Mr. Obama must ensure that the Buffett Rule does not become a substitute for ending those tax cuts.

The president is right that income inequality is a serious and growing problem and should be a central issue in this year's campaign. On Tuesday, he said the big question for Americans is, can "we succeed as a nation where a shrinking number of people are doing really, really well, but a growing number are struggling to get by? Or are we better off when everybody gets a fair shot?"

Unfairness in the tax burden is one important example and driver of that divide. The White House released tax data showing that the average federal tax rate of the wealthiest 0.1 percent of Americans has fallen from 51 percent to 26 percent over the last 50 years. At the same time, the middle-class tax burden was basically unchanged or slightly higher, with those taxpayers paying 16 percent of their income in federal taxes in 2010, versus 14 percent 50 years ago.

What Mr. Obama did not say, but which must be part of a serious tax debate, is that the main reason for the low tax rates on the wealthy is the preferential treatment of investment income. It is taxed at a top rate of 15 percent, versus top rates between 25 percent and 35 percent on wages and salary for many working Americans. Applying the same tax rates to all forms of income would be a more direct way to address tax inequality.

The Buffett Rule is a compelling symbol, but it comes with policy risks. After setting the standard for wealth at $1 million in annual income, Mr. Obama will now have to vigilantly fend off lawmakers, from both parties, who will be eager to preserve the Bush-era tax cuts for everyone making less than that. The $250,000 threshold is not only fair, it is essential for raising substantial and much-needed revenue.

The discussion of inequality must not end with a debate on taxes. To ensure that the benefits of economic growth are shared among all Americans, Washington must do a lot more to strengthen the institutions that foster broad prosperity. Those include public education, universal health care, Social Security, affirmative action, financial regulation and the minimum wage.

Mr. Obama has set his campaign in the right direction. But it is only a start.

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