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What's wrong with the 'Buffett rule'

More tax code fairness is good, but it won't solve all the problems of the US economy. The reality is that everyone needs to pay higher taxes, plus undergo an attitude shift.

By MSN Money Partner Apr 11, 2012 2:05PM

This post is from Rick Newman at U.S. News & World Report.

 

http://www.usnews.com/moneyMany Americans feel dispossessed. Data support their grievances: Incomes are stagnant, joblessness is high, and more people really are falling behind.

 

President Barack Obama thinks he has a solution: a new "fairness" agenda that starts with the "Buffett Rule," a proposal to raise tax rates on millionaires to the same levels middle-class earners typically pay. This would be followed by other measures meant to assure that "everyone gets a fair shot and everyone does their fair share," as Obama has said repeatedly.

 

The U.S. tax code is certainly a mess that favors those able to move their money around and hire experts to take maximum advantage of loopholes. The Buffett Rule is actually sensible, because it would plug some of the holes that special interests have drilled into the tax code over the past 50 years. But it also seems like the wrong place to start trying to revive America's fortunes, for at least two reasons.

 

The first problem is that the Buffett Rule and Obama's whole fairness doctrine perpetuate the fiction that Washington can solve the overarching problem of fading prosperity. This might have been plausible 50 years ago, when the U.S. economy was far more self-contained and growing at a heady pace that made lavish government spending possible. (Post continues after video.)

These days, however, the federal government is heading toward insolvency, and many aspects of the global economy are beyond Washington's control. The enormity of the national debt, which now tops $15 trillion, makes it a mathematical certainty that Washington is going to do less for citizens and ask them to contribute more. If politicians were honest, they'd prepare voters for the sacrifices that lie ahead, instead of promising 99% of them that everything will be fine as long as the other 1% pays more.

 

The Buffett Rule would impose a minimum effective tax rate of 30% on people who earn more than $1 million per year, raising the average tax rate for that group by a few percentage points. But even the White House acknowledges that the amount of extra revenue raised would be trivial compared with the size of the debt.

 

Obama suggests that higher taxes on the wealthy will reduce the need to raise taxes on the middle class. But nearly every budget expert will tell you that the only way to get the debt under control is to raise taxes on virtually everybody, or eviscerate government services.

 

The second problem is that Obama is still not telling struggling Americans what it will really take to revive their own fortunes and, to some extent, the nation's: more grit, more self-sufficiency, a more entrepreneurial spirit and greater engagement with the world beyond U.S. shores.

 

There are many Americans who have what it takes to succeed in the hypercompetitive global economy. Others are getting the right skills and going where the best opportunities are -- which sometimes means overseas.

 

But too many Americans are stuck in place, waiting for jobs that are never coming back or hoping the government will intervene and fix things. The odds are very high that it won't. The government lacks the money and know-how to reboot most parts of the economy. Plus, ongoing paralysis in Washington makes the government the least effective cog in the whole American system.

 

This is not to say that free-market incentives and more competition are the answer, as many conservatives insist. All the bailouts, corporate meltdowns and economic disasters of the past decade have made it clear that capitalism generates turbulent waters, not the gentle rising tide that capitalist romantics believe in. It raises some boats, swamps others and threatens a tsunami every now and then.

 

We need nimble government that enforces some healthy rules, but we also need robust citizens who take smart risks, bounce back from setbacks and rarely think of government as part of their strategy to get ahead. Warren Buffett, the man, is an exemplar of such drive. The rule named after him isn't.

 

More from U.S. News & World Report and MSN Money:

 

 

VIDEO ON MSN MONEY

177Comments
Apr 12, 2012 7:00AM
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WOW! I am tired of the stupidity.  No poor man or middle class person has ever hired someone, taken the responsibility for financial stability of a company or had to stay up all night keeping the tears from coming down because they had to fire a valuable employee.  I agree we should tax the wealthy at a higher rate than others BUT HOW ABOUT THE 50% THAT PAY NOTHING.  Eliminate the Earned Income Credit and other areas in which we redirect wealth and lets fix the system.
Apr 12, 2012 1:51AM
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This is an absolutely awesome article.  What it didn't say was that the people making over $1 million per year could be taxed at 100% and it still wouldn't begin to cover the deficit.  There is only one answer and it is the same as in Greece, a serious reduction in government benefits.  But just like the Greeks, there are way too many people here who believe that the government owes them food, shelter, medical care, and a flat screen HD TV, because they are entitled and anything less is discrimination.  
Apr 11, 2012 5:17PM
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I have to admit, everytime my wife and I see the ad on TV about the "free phone", which includes texting services, with 250 minutes per month, for those on public assistance, we'd like to see those morons in Washington running this country lynched from the highest tree on the National Mall. Things like that are what is wrong with this country.  A total outrage for those 50% of us who DO PAY OUR TAXES every year. 
Apr 12, 2012 7:20AM
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obama's screeching about fairness and tax the rich is nothing more than a ploy to focus on a topic and deflect attention from the real issues.This appeals to the many who don't pay taxes and reap the government handouts.The idea is that this segment of the population, which is very large, will support the ideas of giving them more and taking from those who have been successful in economic terms.The problem is that there are more takers than givers, but obama wants everyone to be dependent on him and the government to continue the onslaught of freedom and free enterprise in the United States.
Apr 11, 2012 9:22PM
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As long as 1 out of 2 people pay no taxes and we double our national debt every three years it doesn't matter what they do with the 1 % 's . Obama is talking about raising a few Billion dollars to pay off a 15 trillion dollar debt. That doesn't pay the interest on the debt. A 96% debt to income ratio is unbelievable. We have to cut spending it is the only way.
Apr 12, 2012 7:57AM
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$5 billion a year. That's right. All our problems are solved over $5 billion a year. Don't mind the damage it will do to an already over-taxed people. As of April 1st we have the highest corporate tax rate in the industrialized world. Including Obamacare taxes, elimination of the Medicare cap, expiration of the Bush tax cuts and Federal taxes are going up to 44% for the top 5%. Add in state taxes and your over 50% of your income to taxes. This still isn't enough for the left.

 

Cut spending NOW. No increase higher than the inflation rate.

 

Apr 12, 2012 10:53AM
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i am sick and tired of tax talk, the problem is spending by all forms of government, stop spending start cutting.
Apr 11, 2012 3:35PM
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The answer is to tax and take EVERY dollar made. The government then will give back what is left over after paying deficit interest payments, national defense, social security, and medicare. Oh! There isn't anything left! But they promised us everything! Everything will then be food, apartment housing, shared utilities, and second hand clothes. What more could you want? Free to breed and watch TV. I, for one, can't wait! (sarcasm)
Apr 11, 2012 6:27PM
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I have not read or heard any compelling arguments justifying the excessive federal government spending.  The Federal Government has a speding problem not a revenue problem.  Taking the 100% of the wealth from the top 1% wouldn't even fund the governement for a year.

 

The solution is simple, "eviscerate government services" to reduce debt.

Apr 12, 2012 11:29AM
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I wonder whose fault the loopholes are..... Congress, maybe? So they made it legal to pay fewer taxes and now Obama is all upset rich people have loopholes? My head is spinning.... How about get rid of the loopholes and you've effectively raised the tax rate without making a new law? Oh yeah, because they're lawMAKERS and don't understand how to get rid of a law, just patch over the problem today and all is well. But in reality (the world which they don't live in) these new laws make everything worse down the road.

Apr 12, 2012 7:40AM
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Can someone explain to me why we can't have a "flat tax" the same percent across the board for upper, middle & lower class without any tax breaks or loopholes? 
Apr 12, 2012 8:36AM
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This article is stating a very huge point: a small tax increase on the wealthy is not going to fix our debt, it just fuels the fiction fire that the rich are to blame for our problems.

The truth is that the government is making it easier for people to be lazy and suck money from it, so why should they work???

Force the able bodied to get up and do something, anything, to get them off of the welfare status and be responsible citizens. Hardwork will take you places, laziness will drag us all down!

Dont blame the rich who work for a living, blame the leaches of society!

Apr 11, 2012 5:21PM
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Limit the number of lawyers through licensing. like the government does for taxi drivers. Cap lawyer's and law firms income. Require lawyers to maintain expensive malpractice insurance like doctors are required to. Fine all lawyers that bring frivolous lawsuits. If a lawyer loses his case, he can't charge his client. Unscrupulous lawyers are destroying the US. "Have you been in a wreck, have you been turned down for government disability checks, call - blah - blah Law Firm". Then lawyers graduate to become politicians, where they go into the government and make more laws for more lawyers to make more money, including themselves when they retire. What kind of "adversarial" system do we have, when both sides lawyer hang out together at the country club? They do their job, which they believe is making both sides pay more lawyer fees. 
Apr 12, 2012 12:05PM
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First Job of a politician:    Get elected

Second:     Ask for money to get reelected

Third:        Legislate only for those with the money that will reelect him/her

 

Told to me by my grandfather in 1945, I am 71 now, when I asked : What is a politician?.

 

Do they (all of them) want to legislate and resolve the problem?

Maybe , some day the country and the people will be more important than the political party.

 

I hope that is not too late

Apr 11, 2012 5:10PM
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This article is a load of crap. Everyone needs to pay more taxes? Are you kidding me. The reason this country and all of the other countries are in dire straits is as plain as the nose on your face. All of the politicians are corrupt through and through. It will take a revolution to get rid of them all and start over again.
Apr 11, 2012 6:06PM
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When you rob (ie tax) peter to pay paul, Paul is always in favor of the plan
Apr 12, 2012 11:06AM
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WOW...that "sounds" awesome. Its too bad that the people who earn more than 1 million dollars a year get paid 1 dollar a year and the rest is given in stock options and taxed at 14% for capital gains when they pull it out of the market. Way to go Mr. Obama. You have once again siad something that sounds great to an uneducated public and will get you votes. Nice job on not fixing our problems and getting re-elected at the same time.

All this will do is instead of making the people who get paid in stock options pay 28 cents in taxes from the 1 dollar they pay themselves is that now it will make them pay 30 cents in taxes a year. Educate yourself on how the modern economy works and you can see this is merely a ploy to get votes.

Apr 12, 2012 8:39AM
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Let's get real.  The world is not fair and never will be.  Anyone with common sense (except politicians) realizes that taking more money from the rich will not make their lives better.  Having gone through four layoffs in my career has taught me to trust God, save for difficult times and cut spending when I have to.  Maybe we should have a drunken sailor handling the government finances.  At least they stop spending when they run out of money.
Apr 11, 2012 6:07PM
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You can take 75% of the wealth from the same group and still not make a dent in these deficits or the debt until the "gubmint" CUTS spending. Make all federal departments, all of them, CUT 3% from their 2008 spending levels. Anyone familiar with government knows that state and local governments have had to do this many times and guess what....they have survived and provided basic services. And while we are at it, make the bottom 50% of wage earners actually pay a little tax rather than "0" income taxes. This might just help a little.
Apr 12, 2012 7:41AM
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where are the jobs??? in china? they pay their workers $2.00 an hour. then bring the products here and sell them for some whopping price.  people who are making minimum wage buy them here.  how much profit did apple get??  nafta ?? good idea? for who?  no one takes our goods. we don't have any. container ships come to the usa dump their goods and leave our shores empty..  there are no jobs here.  we need the jobs to come back to us. you talk of the 50%  really you believe that out of 300,000,000 people half are not working?   now if you believe 50% don't  pay even if they are on welfare they pay taxes on everything they buy, or use.  what is washington doing? why do they spend millions to get a job that pays $250,000?  how many leeches can the american public support?  city , county, state, national. who pays them? our taxes.  if you need more money do you get to print more? or do you have to live in a budget. they keep stealing from social security and then complain about it.  when f.d.r. put it into effect  people did not live to 65. . in the 60's johnson took wow millions . they have demographs they know who turns 65 and how many do. so they knew what they were doing.  do they ever take a pay cut? their retirement is what ever pay they got.. . now election is coming what choice do we have?  none!  sad very sad where is the honesty??  only greed isee.

 

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