The Country Thinker

Thoughts on Law

I don’t nor­mally write about pend­ing leg­is­la­tion, but there are some instances where the pro­posal is based on such weak ideas that I have to call it out as failed before the ink dry on the first draft. In this case it is the so-​​called “Buf­fett Rule.”

What is it? Accord­ing to Barack Obama’s web­site:

Middle-​​class fam­i­lies shouldn’t have to pay a higher tax rate than mil­lion­aires and bil­lion­aires.

So Pres­i­dent Obama has pro­posed the “Buf­fett Rule,” which would require the wealth­i­est Amer­i­cans to pay a tax rate at least as high as the mid­dle class. [Empha­sis original]

This is a clas­sic exam­ple of what I call T-​​shirt slo­gan pol­i­tics. It sounds great, doesn’t it? White House press sec­re­tary Jay Car­ney gives some more detail:

[E]veryone needs to pay their fair share, and it is not—it’s not fair to have a tax code that—because of loop­holes and other things within it, where you have a mil­lion­aire and a bil­lion­aire pay­ing a lower effec­tive tax rate than some size­able num­ber of middle-​​class Amer­i­cans. [Empha­sis mine]

There are two major prob­lems with Carney’s skin-​​deep expla­na­tion of the Buf­fett Rule and the rule itself.

First, notice that the Buf­fett Rule is “needed” because of the loop­holes in the income tax code! What is unfair is the tax code, not the behav­ior of the “rich.” Where did these loop­holes come from? Con­gress, of course. There are tens of thou­sands of loop­holes, and most are exam­ples of social engi­neer­ing that reflect the intent of mem­bers of Con­gress to steer money into their pet causes.

As an Austro-​​libertarian political/​economic thinker I am a harsh oppo­nent of tax loop­holes and other gov­ern­men­tal efforts to dis­tort the econ­omy by push­ing money into places it doesn’t oth­er­wise want to go. I don’t care whether it’s well-​​intentioned or polit­i­cally moti­vated. That War­ren Buf­fett pays a lower effec­tive income tax rate than his sec­re­tary reflects the fact that Buf­fett and his team of accoun­tants are doing the government’s bid­ding. If mem­bers of Con­gress are upset about Mr. Buffett’s effec­tive tax rate, then they should elim­i­nate the tax loop­holes as the Simpson-​​Bowles Deficit Com­mis­sion recommended.

Sec­ond, all of the hoopla is about the income tax. We have oodles of taxes com­ing at us from every direc­tion; Income, pay­roll, sales, cap­i­tal gains, prop­erty, infla­tion, pro­fes­sional licens­ing fees, high­way tolls, fees on our util­ity bills, tar­iffs on imported goods, the cost of reg­u­la­tory and legal com­pli­ance built into every­thing we pur­chase, and so on (and so on and so on…).

Indeed, when it comes down to it, cal­cu­lat­ing someone’s effec­tive over­all tax rate is extremely dif­fi­cult. Dur­ing the “flap” over Mitt Romney’s sup­posed 15% tax rate, the folks at Rob­bing Amer­ica esti­mated his over­all effec­tive rate at over 56%. I have pre­vi­ously esti­mated my own middle-​​class rate here in mod­er­ately taxed Ohio at 70%-plus. Iso­lat­ing one or two taxes doesn’t begin to tell the story, so draft­ing a bill to make our tax sys­tem “fairer” by look­ing solely at income taxes is to leg­is­late with blind­ers; no sur­prise there.

So, the pro­posed “Buf­fett Rule” bill is about as thor­ough of an inquiry into “tax fair­ness” as Justin Bieber’s inquiry into love when he cov­ers “Baby” (see here for gig­gles.) With a Buf­fett Rule law, Con­gress will attempt to ban­dage over a prob­lem they cre­ated (loop­holes) with out address­ing the under­ly­ing issue. There also has been no seri­ous inquiry into the over­all tax bur­den lain upon Mr. Buf­fett with respect to his sec­re­tary, even though that’s the main con­cern, I would hope.

(And of course, there has been no seri­ous chal­lenge to why it is “fair” for the rich to pay more sim­ply because they make more money. A “fair” sys­tem would approx­i­mate taxes paid with the ser­vices used. If every­one had a sense of what our gov­ern­ment really cost, the task of rad­i­cally reduc­ing its scope would be easy. But hey, that’s a sub­ject for another day.)

For gig­gles: