TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, February 13, 2012

Obama's 'Buffett Rule' Fails the Tax Reform Test

Fiscal Times, Obama’s ‘Buffett Rule’ Fails the Tax Reform Test, by Liz Peek:

President Obama has a new favorite possession – the “Buffett Rule.” Like a poodle with a new chew-toy, Mr. Obama can’t leave the Buffett Rule alone; he takes it everywhere. For the president, the proposal that everyone earning over one million dollars should pay at least 30% of that income in taxes is satisfying on many fronts. ...

the Buffett Rule is an empty shell. We need serious and fair-minded reform of our tax code, not another gimmicky fix. We need to analyze whether the deductions and loopholes that cost Uncle Sam nearly a trillion dollars per year in lost revenues are appropriate an Rich Text d effective, whether the goals of prior generations are still relevant and -- yes -- whether our system is fair. There is a reason why rich people sometimes end up with lower tax rates. It is not because the tax code is regressive; on the contrary, the top one percent of filers pays nearly 40 percent of the total.

Messrs. Buffett, Gates, Romney and other tycoons pay a lower overall rate because policy makers have wanted to spur investment, and decided to do so by taxing long-term capital gains (and certain other investment rewards) at a lower rate than income.This advantage accrues mainly to the wealthy, the investing class.

The goal of encouraging entrepreneurs and risk-takers through favorable taxation was adopted in 1921; the rules have changed from time to time, but the philosophy has been nearly a constant. The question today should not be: “has this approach favored the wealthy?” This is a given. Instead, we should ask: has the policy worked? If not, is this Buffett Rule the best way to fix what is broken?

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