Paul L. Caron

Wednesday, March 21, 2012

Joint Tax Committee Says 'Buffett Rule' Would Produce 'Meager' Tax Revenue

The Joint Commitee on Taxation yesterday reported that the "Buffett Rule" would generate less than $5 billion per year, less than 0.7% of the deficits projected under President Obama's budget (original letterupdated letter). From The Examiner:

BuffetRule Chart

Update #1:  Wall Street Journal editorial, The Bottom 0.1%: The Buffett Rule Yields a Pittance:

There goes the Buffett rule. Remember that political gambit, in which billionaire Warren Buffett pretended he was going to pay a much higher tax bill and President Obama pretended that raising rates on millionaires would make a dent in his hemorrhaging budget deficits? In one fell swoop Wednesday, Congress's tax scorekeeper punctured both phony claims. ...

If the Buffett ruse is ever enacted, expect it to become a kind of Super Alternative Minimum Tax, slowly grabbing less affluent taxpayers—perhaps even Mr. Buffett's secretary—as inflation and income growth push people into higher tax brackets. That's where the real money is.

Update #2:  Think Progress, Conservatives Falsely Claim the Buffett Rule Would Only Raise a ‘Meager’ Amount of Revenue

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The Joint Committee analysis is predicated on all the Bush tax cuts expiring. That, for example, means that the top rates go up to 39.6%, dividends are taxed as ordinary income and capital gains have a maximum rate of 20%. as in any economic analysis, what you assume impacts the results you report.

Posted by: Bill | Mar 21, 2012 5:40:29 AM

Might be time to cut spending. DC politicians, the media and unions won't like that idea.

Posted by: Army of Davids | Mar 21, 2012 7:55:26 AM

So does Obama's budget, to which the Buffet Rule effects are being compared.

Posted by: TLP | Mar 21, 2012 8:00:58 AM

@ Bill ...

I understand your point but still think the analysis valid.

Analysis of any one policy change has to be premised upon other policies remaining constant - otherwise, it's hard to know what impact the policy in question has.

While I don't have time to look it all up, I believe the assumptions you mention - Bush tax cuts expire, etc. - are what's "baked in the cake." I don't see Obama or the Senate Democrats agreeing to any tax measures sought by the Republican House this year - Obama is too invested in running against "Do Nothing Republicans" to give them anything they could call a "victory."

We're headed for massive tax increases in 2013. The "Buffett Rule" is all about "sticking it to the man" - - class envy, class warfare, call it whatever you want, it's all about politics, not economics.

Posted by: BD57 | Mar 21, 2012 8:05:12 AM

Well, I suppose we could make up random assumptions that show the Buffett rule raised a trillion dollars, but what does that illustrate? Or, we could use the assumption that the Bush tax rate cuts are made permanent, in addition to the Buffett rule, to determine the incremental revenues--but is that what Buffett asserted?

Posted by: Forbes | Mar 21, 2012 8:45:51 AM

Better yet, The G.E. Rule: No business pays more tax than G.E. (which pays zero!) Read more:

Posted by: Ron Reich | Mar 21, 2012 9:09:59 AM

On the contrary, the Buffett Rule can produce much more revenue in a secondary effect.

It is only by the ever more raising of taxes on the rich that politicians will be able to raise taxes on the middle class, and that's where the money is.

Posted by: RandyB | Mar 21, 2012 9:18:10 AM

Note that the bill as drafted has a terrible drafting error. One of the credits that's considered a preference is the credit for overpayments applied, so that one's tax would increase by the amount of the overpayment applied from the prior year.


Posted by: jpe | Mar 21, 2012 9:56:35 AM

The Obama "administration" is about endless campaigning, inane sloganeering ("Change!") and half-baked, long-failed 1960's nonsense. To ask them to formulate policy based in reality, is like asking for concrete solutions from a dorm room bong session. Not remotely likely.

Posted by: Brian | Mar 21, 2012 10:21:38 AM

It is only by the ever more raising of taxes on the rich that politicians will be able to raise taxes on the middle class, and that's where the money is.

But if the taxes are raised on the rich alone, up to the Laffer peak, all subsequent tax increases will necessarily be highly regressive: hitting the middle class and sparing the rich. That will make it harder, not easier, to sell middle class tax increases.

Just as eating your dessert first makes it harder to finish your vegetables.

US politics has long been about eating our dessert first, but that's coming to an end. As someone recently wrote, wars with mathematics end badly.

Posted by: AMTbuff | Mar 21, 2012 10:37:23 AM

Spending is currently at a historic high of over 24% of GDP. The traditional average is 18%, with the previous record high being 20%. So currently spending is clearly out of control. If we ever have a fiscal year when spending has fallen to its previous high of 20% of GDP, then and only then do dems have a valid case to make for tax hikes, to try and close the remaining gap by have both taxes and spending meet at their previous average of 18%. But until we have enough spending cuts actually take place (not just being proposed for some distant future) to actually bring present spending to under 20% of GDP, any tax hike is just like giving booze to a drunk. Cut spending to realistic levels first, then we can discuss tax hikes. Until dems can grasp this basic disconnect, they have no budgetary credibility at all.

Posted by: richard40 | Mar 22, 2012 11:53:06 AM