I am writing in response to the recent article “Buffet Rule makes the super rich pay their fair share.”
The argument “everyone should pay their fair share” is one that can be very difficult to argue against. On its face, the Buffett Rule seems like a good idea with pure motives. However, when one looks at the issues more closely, it is a highly flawed argument. The most obvious reason for this is that the whole concept of “fair share” is completely subjective.
One could easily argue that under the current system the rich already pay far more than their fair share. The wealthiest 20% of Americans by income have seen their share of federal taxes increase at a faster rate than their share of income, according to the Congressional Budget Office. Moreover, the richest 10% of Americans share of taxes is 1.35 times as much as their share of income. That is one of the largest in the developed world. The Organization for Economic Co-operation and Development average is 1.11, larger than Canada (1.22), the U.K. (1.20) and France (1.1). By comparison to most other developed countries, wealthy Americans already pay more than their “fair share” of taxes relative to their share of income.
Additionally, the arguments relating to the accumulation of wealth were flawed. While Elizabeth Warren may claim that people can only start business because of things such as roads that “the rest of us paid for,” without people starting business and producing goods there would be no money for “the rest of us” to build roads or have public education with. Everyone has the same opportunity to use the roads and protection by the police force, and just because some people are able to use them better it doesn’t provide justification for them having to pay higher taxes or for owing anything to the “rest of us.” As importantly, the federal government has a small role in funding our schools, roads and police force. Instead the government spends money subsidizing certain industries, such as green energy or corn, creating laws and taxes that make employing people more difficult and expensive and propping up financial institutions. These are all things that the government shouldn’t do, rather than something the wealthy should be taxed at a higher rate so they can do it.
In the US, the wealthiest 1%, the wealthiest 10% and the wealthiest 20% all pay a greater share of taxes than their share of income. Implicit in this fact is that for these groups as a whole, their overall income tax rate is already higher than that of everyone else. The article pays short shrift as to why some of them have a lower overall tax rate. A subset of them, Warren Buffeft as a prime example, make most of their money by investing. This investment is the very life blood of economic growth. The tax rate for this subset of millionaires is so low because they make most of their money through capital gains and dividends, an activity the government taxes at a lower rate because they believe it is good for society and exhibits a positive externality. When taxes on investments are raised people are discouraged from investing in business. Essentially everyone would argue is not a good thing for the U.S. economy particularly at a time when investment is already depressed. It is also important to note that income people receive from dividends has already been taxed at the corporate level. We have one of the highest corporate income tax rates in the developed world, and they are at a level that even Bill Clinton has argued is making us un-competitive. In a world where investment capital travels freely across the globe, where our recovery from the recession has been anemic, and where job growth appears to be stalling once again, is it really a good idea to make the United States an even less attractive place to invest?
The biggest problem with the Buffett Rule is the way that it is being advertised by the Obama campaign as an important method of cutting deficits. As the article correctly states “in the grand scheme of things, $50 billion [raised by the tax over the next decade] doesn’t sound like a lot,” and the reason is that when you’re talking about a 13 trillion dollar cumulative deficit, it isn’t. The Obama campaign can spend lots of time saying how we need a “fairer” tax system but the reality is that it will have an insignificant effect in solving the current budget deficit. The budget proposed by President Obama, which includes the Buffett Rule, fails to tackle the unsustainable growth of spending for Medicare, Medicaid and Social Security. Obama’s efforts to popularize the “Buffett Rule” distracts people from the real underlying issue; namely, that the current growth of spending on entitlements is not sustainable without significantly raising taxes on everyone, including Mr. Buffett’s secretary.
James Mashal is sophomore majoring in economics. Please send responses to opinion@dailycardinal.com.
