It’s certainly against type to see a Democratic Presidential campaign running on taxes. In particular, raising taxes on a certain subset of the population. But as they search for an articulated agenda, the Obama campaign has latched on to the Buffett rule, the alternative minimum tax for millionaires, as a key campaign plank. I noted yesterday that the campaign had taken multiple steps, including a new mini-site and a conference call, to raise awareness of next week’s Buffett rule vote in the Senate. The fact that they will face Mitt Romney in November, someone who pays less than a 15% effective tax rate, doesn’t hurt either.
The Administration had their leading economists make the policy case for the Buffett rule last night. The President himself will speak on the rule today, in Florida. And top strategist David Axelrod pronounced the tax system “rigged in favor of the very wealthy.”
“We’re going to have a big debate about the economy. That big debate is going to be, who’s going to promote an economy in which the middle class can grow? In which hard work is rewarded, responsibility is rewarded, everybody changes by the same rules from Main Street to Wall Street? And the question is which of these two candidates is more likely to promote that kind of economy.”
The senior Obama adviser went on to say that a big part of the president’s push would be vocal support for the so-called Buffett Rule, which would raise taxes on millionaires’ investment income to match the rates they would pay for personal income.
“We have a tax system that is rigged against the average person, rigged in favor of the very wealthy, and we need to fix that. This Buffett Rule will address that, and most Americans I think would agree with it,” Axelrod said.
The Buffett rule is generally popular, if modest. But this is a bit of an off-ramp, from a debate about jobs and the economy to a debate about tax fairness. The two are somewhat related, but not nearly as much as people think.
The White House released an eight-page document called “The Buffett Rule: A Basic Principle of Tax Fairness,” which tried to square that circle. It lists several reasons for the Buffett rule, including the fact that “The average tax rate paid by the very highest-income Americans has fallen to nearly the lowest rate in 50 years,” down by half from 1960. This is despite incomes for this same group rising four-fold since 1979. They paint it mainly as an issue of fairness:
This basic source of unfairness is what this principle would address, by limiting the degree to which the most well-off can take advantage of tax expenditures and preferential rates on certain income. In a time when all Americans are being asked to come together to make the sort of shared sacrifices that will allow our country to continue making the crucial investments that are necessary to grow our economy, continuing to allow some of the wealthiest Americans to use special tax breaks to avoid paying their fair share simply cannot be justified. Moreover, addressing these inequities through tax reform that includes a Buffett Rule can also improve the efficiency of the tax system by discouraging tax planning and reducing distortions to behavior.
That last point is that, if you’re paying 30% on your income no matter what, you’re not going to work as hard to find deductions. I’m not sure that’s right – the tax planning would just shift to hiding the income – but it’s the one point that doesn’t simply say “we want to do this because it’s fair.” And you cannot put off the timing of stock options forever, if you want to actually use the money at some point.
It will be interesting to see if tax fairness really becomes a plank in the Presidential campaign, or if this is just timed with the Buffett rule, and the campaigns will move on to something else after Tax Day.
And just to be clear, the Buffett rule is a small policy. It would extremely modestly shift taxes in a more progressive direction. It doesn’t change by much the fact that, when you factor in state and local taxes, we have an almost flat system of taxation in America.