Where Did the Buffett Rule Go?
In last month's State of the Union address, President Barack Obama endorsed a so-called "Buffett Rule": an additional alternative minimum tax that would ensure that people making over $1 million would pay at least a 30 percent tax rate. So it comes as some surprise that the President's budget, released this week, doesn't contain a Buffett Rule.
In the written budget narrative, Obama lays out broad principles for tax reform, including a call for the Buffett Rule. Other items in that narrative include lower tax rates with fewer deductions and exclusions, making tax incentives more progressive, and "fundamental corporate tax reform." But none of those proposals are actually scored in the budget tables—while Obama is saying they would be a good idea, he is not proposing them for Fiscal Year 2013.
Instead, the White House's proposals for new revenue are a rehash of what it has proposed in the past. The proposals are focused almost entirely on getting more revenue out of households making over $250,000 a year. The largest components are sunsetting a subset of the Bush tax cuts that affect only people over that threshold (raises $848 billion over 10 years), reducing the value of itemized deductions for people in the top two brackets ($584 billion), and raising the estate tax ($119 billion).
The budget also calls for taxing carried interest as ordinary income, but the version of this reform that the White House has settled on raises only $14 billion over 10 years. It's not terribly consequential for the overall budget picture.
Ezra Klein put together a chart comparing Obama's tax proposals to those of Mitt Romney, and it's no surprise that the chart looks like this: small differences, except at the top end, where Obama would take the top rate on high earners from 26 percent to 36 percent.
It's worth noting that Romney's plan is very close to the policy status quo. Romney wants to repeal high earner taxes in PPACA that haven't yet come into effect, while Obama would maintain them. Meanwhile, Obama wants to sunset temporary tax cuts for wealthy people, which Romney would extend.
In the context of these proposals from Obama, it's not clear what the point of a Buffett Rule would be. A tax floor of 30 percent for the wealthiest taxpayers wouldn't raise that much money if the average effective tax rate for top 1 percent filers rose to 36 percent. Under Obama's proposal, even the effective tax rate on capital gains would go from 15 percent to a bit over 24 percent for top earners. Some taxpayers would still see a larger bill because of a Buffett Rule, but its effects would be much smaller than if it were layered onto the tax policies we have today.
But the White House position that a Buffett Rule should be part of a broader reform also makes little sense. The Buffett Rule aims to offset perceived inequities in the tax code that allow the wealthiest people to access unwarranted tax breaks. If we're doing a broad tax reform, why not address those perceived inequities directly?
I think this all reflects the fact that the Buffett Rule is a political gimmick, not a serious policy proposal. The White House needed to find somewhere in the budget documents to stick it, so it went in the discussion of fundamental tax reform. But the real action on tax progressivity will come in debates over what marginal tax rates should be and how capital income should be treated differently from labor income—don't expect serious efforts to actually enact the Buffett Rule.
This piece originally appeared in Forbes.com