April 12, 2012
The Buffett Rule tax increase hawked by President Barack Obama and the Democrats in Congress uses taxation power to target a small group of individuals for confiscation for no better purpose than to fit their political aspirations. The real purpose targets one individual in particular who might keep Obama from winning a second term in office.
This abuse of power harks back to one of the more curious relics found in our Constitution, which prohibits Congress from passing a “Bill of Attainder.” Article 1, Section 9 prevents any individual or group from being condemned for crimes and having their property seized without all the muss and fuss of trials, juries, and even evidence.
Of course, Obama couches the Buffett Rule tax in fiscal terms. We need to have everyone pay their fair share of taxes, the President has argued, and why should a billionaire like Warren Buffett pay a lower rate on his income than his secretary? That sounds reasonable to the ill-informed, but Buffett pays a lower rate – as do many of the wealthier income earners – because Buffett derives his income from risk-based activities in investments, rather than as employment salary.
Congress has long treated capital-gains income differently than salary income in order to incentivize the risk-taking that leads to innovation and growth. Had Buffett’s secretary earned her income as capital gains, she would have access to the same tax rates as her boss does.
Furthermore, the top earners already pay their “fair share” – and more. According to the 2012 Economic Report of the President and reported by Bloomberg, the median effective tax rate for the middle 20 percent of American taxpayers is 13.3 percent, including income, payroll, and corporate taxes. For the top 1 percent of taxpayers – that group most famously demonized by Occupy protesters – the median effective tax rate jumps to 29.6 percent.
Ah, but that’s the median, the administration will point out. Some of the wealthy that earn more than a million dollars a year pay a lower rate, and that’s certainly true. Some of them pay under 15 percent in effective tax rates, mainly because (again) they derive their income from risk-taking activities that produce capital gains in a given year. How many households actually manage that feat? The non-partisan Tax Policy Center puts the number at about 4,000 households.
However, most of those are on the lower end of that top level of income. The real revenue opportunity comes with the wealthiest of Americans, where a surtax would confiscate much larger amounts of capital. Bloomberg’s Hans Nichaols reported this week that the Buffett Rule actually hopes to target just 400 earners in the nation. That makes this look a lot less like a normal tax policy and a lot more like an attack on specific Americans as a lever to seize their property in service to a President who has openly waged class warfare for the last eight months.
How much revenue will the policy that mainly goes after these 400 households actually raise? The most optimistic estimates for Buffett Rule revenue estimate a potential $40 billion over a ten-year period. The federal deficit in FY2012 is estimated at $1.3 trillion, and FY2013 in President Obama’s proposal comes in north of $900 billion. In the best case, the Buffett Rule would correct 0.44 percent of the FY2013 shortcoming. We could get ten times more deficit savings by repealing Obamacare, according to a new study of the costs of the President’s signature legislation.
Obama and his allies insist that the actual revenue and deficit reduction matter less than the fairness, but neither matters as much as having a class-warfare club to swing at Mitt Romney in the fall. Bernie Becker at The Hill stated the obvious when he reported that the White House wanted to “hammer” Romney with the Buffett Rule proposal, pointing out that Romney only paid an effective tax rate of 14 percent on tax returns he released this winter during the nomination fight.
Democrats in Congress want to push this bill as a means to punish Romney for his wealth, politically in this case rather than legally, since the bill has zero chance of passing into law. It’s a naked attempt to use Congress to attack and damage the likely challenger to the incumbent President.
In 1788 James Madison, one of the framers of our government, warned about Congressional attempts to issue political and legal punishments. He said, "Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. ... The sober … have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community."
Perhaps we should start paying attention to the Constitution.