Our guest blogger is Seth Hanlon, Director of Fiscal Reform at the Center for American Progress Action Fund.Conservative politicians and opinion writers are mischaracterizing an official budget estimate to argue that President Obama’s “Buffett Rule” would not raise much revenue. Don’t be fooled. A Buffett Rule would raise substantial revenue.
The Buffett Rule, of course, is the principle that no millionaire should pay lower taxes than middle-class families. Our current tax code fails on that score: Millionaires’ tax rates have dropped sharply in recent years largely because of the Bush tax cuts, and many millionaires are paying lower tax rates than people well below them on the income scale.
Last month, Senator Sheldon Whitehouse (D-RI) introduced the Paying a Fair Share Act, a bill to codify the Buffett Rule. The bill requires that millionaires pay at least 30 percent of their income in taxes.
Naturally, congressional Republicans are opposed. Earlier this week, Sen. Orrin Hatch (R-UT) gleefully trotted out a revenue estimate from Congress’s Joint Committee on Taxation (JCT) and claimed it showed that Whitehouse’s bill, S. 2059, would generate a “meager” $47 billion in revenue over ten years.
But as Senator Hatch surely knows, official estimates like JCT’s are done against a “current law” baseline that assumes that Congress will let all of the Bush tax cuts expire on schedule. If that actually happened, many fewer millionaires would be paying super low rates. In other words, the $47 billion from the Buffett rule would be on top of the hundreds of billions of dollars in revenue that would result from getting rid of the Bush tax cuts for the rich, which are a major reason we need the Buffett Rule in the first place. (Even with the same baseline, another estimate shows S. 2059 raising $171 billion in revenue, much more than the JCT score.)
Of course, Hatch and his Republican colleagues have fought successfully to protect the high-end Bush tax cuts. Against a “current policy” baseline that assumes that Republicans continue to block the expiration of the Bush tax cuts, Whitehouse’s bill has been estimated to raise $264 billion — more than five times as much. That is not a “meager” amount of revenue. In fact, it’s twice the amount needed to restore all of the cuts to federal nutrition assistance in the House Republican budget unveiled this week.
More importantly, however, S. 2059 is only one specific approach to implementing the Buffett Rule, which President Obama and Whitehouse have said is best accomplished through fundamental tax reform. The Joint Committee made fairly clear that tax avoidance behavior — millionaires delaying asset sales, shifting income from one year to another — was a key factor holding down its revenue estimate for S. 2059. A broader tax reform that equalized the taxation of wages and investments would implement the Buffett Rule in a way that would cut down on tax avoidance.
Finally, S. 2059 carefully protects everyone making just under $1 million, necessitating a gradual phase-in that also results in less revenue. These implementation issues are surmountable in a broader tax reform.
Conservatives, however, sometimes argue that it is not even worth bothering with ideas like the Buffett Rule because there isn’t enough income at the top to make a dent in budget deficits. That’s ridiculous. Millionaires, who comprise 0.2 percent of the population (one in 500), take home one-tenth of all income in the country, and they are paying much lower tax rates than they did only a short time ago.
In 2007, the last year before the Great Recession, millionaires reported $1.4 trillion in income and paid an effective tax rate of 22.1 percent on average. If they paid 30 percent on average (as they did as recently as 1996), the federal government would have collected an additional $110 billion that year, enough to cut the fiscal year 2007 deficit by more than two-thirds.
Now, deficits are much larger in future years, and no one is suggesting that the Buffett Rule will come close to solving that problem by itself. But the Buffett Rule is a part of any balanced approach – and essential to restoring fairness to the tax code.