GOP Rejection Guaranteed: Obama to Propose Tax on Millionaires
President Barack Obama will tomorrow propose a tax that specifically would tax millionaires — a proposal that is absolutely certain to be rejected by Congressional Repulbicans and that his campaign will absolutely certainly use to define Republicans in the 2016 Presidential and Congressional elections.
The proposal is similar to Hollywood “high concept” film projects: it’s gist is so plainly, clearly defined and easy to communicate within seconds and it is easy to remember. It would, in fact, establish some tax code fairness but that won’t be the issue in this political season: it’ll be denounced before Obama announces it by talk show hosts and ideological pundits as Obama waging war on the rich. And there will be others who will oppose it on thoughtful, serious policy grounds. But it has zero chance of passing.
President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, according to administration officials.
With a special joint Congressional committee starting work to reach a bipartisan budget deal by late November, the proposal adds a new and populist feature to Mr. Obama’s effort to raise the political pressure on Republicans to agree to higher revenues from the wealthy in return for Democrats’ support of future cuts from Medicare and Medicaid.
Mr. Obama, in a bit of political salesmanship, will call his proposal the “Buffett Rule,” in a reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate than wages.
Mr. Obama will not specify a rate or other details, and it is unclear how much revenue his plan would raise. But his idea of a millionaires’ minimum tax will be prominent in the broad plan for long-term deficit reduction that he will outline at the White House on Monday.
Mr. Obama’s proposal is certain to draw opposition from Republicans, who have staunchly opposed raising taxes on the affluent because, they say, it would discourage investment. It could also invite scrutiny from some economists who have disputed Mr. Buffett’s assertion that the megarich pay a lower tax rate over all. Mr. Buffett’s critics say many of the rich actually make more from wages than from investments.
In the Great Minds Think Alike Department, the Times’ agrees with yours truly: this has little — I would say NO — chance of passing given the present political configuration in Congress but will help Obama sketch in political magic marker the differences between his idea of what America needs to do versus what Republicans think the U.S. needs to do.
A problem for Barack Obama: he is flitting from subject to subject, back to taxes when his focus needs to be J-O-B-S with an unrelenting message on what he proposes, images of him battling for his proposals. The lack of a political advisor a la Karl Rove or James Carville on team Obama could never be more apparent.
SOME OTHER REACTION TO THIS STORY
Everything we’ve seen from Obama this month suggests this White House has chosen a new posture when dealing with the GOP. The introduction of the American Jobs Act was a pleasant, progressive surprise; the White House’s reluctance to start making concessions was clearly a step in the right direction; word that Social Security is off the table is just what the left wanted to hear; and support for the “Buffett Rule” suggests Obama and his team aren’t afraid to draw contrasts with unpopular, hard-right congressional Republicans.
It’s possible that for many of the president’s critics on the left, it’s too late. But for those who’ve been urging Obama to adopt progressive principles and show a willingness to fight, it’s worth appreciating the fact that the president is doing exactly as they recommended.
Based on nothing but speculation, I’d bet the debt-ceiling fiasco changed Obama’s entire approach rather dramatically. The president very likely assumed that if he worked in good faith, offered reasonable concessions, and demonstrated a commitment to compromise and common ground, Republicans would respond in kind. The summer offered a painful lesson — those assumptions were wrong. GOP officials have rewritten the rules.
With those lessons in mind, the president is now taking a tougher line. Good for him — and for us.
In other words, a no-details, tax-the-rich “plan” gussied up with cute little name. A bit of political salesmanship, you say?
Recall this line from President Obama’s jobs address to Congress: “This isn’t political grandstanding. This isn’t class warfare. This is simple math.”
An unnamed White House source said this proposed new minimum tax for millionaires was going to be called the “Buffett Rule” after Warren Buffett who wrote a OpEd in the New York Times titled “Stop Coddling the Super-Rich” In his OpEd Buffett pointed to the preferential low tax rates of the types of income the wealthy tend to have, Dividends and Capital Gains.
Obama is tossing this highly embarrassing hot potato right into the Republicans rancid little laps, who will sputter Randian platitudes in defense of the current increasing inequality. This will be a problem for Republicans next year because Americans are NOT with the Republicans on this one.
It’s going to take a lot more than love for President Obama to get Congress pass his jobs bill and he knows it. Obama knows full well House Republicans will never go for a jobs bill which involves such a tax increase. It’ll give Obama an opportunity to say, “We had a chance to put teachers back to work, help small businesses and cut taxes for middle class families. But Republicans are more interested in keeping tax breaks for millionaires and billionaires. They are putting party ahead of country.”
I can only hope people will see right through it. After all, President Obama is presenting us with false choices. How does increasing the capital gains tax or imposing a minimum tax on millionaires and billionaires put teachers back to work and help small businesses? How does that encourage investment? Doesn’t that only provide incentive to those who have wealth to move it offshore?
Besides I thought President Obama provided a tax cut to 95% of all Americans. As recently as his Labor Day speech in Detroit (you know the one where Teamsters Jimmy Hoffa, Jr. called Tea Party activists SOBs) Obama claimed “we signed into law the biggest middle-class tax cut in history, putting more money into your pockets.” Well, fat lot of good it did with unemployment in excess of 9%, near zero economic growth and more than half a billion dollars wasted on sink holes like Solyndra. Under the circumstances, I am inclined to think that people will see beyond the gimmicks and respond to Obama’s invocation of Buffett with a firm “stuff it.”
If the President pushes for tax increases that stand little chance of being passed by a divided Congress, it may help him blame lawmakers for thwarting his plans at a time when the public’s opinion of Congress has touched record lows.
But he is also under pressure to show leadership after rating agency Standard and Poor’s cut the US AAA credit rating, and as investors scrutinise Washington for evidence it can curb the country’s towering deficit and mounting debt…..
The Buffett Tax could help energise Obama’s base by highlighting a feature of the US tax code that allows the super rich to pay lower rates of tax than less wealthy Americans because much of their income comes from investments.
Those are taxed at 15 percent, compared with income tax rates of 10 to 35 percent.
“We’re playing with fire if we don’t agree at least on the minimum (in deficit cuts),” said William Galston, a senior fellow at the Brookings Institution in Washington.
“If we can’t get to at least $1.2 trillion … people outside the United States, to whom we are in the last analysis beholden, are going to reach conclusions about us that are going to make our jobs and our lives even more difficult,” he said.
Republicans will decry this as “class warfare.” For once, they’ll be right. The sole purpose of this proposal, which has zero chance of being passed into law, is to leverage resentment against the most successful for political advantage.
If the purpose were to set up a political debate on the structure of our tax system and the need to bring in more revenues, there are all manner of serious ways to do it. For example, one could simply argue that capital gains should be taxed as ordinary income regardless of a person’s earning level. Or one could propose gradual but substantial ratcheting up of the payroll tax ceiling such that high earners would pay more into the Social Security system. Or one could target myriad tax deductions, ranging from corporate subsidies to write-offs for second homes, that predominantly favor wealthy business interests or mostly benefit high earners.
None of that would go over well with Grover Norquist, of course. Depending on the specifics, I might not support the changes myself. But they’d form a basis for a serious discussion about dealing with our national debt crisis. Instead, we’re getting a cheap political stunt.
The primary reason that Buffett pays a higher effective tax rate than his secretary is that we have a FICA tax cap of $106,800. Because we are ostensibly using that money to fund Social Security retirement benefits, which are themselves capped, we only tax on the first $106,800.That means most of Buffett’s vast income is not subject to the FICA tax. We could certainly raise–or even eliminate–that cap. But unless we’re also going to offer enormous pensions to high earners (we currently cap payouts at $2346 a month) when they hit 65, we’ll destroy the illusion that Social Security is a retirement insurance program rather than a welfare system. And, frankly, if we’re going to do that, why not do away with separate FICA and Medicare taxes altogether and just raise the income tax rate?
As noted, the other difference between Buffett and his secretary is that, presumably, she gets all or most of her income in the form of wages. He, on the other hand, is mostly making money off of investment dividends. We tax those at different rates for a variety of reasons, the most prominent of which is risk. If money earned on investing in stocks were taxed at the same rate as guaranteed income, it would be a foolish investment indeed. Stocks go down. And money that’s made after investing for years at a time should be deprecated ; otherwise, we could tax as “income” what amounts to breaking even–or even a loss–when inflation is factored in. Those rationales make sense for ordinary investors but are mostly irrelevant for people whose primary job is churning stocks, much less buying up companies and breaking them into little pieces.