A “Small Improvement” Worth Making

The Buffett Rule, which says that millionaires should not pay a smaller share of their income in federal tax than less well-to-do Americans, would provide a “small improvement” in the nation’s tax system, billionaire investor Warren Buffett told Politico recently.  As he argues, it’s an improvement worth making.  The common charge that the Buffett Rule wouldn’t raise enough money to justify the effort is wrong.

The Buffett Rule would raise a meaningful amount of money — and possibly a lot of it.

• News stories have reported that the Buffett Rule would raise only $47 billion over ten years.  The figure comes from the Joint Committee on Taxation (JCT) estimate of Senator Sheldon Whitehouse’s (D-RI) bill that sought to write the Buffett Rule into law.  But the estimate assumes Congress will not extend certain temporary tax policies that provide big tax breaks to high earners, such as President Bush’s 2001 and 2003 tax cuts, which are scheduled to expire at the end of the year. Under those assumptions, the very wealthy will already pay much higher taxes than they do now.

  But what if we assume Congress extends the expiring tax cuts, as many critics of the Buffett Rule advocate?  In that case, JCT estimates show that Senator Whitehouse’s bill would raise at least $160 billion in the next decade.

• To be sure, $160 billion won’t solve our fiscal problems.  But, $160 billion — or even $47 billion — is nothing to sneeze at.  For comparison, National Cancer Institute spending will total an estimated $54 billion over the next decade, while Coast Guard spending will total $121 billion.

Focusing just on how much money the Buffett Rule would raise misses two key points.

• Tax increases must be part of a responsible deficit-reduction strategy, and wealthy households — who’ve enjoyed huge income gains in the last few decades and benefited disproportionately from the Bush tax cuts — should pay their fair share.  Yet some policymakers are proposing costly tax cuts for the wealthiest taxpayers.  The Buffett Rule is a valuable reminder to reject such proposals, not just because they would increase the deficit but because they would make the tax code less fair.
• Senator Whitehouse’s bill (which got 51 votes in the Senate last month, short of the required 60) is far from the only way to achieve the Buffett Rule.  Indeed, the JCT estimates show that letting the Bush tax cuts expire next year for high-income filers would be another good start.  Reforming top-heavy tax breaks — the current preferential tax rates for investment income, in particular — also could achieve the Buffett Rule and reduce deficits.