‘The Buffett Rule’ as a deficit reduction tool? Not likely.

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  • 09/21/2022

President Barack Obama and Senate Democrats planned to embarrass the GOP this week by bringing to the floor a vote on the so-called “Buffett rule,” named for Obama campaign bundler Warren Buffett. The rule failed Monday by 51-45 - 60 votes were needed to bring the measure to full debate and vote on the Senate floor.

The rule would establish a minimum tax rate of 30 percent for any taxpayer with income of $1 million or more. This is necessary because, according to the President, “billionaires” are “paying a lower tax rate than their secretaries,” a claim this column debunked last week.

This tax hike is needed, the President told the Associated Press luncheon April 3, because of the Bush tax cuts for “the wealthiest Americans.” (Even the embarrassingly sycophantic AP had to call B.S. on this, reporting: “You wouldn't know from [Obama’s] statement that taxes in 2001 and 2003 were cut across the board, not just for the wealthy.”) By allowing the rich to avoid paying their “fair share,” claims the President, the Bush tax cuts are to blame for Obama’s budget deficit, which will exceed $1 trillion this year for the fourth year in a row, pushing the National Debt over $14 trillion dollars.

BUNK

Obama’s ballooning deficit is due not to declining revenues, but to runaway spending. The Bush tax cuts did not cause tax revenues to fall, but to rise. Since the final round of Bush tax cuts was enacted in 2003, federal revenues have actually increased by about 29 percent, from $1.9 trillion to $2.3 trillion. The problem is that spending has increased more than twice as fast - a staggering 67 percent, from $2.2 trillion to $3.6 trillion. As a result, the deficit has more than tripled, from $378 billion to $1.3 trillion, while the National Debt has more than doubled, from $6.8 trillion to $14.8 trillion.

Federal Revenues, Spending,

Deficit and Gross Debt 2003-2011
(millions of dollars)

2003

2011

Percent change
2003-2011

Revenues

1,782,314

2,303,466

29.24%

Spending

2,159,899

3,603,061

66.82%

Deficit

-377,585

-1,299,595

244.19%

Gross Federal Debt

6,760,014

14,764,222

118.41%

Sources: The President's Budget for Fiscal Year 2013, Historical Tables 1.1, 7.1 

Not only did the Bush tax cuts increase revenues, they also increased the share of the total tax burden paid by the wealthiest Americans. The share of total income taxes paid by the top one percent of tax filers increased by more than 7 percent from 2003 to 2009 (the most recent year for which IRS figures are available), while the share paid by the poorest half of filers declined by nearly 35 percent.

Share of Total Income Tax Burden, 2003-2009
(percent)

2003

2009

Change 2003-2009 (points)

Percent change 2003-2009

Top 1%

34.27

36.73

2.46

7.18%

Top 10%

65.84

70.47

4.63

7.03%

Bottom 99%

65.73

63.27

-2.46

-3.74%

Bottom 50%

3.46

2.25

-1.21

-34.97%

Source: Internal Revenue Service. Statistics of Income. Tax Stats - Number of Returns, Shares of AGI and Total Income Tax, and Average Tax Rates, 1996-2009 (Table 2).

Since cutting tax rates has increased tax revenues, it’s reasonable to conclude that raising tax rates will decrease revenues. Nevertheless, the rule’s supporters claim that it will raise $47 billion to $160 billion over 10 years. That would pay for less than two days of federal spending in 2015, when the rule is supposed to go into effect, but the legislation enacting the Buffett rule also calls for “eliminating the alternative minimum tax for middle-class Americans.” Defining “middle class” as having income less than Obama’s “magic number” $200,000, eliminating the AMT would cost $360 billion to $675 billion over 10 years, meaning that the Buffett rule would actually add a net $200 billion to $628 billion to the deficit over this period.

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