Herman Cain's Commentary Archive 2009-2012

April 19, 2012

The ‘Buffett Rule’: Small (and dumb) thinking about big problems

I have to give President Obama this: He is not very good at governing, but he has a rare talent for making it appear that he’s at least talking about solutions to problems, when in fact he is talking about total nonsense that doesn’t solve anything.

Granted, it helps that the media who are supposed to be holding your feet to the fire are credulous sycophants who swallow up every word you say. But still, Obama’s performing quite a magic trick by getting people to take him seriously when he talks about the so-called “Buffett Rule” as a way of dealing with the deficit.

This, in case you haven’t heard, is the idea that anyone who makes $1 million a year or more should pay a minimum of 30 percent of it in federal taxes, regardless of the form the income takes. Why does the form matter? Because not all income is taxed in the same way. If most of what you earn is investment income, you only pay the 15 percent capital gains tax.

This prompted billionaire investor (and big time Democrat) Warren Buffett to write an op-ed decrying how unfair it is that his secretary pays a higher tax rate than he does. Now it turns out his secretary is paid $200,000 – so Warren might be a swell guy to work for – but leaving that aside, let’s say this policy was enacted and every $1 million earner had to pay a minimum of 30 percent in federal taxes.

Obama’s big idea yields pretty small results. The blog Political Math has calculated that enacting the Buffett Rule would yield maybe $4 billion a year in new revenue to the Treasury. The deficit is $1.2 trillion. So with the Buffett Rule – assuming a static analysis of the change in the tax code and its impacts – the deficit would be cut to $1.196 trillion.

Some plan.

But it’s even worse than that. The Buffett Rule is just the latest example of Obama wanting to punish success, and twisting the tax code in yet one more way to enforce this punishment. The tax code is a mess of deductions and loopholes for things politicians like, and punitive measures against things politicians don’t like.

If the Buffett Rule were to be enacted, everyone who earns more than $1 million a year – and does so largely from investment income – would be getting double-taxed (even worse than they are now), because investment income results from after-tax earnings that you put at risk. If you earn $100,000 and pay a 36 percent tax on it (leaving aside state and local taxes), you’ve got $64,000 left. If you invest it and make a $10,000 profit, the government wants you to pay 15 percent on that too (and if it was up to Obama, it would be way more than 15 percent). But if the investment doesn’t pan out and you lose your after-tax earnings, does the government send you a check to help cover your losses?

Of course not.

So under the Buffett Rule, you could pay 36 percent on your income when you first earn it, then another 30 percent on what you earn from the after-tax income you put at risk.

That’s stupid!

The whole idea of my 9-9-9 plan is that all income (as well as all business revenue and retail sales activity) is taxed only once and never twice. It eliminates all the loopholes, deductions and penalties. Everything is simple and straightforward.

Oh, and under 9-9-9, Warren Buffett’s secretary would never pay a higher rate than he does. It’s just that I don’t have a problem with him or anyone else making $1 million. They’ll pay their fair share, which is the same share percentagewise as everyone else, and then they can invest their wealth in the growth of American prosperity.

Only a clueless president would complain about this, and propose to enact a tax that discourages investment while making such a tiny dent in the deficit, you’d need a microscope to even see it. But that’s the president we have – small thinking and a tiny impact on very big problems, of which he just might be the biggest.