Under the Buffett rules that Obama is making the centerpiece of his campaign, those earning $1mm or more in income or capital gains must pay at least 30% in tax.
Last year Obama didn’t report $1mm in income or capital gains, so technically he doesn’t qualify, which may be why his rule does not start at $250,000, as most of his proposed tax increases do.
Still, given his incessant drum beating about the Buffett rule, shouldn’t he walk the talk himself?
What is particularly interesting is why he doesn’t. While president (not before), he has chosen to give a lot to charity and has taken a charitable deduction. That charitable deduction is what kept his tax rate low and it is the charitable deduction that is most at risk under the Buffett rule for those with earned income at $1mm or more. This is nothing new. Obama has been trying to limit the charitable deduction ever since he came into office. One way or another, all his tax proposals include cutting back the charitable deduction so far that it would practically disappear. That would have a devastating impact on charity and on those who depend on charities including the poorest families, yet the president doesn’t seem to care. He seems to feel that government should be helping the poor and that this is not a job for private charity. If only government were….
The Buffett rule doesn’t just strike at charity. It also increases the tax rate on capital gains. If it didn’t, Buffett would have a higher tax rate than his so-called secretary. It is important to keep in mind that capital gains are not income. When we sell one asset (such as shares) and receive another asset in return (such as cash), we haven’t earned anything. The capital gains tax is thus inherently different from the income tax. It is a toll on the movement of capital and as such can slow down investment and job creation. Freezing capital in yesterday’s investments and jobs just interferes with growing an economy and growing jobs. Capital gains taxes also bring in most of their revenue for the government in bubble periods such as the dot com and housing bubbles and the revenue tends to fall, not rise, when the rate goes up, because people just leave their capital where it is.