The ‘Buffett rule,’ and more
President Obama offered his latest proposal for reducing the federal government’s enormous deficit Monday, calling again for a combination of tax increases and spending cuts. This time, though, there was a new wrinkle: The plan included a proposal to make millionaires pay at least as high a tax rate as working- and middle-class Americans. Republicans responded by accusing Obama of waging class warfare, a charge they trot out whenever Obama suggests that the wealthy sacrifice more of their income. But the new proposal, which Obama is calling the “Buffett rule,” is a minor part of the plan, and it would have a negligible effect on the deficit. The more significant point is that days after the top House Republican ruled out tax increases in the next round of deficit reductions, Obama ruled them back in.
At issue is how the federal government will cut its budget deficit, and how quickly it will do so. Under the law Congress passed this summer to raise the debt limit, a special committee of 12 lawmakers has until Thanksgiving to come up with a plan to shrink projected deficits at least $1.2 trillion over the next 10 years. If the committee, Congress and Obama can’t agree on a plan, the same amount will be slashed automatically in across-the-board cuts, sparing only Social Security and safety net programs.
The president offered 52 pages of recommendations to the special committee Monday, making the case for cutting more than twice as much from the deficit as the committee’s goal, and for doing so by reducing tax breaks, subsidies and some benefit programs. He’s right to push for a more aggressive approach to deficit-cutting over the long term; if Congress goes no further than currently planned, the debt will continue to grow faster than the economy and soon become unsustainable.
Obama’s proposal has some dubious elements, but he gets the big picture right. The centerpiece of his tax proposal is the same one he’s been advocating for years: ending the Bush-era tax cuts for the wealthiest Americans and simplifying the tax code. Winnowing the mass of deductions and loopholes will broaden the tax base, enabling Washington to collect more revenue even if it lowers rates for many businesses and individuals.
The proposed Buffett rule is more a political statement than a deficit-reduction tool, given how little money it may raise. In that sense, it’s like Obama’s oft-repeated call to eliminate tax breaks for corporate jets. But asking higher-income Americans in general to pay more for the sake of deficit reduction is hardly class warfare; they’ve prospered disproportionately over the past decade, thanks in no small part to federal regulatory and fiscal policies that helped them more than any other segment of society. As a result, they’re in a better position than any other group to help close the budget gap.
No one likes to pay more in taxes, but a simpler tax code is a fair trade-off. And at some point, lawmakers have to recognize that they can’t close the budget gap just by cutting spending. Doing so would require unacceptably severe cuts in Medicare, Medicaid and defense. Rather than dismissing every possible tax increase as a barrier to growth, they should look to the lesson of the 1990s, when Washington’s efforts to trim the deficit contributed to a booming economy. Obama’s plan may not be the perfect blueprint, but it’s built on the right foundation.