As everybody knows by now, Warren Buffett — class traitor — pays a smaller share of his income in taxes than does his secretary, Debbie Bosanek. In his State of the Union address Jan. 24, President Obama proposed "the Buffett Rule" to rectify this with a phased-in requirement that all taxpayers making more than $1 million a year must pay federal taxes of at least 30% of their adjusted gross incomes.
Who could object? Well, Newt Gingrich — class clown — called the idea "stupid." And Mitt Romney — class president — said he doesn't believe in raising taxes on anybody under any circumstances: a nice, nuanced view that at least saves us the trouble of arguing about it. It's really impossible to defend a system in which people at the bottom pay 30% or 35% (including Social Security and Medicare) while people at the top who've arranged their affairs correctly — not all that hard — pay 15%, as Romney did last year. Nevertheless, there are problems with the Buffett Rule, which would take effect under a bill introduced this week in the Senate.
First, it will affect so few people that it will have no measurable effect on income distribution. Citizens for Tax Justice, a liberal tax reform group, figures that the Buffett Rule would affect about 0.08% of taxpayers, or 1 out of every 1,250. People will be tempted to think that by enacting the Buffett Rule, we have solved the problem of growing income inequality, when we won't really have even touched it. What about people making $500,000? Don't they need to kick in something too? The median family income in this country is about $50,000. That means if two people in your family are working and they bring in a total of more than $50,000, you're in the top half, and any redistribution through the tax system for the purpose of reducing inequality might increase your taxes, not reduce them.
Democratic politicians can be eloquent about the struggling middle class. But the truth is that the middle class is where a big chunk of the money is, and there is no way that the middle class can redistribute money from itself to itself. In this country, all people, rich and poor, have the right to think of themselves as middle class. But when representatives of the middle class sit down to divvy up the spoils of redistribution, they will be disappointed.
Actually, in the last few months, the invisible line that divides the middle class from the rich in the public's imagination has moved dramatically upward. It used to be $250,000. That was the amount of income below which Obama promised no tax increase. Now, thanks to the publicity around the Buffett Rule, it's a cool million.
These days it takes so much energy and so many chits to enact any major piece of legislation that it's hard to believe Congress will pass two tax reform laws in the same year. Enacting the Buffett Rule would absolve members of any concern about the current tax system, and prevent more wide-ranging reform. And meanwhile, for those who are affected (or might be) by the Buffett Rule, it would be an added complication. People would have to compute their taxes twice: once under the regular rules and again under the Buffett Rule — and would have to pay the higher of the two.
The Buffett Rule would just paper over mistakes in our tax system that ought to be fixed. Let's be clear: The reason that many millionaires pay so little income tax is that Republicans in the White House and the Congress wanted it that way. The last major tax reform, in 1986, equalized the tax rate on all forms of income: working wages, capital gains and dividends. This had the support of President Reagan and most Republican members of Congress. Republicans have been campaigning on Reagan's success (although it wasn't really his) ever since, while at the same time undermining the reform's most important accomplishment. As part of President George W. Bush's tax cut of 2003, the tax rate on dividends and most capital gains was capped at 15%. (Immediately after the 1986 reform, it was 35%.) Rather than creating a whole new set of rules for about 100,000 taxpayers, that cap should be abolished. Income is income. That would be real reform.
The biggest challenge for whoever is president the next four years will be convincing Americans that we must pay more taxes. Every realistic and honest person concedes that a tax increase will be necessary to get us out of the hole we've dug. (Yes, yes, spending must be reined in too, and yes, yes, we don't need to start until the downturn is indubitably over.) But it can't just be a tax on Warren Buffett and his peers. It will have to be a tax on you. The Buffett Rule makes that a harder sell.
A tax on so few people also undermines the message that taxes are not a reflection of animosity. Obama doesn't hate the rich. This isn't class war. Nobody thinks that the rich are inherently evil or that anyone who makes it in America must be a crook. Obama was careful to say all this in his State of the Union speech. But he segued smoothly from his discussion of financial improprieties to his discussion of the Buffett Rule, making it sound more like a punishment for misbehavior than he may have intended.
Michael Kinsley, a former editorial page editor of The Times, is a Bloomberg View columnist.