The Buffett Bandwagon (Part One)

Yesterday, I discussed Warren Buffett's most recent lecture on tax policy. Today, the Wall Street Journal jumped on the bandwagon. Meanwhile, David Logan and Peter Pappas beat us both to the punch.

The Bait and Switch

I touched on this yesterday, but the WSJ gives us some numbers to drive home the point. Buffett repudiated the central pillar of President Obama's tax policy agenda by advising that Congress should "leave rates for 99.7 percent of taxpayers unchanged." In other words, Buffett was making a "surgical" argument about the tax policy applicable to actual millionaires and billionaires.

Unlike Buffett, President Obama wants to raises taxes on families with $250,000 in taxable income ($200,000 for individuals). This is roughly the top 2% of U.S. taxpayers, and includes millions of hard-working taxpayers who are light years away from the "millionaire club." So why is President Obama obsessed with tax increases for the working affluent? Because there simply aren't enough "millionaires and billionaires" to quench the President's thirst for additional revenue. From the WSJ:

In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.

But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama's plan aren't millionaires, and 99.99% aren't billionaires.

Mr. Buffett says it's only "fair" to raise his taxes, but he's lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren't rich and may earn $250,000 for only a few years of their working lives. How is that fair?

President Obama has attempted to "energize the base" by lumping together the working affluent with "millionaires and billionaires." But here's the problem with this plank in Obama's platform. As government expands, the definition of "wealthy" taxpayer will go down. Today, it's $250,000. Tomorrow, it will be $200,000, or perhaps $150,000. After all, wealth is relative. Pretty soon, everybody at 400% of the federal poverty line will be considered "wealthy," and everybody else will be looking to attract "government investments" by way of transfer payments. If the ultimate goal is "equality," then increasing taxes on the working affluent, and then the middle class, is a good way to start. (If you can't raise the lowest common denominator, then simply lower it...voila, equality!)

Meanwhile, the actual "millionaires and billionaires" will likely keep squabbling about tax policy while sipping margaritas at the beach.