Experts: The 'Buffett rule' is a terrible idea

Tax policy experts disagree on many things, including what the definition of 'rich' is. But they agree that imposing a minimum tax of any kind is an admission of policy failure.

This afternoon, I moderated an interesting Tax Policy Center panel on taxing the rich. With the Senate about to debate a Buffett tax on millionaires, the timing couldn’t be better. Unfortunately for the White House, about the only thing the panelists agreed upon was that the Buffett tax is a terrible idea.  

My fellow panelists were Doug  Holtz-Eakin, president of the American Action Forum and former advisor to President Bush and the McCain for president campaign; David A. Levine, former chief economist at the Wall Street firm of Sanford C. Bernstein & Co. and a supporter of  Responsible Wealth, a group of millionaires who believe high-income Americans can and should pay more taxes;  Donald Marron, my boss at TPC and a former acting director of the Congressional Budget Office; and Diane Lim Rogers, chief economist at Concord Coalition.

The group agreed that some new tax revenues will be needed as part of a prudent fiscal plan and mostly agreed that broad-based tax reform should be a sensible part of such an initiative. But there were no fans of the Buffett rule.   

After that, we disagreed about as much as everyone else in Washington (though far more respectfully).

The panel couldn’t even agree about what rich means. Is it $1 million-a-year in income? Is it $200,000, a definition proposed—in quite different contexts– by both President Obama and Mitt Romney? Is it those in the top 1% of income, who make more than $500,000 and an average of about $1.5 million? Take your choice.

Donald made the important point that all rich people are not alike. The problem–if you think it is a problem–of rich people paying less tax than their secretaries is largely limited to those with lots of tax preferences or wealthy investors who pay much of their tax at the low 15 percent rate on capital gains and dividends.

People who are paid salaries—even big ones (think professional athletes or  doctors) tend to pay effective rates pretty close to the 30 percent minimum rate the White House wants.     

Whoever the rich are, Doug thought the whole concept of special taxes aimed at one income group is silly. There is nothing wrong with a progressive tax system, he said. But when you consider who benefits most from spending, government as a whole is quite progressive already.

The other panelists disagreed, though by varying degrees. David took the most aggressive position: The low taxes paid by high-income households are nothing less than shameful, he argued.

How would they reform the tax code? Diane would reduce or restructure credits, deductions and exclusions. To help reduce the deficit she’d reluctantly raise rates on high income households as well. Doug called for replacing the current revenue system with a broad-based consumption tax—an idea many economists love but which turns out to be very hard to do.

David had a very different perspective. Bucking the conventional wisdom of nearly all economists, he called for significantly higher rates for top-bracket taxpayers while preserving most current tax subsidies. For instance, he’d keep the current generous tax treatment of owner-occupied housing and charitable giving.

About that Buffett tax: We pretty much agreed that imposing a minimum tax of any kind is an admission of policy failure. If the president thinks the rich don’t pay enough, he ought to restructure the tax code so they do, not stick on yet another Band-Aid.

See, people in Washington can cross ideological lines.