April 19, 2012
The Buffett Rule Is a Dangerous Distraction
While it has consumed more than a week's worth of discussions on talk radio and cable news, the Buffett Rule would decrease the deficit by less than 0.5 percent, at best. The scheme may be good political fodder for Obama's 2012 run, but the populist proposal is a dangerous distraction from the tough conversations that are needed to fix our economy and regain America's global competitiveness.
Named after investor Warren Buffett, the proposal would impose a minimum tax rate of 30 percent on the nation's "high earners," ensuring they pay their "fair share." When President Obama first pitched the idea, he characterized it by saying it would help "stabilize our debt and deficits over the next decade." However, when the math is done, the proposal's impact on our economy is insignificant.
If one uses optimistic projections, the Buffett Rule would raise $46.7 billion in additional taxes over 10 years. This undeniably a big number at first glance, but it pales in comparison to the ballooning national deficit. At over $15 trillion, our federal debt is rapidly increasing, and political gimmicks like the Buffet Rule represent political sloganeering, not serious solutions to our economic problems. If Obama's Buffett Rule were implemented, 99.5 percent of the deficit would be left untouched in 2013.
No matter how you do the math, the Buffett tax will not stabilize our deficit. Rather than politically-savvy proposals that poll well among likely voters, the American workforce needs forward-looking policies that encourage growth, create a welcoming environment for entrepreneurs, and make America a competitive place to do business.
There are a number of areas where policymakers could implement stronger, pro-growth policies, but the single best way to empower businesses of all sizes to reinvest in growth is overhauling the corporate tax code.
Since 2000, the U.S. has lost 46 Fortune Global 500 company headquarters, while countries like China and Korea have seen sizeable increases over that same period. This massive migration can be attributed, in part, to our archaic tax code, which was designed over a quarter-century ago.
America's corporate tax rate, which is the highest in the world, doesn't just impact companies and business owners; the American workforce carries much of the burden. In fact, studies have shown that workers bear up to 75 percent of the corporate income tax rate.
Alternatively, if the rate was reduced to 25 percent -- which is on par with the global average -- 581,000 domestic jobs could be created every year for the next decade and the average family of four would realize an additional $2,484 annually.
The high statutory corporate tax rate isn't the only reason America's tax code deters U.S. investment and economic growth. A January 2012 Harvard Business School report explains "the sheer complexity and uncertain future of the tax code" decreases America's competitiveness and discourages investors from putting their money into our economy.
Each new Congress adds loopholes for their pet causes or favored interests. This has cluttered the tax code, increased its complexity and made it extremely unfair for companies that can't afford large lobbying operations. We need a fresh start.
The Buffett Rule supplies ample opportunity for commentary, but the notion that this will actually stabilize debt and deficits is a fallacy. We don't need minor, politically-motivated tweaks to the tax code. We need massive reforms that simplify and modernize the tax code, reduce the corporate tax rate, and help stimulate the economic growth that is necessary to truly stabilize our economy. Anything else is a dangerous distraction.
President, Americans for Job Security
Read more: Real Clear Policy