Archives: Buffett Tax - Wrong prescription for America’s economic woes

Originally published in September 2011
Simon Nguyen

What Americans need the most right now are jobs. Unfortunately, President Barack Obama’s latest proposal to reduce the deficits by increasing taxes on U.S. millionaires does nothing to improve the employment situation. Instead, the so called Buffett Tax may worsen unemployment since the plan could affect private investment – the growth engine of the economy.

President Obama rightly pointed out that wealthy Americans pay a smaller tax burden than average Americans. This is because U.S. millionaires make most of their income from investments, which are subjected to a relatively lower tax rate. While wealthy Americans should definitely pay a higher tax rate on their investment profits, this is not the right time to enact the Buffett Rule. The U.S. economy is on the verge of a double-dip recession. Facing the prospect of higher taxes, people would be even less willing to invest in the economy and help create jobs.

The Buffett Tax also adds unneeded uncertainties to the market and economy. There are enough uncertainties in regards to the global economy for investors to be troubled by. The least they would want is for President Barack Obama to go after them with higher taxes. And there is no guarantee that the President won’t target wealthy Americans with more tax hike proposals in the future. The lack of trust is one of the reasons why Wall Street has been sitting on its record cash reserves. The President is giving people one more reason to not invest and hire more workers, at least until after the 2012 presidential election.

Another curious thing about President Obama’s proposal is the fact that he knows full well his plan is unlikely to pass the Republican-controlled House. This is clearly a political maneuver and not economic policy. The President is hoping to jumpstart his reelection bid by driving a wedge between Republicans and middle-class Americans. Only time will tell if this “class warfare” strategy will actually work.

The Buffett Tax is certainly not without merits. Wealthy Americans need to pay their share of the tax burden. However, this should be part of a comprehensive plan to meaningfully overhaul the U.S. tax code. There are so many loopholes in the tax code that need to be eliminated to achieve tax equality. Reforming the tax code so that it is fair to everyone, rich or poor, should be the top priority.

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