Heyl Q&A: The Buffett Ruse: Stop posturing & start prioritizing

| Friday, April 27, 2012, 9:06 p.m.

Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute for Policy Research, an economics-oriented think tank, and is the former chief economist for the U.S. Department of Labor.

She spoke to the Trib regarding a linchpin of President Obama's re-election campaign known as the Buffett Rule. Named for Berkshire Hathaway CEO Warren Buffett, it's a proposed minimum effective tax of 30 percent on anyone earning more than $1 million annually.

Q: To many Americans, the Buffett Rule seems like a good idea. In your estimation, what are its chief flaws?

A: First of all, it raises very little money -- $47 billion over a 10-year period, according to the Joint Committee on Taxation. Second, it would not result in many millionaires paying additional taxes. Number three, it would hurt small businesses on which it raised taxes.

But the main problem with the Buffett Rule is that it's just political posturing. The reason that many millionaires have lower tax rates is because they get income from (low-taxed) capital gains. The Buffett Rule doesn't mention taxing capital gains at a higher rate, and that in essence is what they would have to do in order to have millionaires pay taxes at (a) 30-percent (rate).

Q: Would it be problematic for the economy if taxes were increased on investment income?

A: It would be very problematic. There are many projects that would not be undertaken if we had a higher capital gains tax rate, (considering) we already have the highest global corporate tax rate in the world at 35 percent.

Q: Are people too focused on the president's insistence that raising taxes on the well-off is a matter of fairness and equality?

A: Yeah. I don't think (that position) is really very relevant, because you don't find Americans flocking to countries around the world such as Haiti or Cuba, where the people are equal and they are very poor. You find, on the other hand, people all over the world who want to come to America. Yes, it has more inequality than other industrialized countries, but there are also more opportunities, which is why people want to come.

Q: Do you believe these more important issues are being lost in the din of Buffett Rule discussions?

A: I think they are being lost. This is the fourth year that we've had deficits of a trillion dollars or more, so adding $5 billion (via the Buffett Rule) is not going to help our (yearly) deficit problem. We need to be looking at the increased amounts we are paying in entitlements, the waste in our budgets that show $50 billion for high-speed rail, the money we are spending on electric cars when Americans don't want to buy them, the money we are spending on mass transit when Americans don't want to ride it. These are the serious things we should be sitting down and prioritizing.

Q: So do you think the president is engaging in political sleight of hand?

A: Yes, exactly. This is being done for political purposes. What we need to do is rationally sit down and think how we can avoid borrowing $4 out of every $10 that we spend. This is a serious situation. We're becoming more and more dependent on foreign borrowing (and) while interest rates are low now, what if they jump up to the norm of 5 percent or 6 percent from the current rate of 2 percent? We're going to have real problems with our budget. We need to figure out how to manage the federal budget like households manage theirs.

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