To reduce the deficit and maintain critical investments in everything from education to infrastructure, we are going to need some new revenues along with serious spending restraint. The president is calling on those who have benefitted the most from past growth to pay their fair share of taxes. The "Buffet rule" embodies this concept of shared sacrifice. It will not, by itself, reduce the deficit very much, but it builds on the fact that many members of the middle class pay a higher effective tax rate than many of the super rich, and it sends a message to the average voter that the system will no longer so egregiously favor the wealthy.
The Buffet rule is being described as a new 30 percent rate for millionaires. To be clear, it is a new alternative minimum tax that phases in gradually for those with annual incomes between $1 million and $2 million a year. The only people who would be affected are the super rich, especially those with lots of income from capital gains and dividends. Over the next decade, it would bring in about $260 billion more in revenues than we are collecting now. That's not trivial but it's also not enough to reduce the deficit very much, and it leaves most of the tax code riddled with a variety of deductions and preferences that undermine economic efficiency and place unnecessary burdens on individual filers. For this reason, it's only a start on what needs to happen. We need a complete overhaul of the tax system to make it not only fairer but also simpler and more efficient.
In the meantime, the Buffet rule is a politically powerful way of putting the issue of shared sacrifice on the national agenda. Income inequality in the United States is at virtually unprecedented levels and intergenerational mobility is threatened by large gaps between rich and poor. The president's support for the Buffet rule contrasts sharply with Republican calls for even deeper tax cuts heavily tilted toward the wealthy combined with draconian spending cuts that fall overwhelmingly on the poor and the middle class. Put simply, the voters are being offered a stark choice between a government that looks out for the middle class versus one that favors the wealthy.
Addressing the issue of inequality along with the need for fiscal restraint and comprehensive tax reform will require a lot more than a new tax rule for the super rich. But one has to start somewhere.