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The ‘Buffett Rule’: Why Supporters and Opponents Are BOTH Wrong

The Daily Ticker
Daily Ticker

By Bernice Napach

President Obama is in Florida today touting the so-called Buffett Rule, which would impose a minimum 30% tax rate on those earning more than $1 million a year. The president says it's a matter of fairness. Republicans say the rule penalizes taxpayers who already pay more than their fair share and who help create jobs.

The Buffett Rule, named after billionaire investor Warren Buffett, is "an election-year gimmick" that helps Democrats target Mitt Romney, says Josh Brown, VP of Fusion Analytics and author of The Reformed Broker blog.

Romney, Obama's presumed opponent in the presidential election, is the former CEO of Bain Capital, a private equity firm. In 2010, Romney paid a 14% effective tax rate, well below the top 35% income tax rate.

"The Buffett Rule is really about the carried interest tax," says Brown, referring to the 15% interest rate that private equity managers like Romney are taxed on earnings.

Brown says the Buffett rule would do nothing to help the economy: It wouldn't help create jobs or do much to cut the budget deficit, running at more than $1 trillion this year and around $6 trillion over 10 years because it would only apply to a limited number of taxpayers.

But Brown doesn't agree with many of the critics of the Buffett rule either.

"The argument the Republicans will make is a false narrative. They'll say 'if you make it harder for us to earn a living based on the risks that we take as hedge fund managers and as private equity managers, then we'll hire less people, and we're not going to be as excited to start new ventures,'" Brown says. "I don't know if anyone has ever been stopped from pursuing a dream because the marginal tax rate went from 15 to 30%."

The Democratic-controlled Senate is expected to hold a procedural vote on the Buffett Rule next Monday, but Republicans have enough votes to block it from advancing and would almost certainly shoot it down in the House.