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Obama Budget Targets Fat Cats But ‘Buffett Rule’ More Symbolism vs. Substance, Zandi Says

Daily Ticker

President Obama published his proposed budget this week.

The budget uses a combination of increased taxes and spending reductions to trim the deficit by about $1.8 trillion over the next 10 years.

The budget was greeted by howls of outrage from both sides of the aisle because it contained some provisions that mortified extreme conservatives and infuriated extreme liberals.

Related: Obama’s Budget Is a Ridiculous Charade: Doug Casey

Liberals, for example, were outraged by Obama's proposal to tie Social Security benefit increases to the so-called "chained CPI." This inflation measure will produce lower annual benefit increases in benefits than the measure that is currently used. So liberals are howling.

Conservatives, meanwhile, are annoyed about the budget's proposed tax increases--especially the tax increases that fall primarily on richer Americans.

Related: Obama Finally Unites Washington…In Opposition to His Budget: Yahoo's Knox

The most notable of these proposed tax increases is Obama's support of the "Buffett Rule"--a minimum tax that would be applied to all income greater than $1 million a year, regardless of how the income is generated.

For years, America's richest taxpayers have been able to take advantage of favorable tax treatment for "capital gains" and "dividends" and have thus ended up paying lower marginal tax rates than those who generate most of their income from wages. The "Buffett Tax," which is named after the man who proposed it--billionaire Warren Buffett--would treat all income over $1 million equally.

Is the Buffett Tax a good idea?

Well, if you're one of the vast majority of Americans who don't make more than $1 million a year, it probably sounds like a fine idea. After all, we have a big budget deficit to close, and, as Warren Buffett himself points out, it hardly seems fair that billionaires should pay lower tax rates than their secretaries.

(Yes, you can argue that "capital gains" and "dividends" should have a lower tax rate than ordinary income, but you're probably more likely to argue that if you generate a lot of capital gains and dividend income.)

So the Buffett Tax certainly appeals to those who think the richest Americans could and should pay more.

But is it the best way to increase taxes? Will it help close the deficit?

According to economist Mark Zandi of Moody's Analytics, the answers are "no" and "no."

Zandi thinks there are other tax policy changes that would be more efficient and effective (closing loopholes and cutting deductions, for example.) And Zandi observes that the Buffett Tax would only raise about $50 billion in new tax revenue over 10 years, an amount that won't go that far toward fixing the deficit.

"I think the Buffett Rule is more symbolism than it is substance," Zandi says in the attached clip.

But every little bit helps. And most Americans can probably get behind the idea that America's richest taxpayers should pay a bit more.

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