The Buffett Ruse

Editorial do WSJ

Obama's ploy means the highest capital gains tax rate since 1978

Remember the moment in 2008 when Charlie Gibson of ABC News asked Senator Barack Obama why he would support raising the capital gains tax even though "revenues from the tax increased" when the rate fell? Mr. Obama's famous reply: "I would look at raising the capital gains tax for purposes of fairness." Well, we were warned.

Here we are four years later, and President Obama on Tuesday night linked the term "fair" to U.S. tax and economic policy seven times. The U.S. economy is still hobbling out of recession, real family incomes are falling and 14 million Americans are unemployed, but Mr. Obama declared that his top priority is not to reform the tax code to promote growth and job creation. His overriding goal is redistributing income.

Mr. Obama endorsed the political ruse he calls the Buffett rule, which asserts as a matter of moral principle that millionaires should not pay a lower tax rate than middle-class wage earners. Specifically, Mr. Obama is proposing that anyone earning more than $1 million pay at least 30% of that income to Uncle Barack.

The White House says that if a millionaire household's effective tax rate falls below 30%, it would have to pay a surcharge—in essence a new Super Alternative Minimum Tax—to bring the tax liability to 30%. For those facing this new Super AMT, all deductions and exemptions would be eliminated except for charity.

The Buffett rule is rooted in the fairy tale that taxes on the wealthy are lower than on the middle class. In fact, the Congressional Budget Office notes that the effective income tax rate of the richest 1% is about 29.5% when including all federal taxes such as the distribution of corporate taxes, or about twice the 15.1% paid by middle-class families. (See "How Much the Rich Pay," January 23, 2012.)

This is because wealthy tax filers make most of their income from investments. Such income is taxed once at the corporate rate of 35% and again when it is passed through to the individual as a capital gain or dividend at 15%, for a highest marginal tax rate of about 44.75%.

This double taxation is one reason the U.S. has long had a differential tax rate for capital gains. Another reason is because while taxpayers must pay taxes on their gains, they aren't allowed to deduct capital losses (beyond $3,000 a year) except against gains in the current year. Capital gains also aren't indexed for inflation, so a lower rate is intended to offset the effect of inflated gains.

One implication of the Buffett rule is that all millionaire investment income would be taxed at the shareholder level at a minimum rate of 30%, up from 15% today. The tax rate on investment income from corporations would rise to 54.5% from 44.75%, a punitive tax on start-up or expanding businesses.

The new 30% capital gains rate would be the developed world's third highest behind only Denmark and Chile, according to the American Council for Capital Formation. This is on top of the 35% corporate rate that is already the second highest rate in the world after Japan. That giant sucking sound you hear come January 2013 would be hundreds of billions of investment dollars fleeing to China, India, Korea and other U.S. competitors. Lower capital investment in the U.S. means less wage growth, and so the people hurt most by this tax hike would be workers, according to a study by the Institute for Research on the Economics of Taxation.

Mr. Obama conceded on Tuesday that the high U.S. corporate tax is an economic loser. Yet he misses the crucial point that business owners assess the combined corporate and capital gains tax on those business profits. Lowering the corporate tax rate makes the U.S. more competitive, but the tax change is self-defeating if it is combined with an even larger rise in investment income taxes on capital gains and dividends.

Mr. Obama isn't setting himself apart merely from conservatives with this Buffett ploy. He is rejecting 35 years of bipartisan tax policy that began with the passage of the Steiger Amendment by a Democratic Congress that cut the capital-gains rate to 28% from 35% in 1978.

As the nearby chart shows, the rate has never since risen above 28%, and the last time it moved that high was in 1986 as part of the Reagan-Rostenkowski tax reform that also cut the top marginal income tax rate to 28% from 50%. With income-tax rates so low, a differential was arguably less necessary—though it's worth noting that capital gains revenues fell dramatically after that rate increase.

A decade later Bill Clinton agreed to cut the rate back to 20% as part of the balanced-budget deal with Newt Gingrich. Capital gains revenues soared, helping to balance the federal budget. Nearly every study estimates that the revenue-maximizing tax rate from the capital gains tax is between 15% and 28%. Doug Holtz-Eakin, the former director of the Congressional Budget Office, says that a 30% tax rate "is almost surely above the rate that maximizes tax revenues." So it's likely the Buffett trick would lose revenue for the government.

Yet in a time of the highest deficits since World War II, Mr. Obama wants to double the capital gains tax rate even as he raises the top income-tax rate to 42% or so. Mr. Obama really is taking us back to the worst habits of the 1970s. And not because he thinks higher rates will raise revenue, but merely so he can score points against Mitt Romney and stick it to the successful.

This isn't tax fairness. It's tax folly.

Mr. Buffett's Tax Secrets

Editorial do WSJ

The least he can do is show Americans why he pays so little

Warren Buffett has forcefully injected himself into the U.S. political debate, with President Obama using the billionaire's anecdote that he pays a lower tax rate than his secretary as a bludgeon in favor of raising taxes on millions of other Americans.

The Omaha stock-picker has every right to do so, and his foray may even do some good. His tax claim has already had the educational benefit of prompting the press to report that, as a general matter, the Buffett-Obama premise is false. CEOs don't typically pay lower rates than middle-class secretaries.

As data from the Internal Revenue Service make clear, the vast majority of those earning more than $1 million per year typically pay tax rates two to three times higher than people making less than $100,000. In 2008, the average tax rate for millionaires and above was 23.3% and for those earning between $30,000 and $50,000 it was 7.2%.

But the opportunity to educate the public would be even greater if Mr. Buffett would let everyone else in on his secrets of tax avoidance by releasing his tax returns. Going only by Mr. Buffett's unverified claims, his federal taxes in 2010 amounted to 17.4% of his taxable income, probably because much of his income was from capital gains and dividends. It's also likely that he took significant deductions for charitable donations. No doubt the millions of Americans who could end up paying more because of this claim would love to see the details.

Mr. Buffett also wrote in the New York Times that none of the other people in his office paid less than a 33% rate, and at least one colleague paid 41%. This suggests that Mr. Buffett's Berkshire Hathaway staff are the kind of folks the President would consider "rich." Mr. Obama might even call them "millionaires and billionaires" if some of them have annual incomes of more than $200,000.

We wouldn't want to violate their individual privacy, but since Mr. Buffett is using them to make a political point, perhaps he'd be willing to disclose the most important lines on their returns without disclosing their names. This too would be instructive.

To our knowledge Mr. Buffett hasn't publicly disclosed his own return beyond offering a peek to talk-show host Charlie Rose. If Mr. Buffett's anecdote is going to be the main political basis for rewriting the U.S. tax code, Americans have every right to know the basis for the anecdote. We called Berkshire Hathaway last week to see if Mr. Buffett would release his 2010 return, but we haven't heard back.

Hunting the rich

The Economist

THE horns have sounded and the hounds are baying. Across the developed world the hunt for more taxes from the wealthy is on. Recent austerity budgets in France and Italy slapped 3% surcharges on those with incomes above €500,000 ($680,000) and €300,000 respectively. Britain’s Tories are under attack for even considering getting rid of Labour’s “temporary” 50% top rate of income tax on earnings of over £150,000 ($235,000). Now Barack Obama has produced a new deficit-reduction plan that aims its tax increases squarely at the rich, including a “Buffett rule” to ensure that no household making more than $1m a year pays a lower average tax rate than “middle-class” families do (Warren Buffett has pointed out that, despite being a billionaire, he pays a lower average tax rate than his secretary). Tapping the rich to close the deficit is “not class warfare”, argues Mr Obama. “It’s math.”

Actually, it’s not simply math (or indeed maths). The question of whether to tax the wealthy more depends on political judgments about the right size of the state and the appropriate role for redistribution. The maths says deficits could technically be tamed by spending cuts alone—as Mr Obama’s Republican opponents advocate. Class warfare may be a loaded term, but it captures a fundamental debate in Western societies: who should suffer for righting public finances?

In general, this newspaper’s instincts lie with small government and against ever higher taxation to pay for an unsustainable welfare state. We reject the notion, implicit in much of today’s debate, that higher tax rates on the wealthy are justified because of the finance industry’s role in the crunch: retribution is a poor rationale for taxation. Nor is the current pattern of contribution to the public purse obviously “unfair”: the richest 1% of Americans pay more than a quarter of all federal taxes (and fully 40% of income taxes), while taking less than 20% of pre-tax income. And knee-jerk rich-bashing, like Labour’s tax hike, seldom makes for good policy. High marginal tax rates discourage entrepreneurship, and no matter how much Mr Obama mentions “millionaires and billionaires”, higher taxes on them alone cannot close America’s deficit.

So the debate is poisonously skewed. But there are three good reasons why the wealthy should pay more tax—though not, by and large, in the ways that the rich world’s governments currently propose.

First, the West’s deficits should not be closed by spending cuts alone. Public spending should certainly take the brunt: there is plenty of scope to slim inefficient Leviathan, and studies of past deficit-cutting programmes suggest they work best when cuts predominate. Britain’s four-to-one ratio is about right. But, as that ratio implies, experience also argues that higher taxes should be part of the mix. In America the tax take is historically low after years of rate reductions. There, and elsewhere, tax rises need to bear some of the burden.

Second, there is a political argument for raising this new revenue from the rich. Spending cuts fall disproportionately on the less well-off; and, even before the crunch, median incomes were stagnating. Meanwhile, globalisation has been rewarding winners ever more generously. Voters’ support for ongoing austerity depends on a disproportionate share of any new revenue coming from the wealthy.

But how? So far most governments have focused on raising marginal income-tax rates, something most rich people respond to quickly (see article). Capitalists shift their income into less-taxed forms, such as capital gains; they move; they work less; they take fewer entrepreneurial risks. Even if it is hard to be sure how big these effects are, the size of the very top level seems to matter, so Britain’s 50% rate is more dangerous than Mr Obama’s proposal to raise America’s top federal income-tax rate from 35% to 39.6%. Somebody earning $1m pays more tax in London than any other financial capital—madness for a place with so many mobile rich people. The excuse that it was worse in the 1970s hardly inspires confidence.

Simpler, bolder, better

Given the rich world’s need for faster growth, governments should be wary of sharp tax increases—especially since they are unnecessary. Indeed, the third argument for raising more money from the rich is that it can be done not by increasing marginal tax rates, but by making the tax code more efficient.

The scope for doing so is most obvious in America, which relies far more than other countries on income taxes and has a mass of deductions on everything from interest payments on mortgages to employer-provided health care, so taxes are levied on a very narrow base. Getting rid of the deductions would simplify the code and raise as much as $1 trillion a year. Since the main beneficiaries of the deductions are the wealthy, richer folk would pay most of that. And since marginal rates would be untouched (or reduced), such a reform would do less to discourage them from creating wealth.

In Europe, where tax systems are more efficient, one option would be to shift more of the burden from income to property, which would collect more from the rich but have less impact on their willingness to take risks. The “mansion tax” proposed by Britain’s Liberal Democrats would thus do less damage than the 50% rate. And on both sides of the Atlantic there is room to narrow the gap between tax rates on salaries and bonuses and those on dividends and capital gains. That gap explains why Mr Buffett, most of whose income comes from capital gains and dividends, has a lower average tax rate than his secretary. It is also the one hedge funders and private-equity people have exploited to keep the billions they rake in.

There is a basic bargain to be had. Imagine a tax system which made the top rates on wages and capital more equal, and which eliminated virtually all deductions. To avoid taxing investments twice, such a system would get rid of corporate taxes. It would also allow for a much lower top rate of income tax. The result? A larger overall tax take from the rich, without hurting the dynamism of the economy. Now that would be worth blowing your horn about.

The Spend Now, Tax Later Jobs Bill

By ALAN REYNOLDS, WSJ

The president's "Plan for Economic Growth and Deficit Reduction" mainly hinges on persuading Congress to trade $447 billion in temporary payroll tax cuts and spending increases—the "jobs plan"—for permanent income-tax increases of $150 billion a year. Mr. Obama also calls on the 12-member congressional super committee to undertake "comprehensive tax reform," which he defines in peculiar fashion as trading lower deductions for higher rates.

According to the Sept. 19 White House fact sheet, "The President calls on [the super committee] to undertake comprehensive tax reform, and lays out five principles for it to follow: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth; and 5) comport with the "Buffett Rule" that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay."

But the administration's tax plan violates these principles. It raises rather than lowers tax rates, shrinks tax deductions to pay for more spending, makes no believable contribution to economic growth, has nothing specific to say about the Buffett Rule, and allocates a third of the proposed $1.5 trillion tax increase over the next decade to such miscellany as the temporary payroll tax break, more subsidies for state and local government jobs, and prolonged unemployment benefits.

Nearly all of Mr. Obama's new tax increases are identical to those in his failed budgets of 2011 and 2012. But the repackaging of stale ideas is partly concealed by intermingling the phasing-out of deductions and exemptions with allowing the Bush tax rates to expire, thus increasing the top two tax rates to 36% and 39.6% from 33% and 35%. This intermingling gives the false impression that $866 billion in projected additional revenue comes from raising the top tax rates alone.

The Treasury Department's more candid explanation of these same proposals in the 2011 budget estimated that raising the top two tax rates would bring in only an extra $36.4 billion a year from 2011 to 2020, which adds up to little more than $400 billion from 2012 to 2021. The administration's 2011 proposal to raise the tax rate on capital gains and dividends to 20% from 15% on upper incomes was estimated to raise an even punier $10.5 billion a year. But the 3.8% surtax in ObamaCare already raised those tax rates to 18.8% to finance health-insurance subsidies, leaving no meaningful revenue from that source.

In other words, most of that large, $866 billion 10-year tax hike comes from phasing out personal exemptions and deductions. These are not "tax breaks that small businesses and middle-class families don't get," as the president claimed on Monday in his Rose Garden remarks. The phase-outs apply to the same exemptions and deductions enjoyed by those earning less than $250,000, including deductions for mortgage interest, charitable contributions, and state income taxes.

Mr. Obama's second biggest tax increase, supposedly worth $410 billion over 10 years according to the fact sheet, comes from further reducing "the value of itemized deductions and other tax preferences to 28% for those with high income." The phasing out itemized deductions for upper-income taxpayers would shrink those deductions by as much as 80%, so this additional cap would limit any remaining deductions to 28 cents on the dollar. The combination would be severe. Ask any charity.

As for corporate taxes, Mr. Obama said in the Rose Garden that "We can lower the corporate rate if we get rid of all these special deals." But his plan does not include a lower corporate rate. Instead it earmarks the revenue from eliminating any loopholes and "special deals" to pay for the $447 billion jobs bill.

This brings us to the president's puzzling remarks about "the Buffett Plan," which has no clear connection to anything in his own plan. Mr. Obama has said that anyone who thinks "somebody who's making $50 million a year in the financial markets [i.e., Warren Buffett] should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that" should "have to defend that unfairness. . . . They ought to have to answer for it."

Warren Buffett's large capital gains (mostly unrealized) and token $100,000 salary are by no means typical. IRS statistics show those earning more than $1 million paid 28.9% in federal income taxes in 2009, compared with 24.6% for those earning from $200,000 to $500,000 and 11.6% for those earning from $50,000 to $75,000.

However, if Mr. Obama is seriously suggesting that marginal tax rates should be the same for the working teacher's salary as for the retired teacher's capital gain, then he may be flirting with a rerun of George McGovern's 1972 presidential campaign theme that, "Money made by money should be taxed at the same rate as money made by men."

Unlike Mr. McGovern, though, Mr. Obama has not yet proposed a capital gains or dividend tax higher than 20%. If the rhetorical Buffett Rule has any meaning at all, it appears to be nothing more than a presidential hint to the congressional super committee that he would like them to propose (as he has not) that incomes above $1 million face a 28% tax on capital gains and dividends.

The trouble is that such a Buffett Rule would quite certainly reduce rather than enlarge federal revenue. That's because we know from experience that a 28% tax on selling stock or property greatly reduces the amount offered for sale. Wealthy people then sit on more unrealized capital gains rather than subjecting themselves to a stiff tax penalty on selling those assets. The 28% tax on long-term capital gains brought in only $36.9 billion a year from 1987 to 1997, according to the Treasury Department, while the 15% tax brought in $96.8 billion a year from 2004 to 2007.

Putting aside the seemingly empty threat of a Buffett Plan tax on capital gains, the president's new-old plan to raise income taxes on families and small businesses earning more than $250,000—to pay for temporary tax gimmicks and extra spending—is just stale wine in a new bottle.

Any plan that would impose permanently higher tax rates on income to pay for temporarily lower tax rates on payrolls is no stimulus or jobs plan under any sort of economics. Neither is a tax-financed extension of unemployment benefits. It's a tax-and-spend plan, and a bad one.

Mr. Reynolds, a senior fellow with the Cato Institute, is the author of "Income and Wealth" (Greenwood, Press 2006).

O pacote de Obama

Rodrigo Constantino

Para o leitor com acesso apenas à imprensa nacional, fica a nítida impressão de que o presidente Obama é um sujeito sério que tanta aprovar reformas duras, mas sofre a pressão populista e eleitoreira dos Republicanos, mais especificamente do Tea Party. Nada mais falso! A verdade é que Obama é o grande populista irresponsável, que só pensa nas eleições de 2012 e em seu modelo socializante no setor de saúde, mesmo que tais programas "sociais" sejam insustentáveis. Obama adoraria transformar os EUA na Europa, mesmo agora que ficou claro o que este modelo de welfare state pode causar de estrago na economia.

Segue abaixo parte do relatório do Banco JPMorgan sobre o "pacote" de Obama. Muita fanfarra na hora de anunciar o corte proposto de $ 4,4 trilhões no déficit fiscal, mas não passa de ilusionismo. Quase metade deste valor já era previsto e já estava programado, como no caso da retirada de tropas. Do restante, 75% vem de aumento de impostos! E, a despeito de toda a retórica populista de Obama, com o auxílio do cara-de-pau Warren Buffett, a verdade é que obviamente o aumento de imposto não será sobre os milionários, mas sim sobre a classe média (como sempre). Infelizmente, a imprensa brasileira, mesmo a mais séria, ainda não se deu conta de quem é Obama. A ficha ainda não caiu para o fato de que ele é apenas um demagogo esquerdista, nada mais.

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JPMorgan: A larger-than-expected deficit reduction plan could be bullish for US P/E multiples. At first read, the President’s proposal seemed to be exactly that: $4.4 trillion in deficit reduction over 10 years. However, two caveats. First, the $4.4 trillion headline number includes $1.2 trillion from spending caps already passed during Phase 1 of the Budget Control Act. Second, another $1.1 trillion is based on projected troop withdrawals, savings determined as much by circumstance and exogenous forces as by the Congress. As a result, tangible incremental proposed legislative changes amount to $2.1 trillion (not $4.4 trillion), 75% of which are tax increases rather than spending cuts; and only 10% of the overall deficit reduction plan is entitlement reform.

The details. The rhetoric behind the President’s proposed tax reform refers to raising taxes by $1.5 trillion on “millionaires and billionaires”. Upon closer review, “hundred-thousandaires” seems more accurate. The foundations of the President’s proposed reform are an end to the Bush tax cuts on taxpayers earning more than $200,000-$250,000 per year (which raises $800 billion over 10 years), and limitations on itemized deductions and exclusions applied to this same demographic (which raises $400 billion). […] raising taxes on income and reducing deductions will fall at least as hard, if not harder, on those earning $200k-$1 million as on those earning more than $1 million. Is this really what Buffett had in mind?

The Buffett Alternative Tax

Editorial do WSJ

Washington has repeated nearly every economic policy mistake of the 1930s in recent years, so why not repeat one of the bigger blunders of the 1960s too? We refer to President Obama's proposal yesterday for a new "Buffett Rule" to raise taxes on Americans earning more than $1 million a year. This may sound familiar to readers of a certain age, because it is how the current, and much-hated, Alternative Minimum Tax was born.

Mr. Obama, meet Joe Barr. As LBJ's last Treasury Secretary—he served only 30 days—Barr became famous for his January 1969 testimony before Congress that 21 millionaires had paid no income tax in 1967. No fewer than 115 tax returns reporting income above $200,000 had also paid no income tax, and Barr predicted a "taxpayer revolt" unless something was done about it.

Washington proceeded to bend tax policy to chase those 21 millionaires, and so we got the Minimum Tax of 1969 that later became the Alternative Minimum Tax. The AMT now hits some four million taxpayers, and 27% of households that paid it in 2008 had adjusted gross income of $200,000 or less.

Because it hits taxpayers with heavy deductions, the AMT wallops in particular the upper-middle-class suburbs in high-tax states like New Jersey, Connecticut, Illinois and California. Congress keeps passing an annual reprieve to prevent the AMT from hitting another 20 million or so taxpayers, most of whom are far from millionaires.

So here we are back at the same old political stand, though even Mr. Obama concedes that today those he routinely calls "millionaires and billionaires" pay at least some tax. The President's complaint, echoing billionaire Warren Buffett, is that too many billionaires pay a lower rate than regular salary earners. So even as he endorsed tax reform in general yesterday, Mr. Obama insisted that one of his reform "principles" is that people who make more than $1 million must pay a higher tax rate than middle-class earners.

There's one small problem: The entire Buffett Rule premise is false, as the nearby table shows. In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%.

That's slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends. The rate for a relative handful of the rich—400 people—fell to 18%, the modern equivalent of Barr's Gang of 21. But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000. The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum.

If Mr. Obama really wants all of these people to pay even more in taxes, there are only two ways to do so. One is to raise tax rates on capital gains, dividends and other investment income that is taxed at 15% and represents a great deal of income for the wealthy. This is probably Mr. Buffett's tax secret, though to our knowledge he hasn't released his returns to the public.

The problem is that this is a tax increase on capital investment, which the U.S. already taxes at prohibitive rates thanks to our high corporate tax rate of 35%. Capital gains and dividends are taxed twice, first as corporate profits and then as payouts to individuals. Their real capital gains tax rate is closer to 45% than 15%, which is why politicians of both parties have long supported a capital-gains rate differential.

The other way to raise taxes on the rare Buffett is with a new Minimum Tax, a la Joe Barr. But as we've seen with the AMT, while the politicians may start by chasing "millionaires and billionaires," over time they always end up taxing the middle class because that's where the real money is. Mr. Obama could tax every billionaire in America at a 100% rate and still wouldn't make a dent in the federal deficit. He would, however, succeed in making those taxpayers invest less and search for tax shelters, assuming they didn't move offshore.

We rehearse all of this because it shows that the real point of Mr. Obama's Buffett Rule and his latest deficit proposal isn't tax justice or good tax policy. It is all about re-election politics. Down in the polls and facing a sullen liberal base, Mr. Obama wants to rally the left behind him, and nothing fires them up like the pretense that government is sticking it to the rich. Mr. Obama is picking a tax fight that he apparently believes will carry him to re-election next year.

And what about the economy? Well, the plan Mr. Obama unveiled yesterday along with his Buffett Rule would sock the economy with $1.5 trillion in new taxes over 10 years, or about 1% of GDP. This includes the tax increases built into the 2013 expiration of the Bush-era tax rates but not those of ObamaCare. Anyone who believes this will help an economy that is creating few new jobs and growing by only 1% probably also believes that only the rich would pay the Buffett Alternative Tax.

Obama to Propose Tougher Tax Regime for Wealthy

By DAMIAN PALETTA and CAROL E. LEE, WSJ

WASHINGTON -- The White House on Monday plans to launch an effort to prevent millionaires from paying lower tax rates than middle-class Americans as part of its package of ideas to reduce the federal deficit, two people familiar with the plan said.

The White House will likely try to use the plan, which aides call the "Buffett Rule" after billionaire Warren Buffett, to create a populist frame for the debate over deficit reduction that is likely to again consume Washington for the next few months. Democrats have pushed the White House in recent weeks to assert itself in the debt-ceiling talks in an effort to steal momentum away from Republicans.

The idea, which has been raised before by Democrats, is likely to be a non-starter with Republicans who had consistently opposed raising tax revenue as a way to tackle America's debt. The move is also evidence of how the work of the Congressional supercommittee, which is charged with devising a plan to cut the deficit, has become inextricably linked with the 2012 election season.

Few details about how such a plan would work could be learned, including whether there would be a new tax bracket at this elevated level. The White House is likely to urge congressional negotiators to use the concept as part of their talks, but isn't expected to go into great detail about how the new tax rule might work, people familiar with the plan said.

The general goal would be to prevent people earning more than a million dollars to pay taxes at a lower effective rate than people who earn under $250,000. That's often the case because investment income, or capital gains, is taxed at a lower rate than regular wages.

The plan will come as part of the White House's recommendations to a joint congressional panel that is charged with reducing the deficit by at least $1.2 trillion.

President Barack Obama is expected to call for a steeper reduction in the deficit. To reach that goal, Mr. Obama is expected to call for $300 billion in savings from changes to Medicare and Medicaid, a person familiar with the proposal said. He won't, though, call for changes to Social Security as a way of reducing the deficit.

On taxes, he'll call for lower, flatter tax rates, while also pushing for some tax increases. The White House has already proposed limits on the amount of tax deductions wealthy Americans can claim, and administration officials want tax rates to increase for families making more than $250,000 a year.

Recent White House plans have outlined between $1 trillion and $1.2 trillion in new taxes over 10 years. It's not clear how much money the new millionaire proposal would raise.

Top Obama administration officials have said any deficit-reduction efforts should be "balanced," Washington code for including tax increases as well as spending cuts, and say Republican proposals wouldn't require the wealthy to make major sacrifices.

Speaker of the House John Boehner (R., Ohio) said last week that tax increases were "off the table." Republicans have successfully beat back multiple previous efforts by the administration to raise tax rates. Republicans instead have called for an overhaul of the tax code that lowers rates while limiting some deductions as a way to spur job growth.

News of the new approach was first reported Saturday evening by the New York Times.

On Aug. 14, Mr. Buffett penned an op-ed in the New York Times titled "Stop Coddling the Rich," in which he described what he viewed as a tax code that has come to favor the wealthy. He said he paid federal taxes on 17.4% of his taxable income last year, a lower rate than any of the 20 other people in his office. He often remarks that he pays a lower tax rate than his secretary.

Messrs. Obama and Buffett spoke in late August during the president's vacation in Martha's Vineyard.

The White House could try to use the "Buffett Rule" in the same way they used the "Volcker Rule" in 2010. The Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, called for limiting how large banks trade using their own money, rather than that of their clients. The White House proposed it late in the process of overhauling Wall Street rules.

Even though the Volcker Rule is a bit arcane, it successfully ignited a populist firestorm that helped push the financial regulation bill into law. It put large banks and many of their supporters on the defensive, and they spent weeks trying to water down the language instead of trying to kill the bill outright.

When the White House proposed the Volcker Rule in 2010, it initially didn't provide specifics on how the plan would work. The administration is expected to follow a similar model with the Buffett Rule.

Targeting millionaires is a tactical move by the White House and comes after hard lessons learned by Democrats in 2010. Last year, the White House pushed to allow tax cuts enacted during the Bush administration to expire for families earning more than $250,000 a year.

Even though Democrats controlled the House and the Senate last year, the White House's effort faltered because it couldn't win enough support. Some Democrats instead said the White House should have pushed for allowing people who earn more than $1 million a year to have their tax rates increased.

The political dynamics have changed markedly since last year, though, with Republicans in control of the House of Representatives and Democrats holding a narrow majority in the Senate.

Monday's proposal will be at least the fourth different plan by the White House in the last seven months to reduce the deficit. It comes after a February budget proposal, an April speech at George Washington University that called for roughly $4 trillion in reductions over 12 years, and the debt-ceiling negotiations with Republicans in July that broke down over taxes.

A fogueira das vaidades

JOÃO PEREIRA COUTINHO, Folha de SP

Os ricos que paguem a crise? Erro. Em Estados balofos são os pobres que acabarão por pagar

A estupidez não paga imposto. Pena. Depois de ler as palavras de Warren Buffett no "New York Times", a pedir mais impostos para ricos como ele, é a sua estupidez, não a sua riqueza, que deveria ser fortemente tributada.
Digo estupidez, mas digo mal. Vaidade, a palavra certa é vaidade. Entendo Buffett. Uma pessoa acumula uma fortuna colossal. Compra casas, carros. Excentricidades.
Mas eis que chega a gadanha do tédio para arranhar a nossa consciência mortal. Como resolver esse desconforto e fazer as pazes com a culpa primitiva?
Adotando, por exemplo. Celebridades de Hollywood foram cultivando a moda: viagens repetidas a África, Ásia e outros recantos de miséria, em busca do órfão respectivo. Toda a gente pode tomar o café da manhã na Tiffany, pelo menos a partir de um certo patamar (obrigado, Truman Capote).
Mas um órfão é outra história: exige trabalho, disponibilidade e uma dose maciça de sentimentalismo, que sempre comove as lentes fotográficas. Passear um diamante na passadeira vermelha é "kitsch". Passear um cambojano ou um etíope, o cúmulo da sofisticação. E quem não adota contribui. Tenho respeito pelos filantropos. Mas apenas pelos filantropos anônimos, que partilham a fortuna anonimamente. Não é preciso ler Kant para saber que a base da moralidade é o ato de tratar alguém como um fim, não como um meio.
Infelizmente, os filantropos que conheço, alguns pessoalmente, gostam de ajudar os pobres desde que isso renda boas matérias de jornal. O efeito, por vezes, é irônico e até perverso: eles querem partilhar a fortuna; mas, à custa da propaganda, multiplicam a fortuna porque os consumidores gostam de premiar a "consciência social".
Caro leitor: se você é rico, ou deseja ser mais rico, esqueça os mecanismos vulgares de gerar riqueza. O melhor negócio é adotar um sudanês (nunca um brasileiro!) e montar uma fundação humanitária com o seu nome em letras garrafais.
Ou então pedir mais impostos sobre sua própria fortuna. Fato: nenhum imposto especial sobre os ricos resolve os problemas estruturais dos países deficitários do Ocidente. Pelo contrário, agrava-os (já lá irei). Mas, pelo menos, consola a alma e, no caso de Warren Buffett, faz sucesso dentro e fora de portas.
Dentro de portas, já há mais bilionários americanos na fila, dispostos a ceder fortunas na fogueira das vaidades. Fora de portas, 16 bilionários franceses pediram tratamento de chicote. "Noblesse oblige": o governo Sarkozy promete descer o dito cujo sobre contribuintes cujas receitas fiscais superem € 1 milhão.
E até no exaurido Portugal, onde bato estas linhas, a ideia de Buffett promete frutificar, com presidente da República e primeiro-ministro a aceitarem um dos mantras mais famosos do "verão revolucionário" de 1975: os ricos que paguem a crise. Os ricos prometem pagar, claro. Pelo menos aqueles que não tencionam fazer as malas e fugir.
Moral da história? Não vale a pena repetir o óbvio: um sistema fiscal justo é aquele em que quem tem mais contribui com mais. Mas é também um sistema que não demoniza a riqueza e aqueles que a criam. Exceto se o modelo de sociedade ideal estiver em Cuba ou na Coreia do Norte, onde os únicos recursos são a fome e a violência.
Até Marx, que não era propriamente um capitalista (Engels fazia esse serviço por ele), sabia que, sem riqueza criada, não há riqueza para redistribuir. Nem riqueza, nem investimento, nem emprego.
Quando alguns ricos abrem as portas às predações do Estado, seja por vaidade ou interesse, eles não resolvem coisa nenhuma com suas esmolas generosas.
Apenas consolam o ego; afugentam parceiros sem sentimentos de culpa para outras paragens; e, pior, ajudam a perpetuar a exata doença que tem enterrado a Europa e os Estados Unidos: Estados falidos que, incapazes de controlar gastos, persistem de forma suicida num "modelo social" insustentável no século 21. Um modelo que, quando estourar, não vai estourar em cima de Warren Buffett e amigos. Vai estourar sobre os pobres e remendados.
Os ricos que paguem a crise? Erro. Em Estados balofos e sem incentivo para reformarem seus modos de vida, são os pobres que acabarão por pagar.

Buffett's Latest Tax Break

Editorial do WSJ

For a guy who spends a lot of time advocating for higher taxes, Warren Buffett does a remarkably good job of minimizing his own corporate tax bill. This is all to the good for Mr. Buffett and his fellow Berkshire Hathaway shareholders, who no doubt can invest the money more wisely than the federal government is likely to do.

Mr. Buffett's recent decision to invest in Bank of America represents another tax-avoidance triumph for the Berkshire chief executive. U.S. corporations are subject to a top federal income tax rate of 35%, the second highest in the world. But the Journal's Erik Holm notes that Mr. Buffett and the Berkshire bunch won't pay anything close to that on their investment in BofA preferred shares.

That's because corporations can exclude from taxation 70% of the dividends they receive from an investment in another corporation. This exclusion is intended to prevent double- or even triple-taxation as money is earned by one company, paid to another company and then ultimately paid out to shareholders. The policy makes sense; we only wonder why the exclusion isn't 100%.

With the 70% exclusion for Mr. Buffett and his fellow shareholders, Berkshire will enjoy an effective tax rate of 10.5% on the $300 million in dividends it will receive each year from Bank of America.

We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.

My Response To Buffett And Obama

By HARVEY GOLUB, WSJ

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit. I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it.

Now that I'm 72 years old, I can look forward to paying a significant portion of my accumulated wealth in estate taxes to the federal government and, depending on the state I live in at the time, to that state government as well. Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes. Isn't that enough?

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes, and the 3% who earn more than $200,000 pay almost half. Almost half of all filers pay no income taxes at all. Clearly they earn less and should pay less. But they should pay something and have a stake in our government spending their money too.

In addition, the extraordinarily complex tax code is replete with favors to various interest groups and industries, favors granted by politicians seeking to retain power. Mortgage interest deductions support the private housing industry at the expense of renters. Generous fringe benefits are not taxed at all, in order to support union and government workers at the expense of people who buy their own insurance with after-tax dollars. Gifts to charities are deductible but gifts to grandchildren are not. That's just a short list, and all of it is unfair.

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

Here's my message: Before you "ask" for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money.

Mr. Golub, a former chairman and CEO of American Express, currently serves on the executive committee of the American Enterprise Institute.

Escute mais seu pai, Sr. Buffett

From a speech by Howard Buffett, a congressman from Nebraska (and father of Warren Buffett), reprinted in the Freeman, December 1956:

The last 40 years have seen a gigantic expansion of political power over economic affairs by the federal government. This change is linked by many scholars to the passage of the income tax law in 1913. This law revolutionized the taxing system in two ways:

1. It gave the government new powers over the economic status of the individual. This change has curtailed the ability of the individual to achieve economic independence.

2. The part of his production taken from the producer cumulatively increases the power of the federal government proportionately with the increase in its income. This power is not created; it is simply taken away from the people.

George Sokolsky, noted columnist, says it this way: "When human beings become dependent upon the political power of the state for their livelihood, the independence of person must disappear. It is the identification of economic power with police power that destroys the right of the individual to liberty."

The transfer of economic power into political hands takes many forms. In 1932 about 2.5 million people received a check from the government every month. Today about 20 million receive a government check every month. What is the effect on the freedom of this great segment of our people being more or less dependent on the political authorities for their daily bread? . . .

Any discussion of the status of the economic foundation of freedom is incomplete without some attention to a historic human urge—the desire for security. This intense human desire is reflected in the so-called social legislation politicians have placed on our statute books.

Will this legislation fulfill its promises? If you think so, consider this rarely mentioned fine print clause. If the government is to guarantee you what the consequences of your actions will be in this case, security, then the government must take control of your activities. For with responsibility—even self-arrogated responsibility—must go authority.

This means that if politicians are to supply your security, they must control your work, your spending, and your saving. Witness crop controls. In that event you have traded the reality of liberty for the promise of security.

Warren Buffett's Tax Dodge

The billionaire volunteers the middle class for a tax increase.

Editorial do WSJ

Barney Kilgore, the man who made the Wall Street Journal into a national publication, was once asked why so many rich people favored higher taxes. That's easy, he replied. They already have their money.

That insight is worth recalling amid the latest political duet from President Obama and Warren Buffett demanding higher taxes on "millionaires and billionaires." Mr. Buffett is repeating his now familiar argument this week, coinciding with Mr. Obama's Midwestern road trip on the economy. Since the media are treating Mr. Buffett as a tax oracle, let's take a closer look at some of the billionaire's intellectual tax dodges.

• The double tax oversight. The Berkshire Hathaway magnate makes much of the fact that he paid only 17.4% of his income in taxes, which he considers unfair when salaried workers often pay more. But Mr. Buffett makes most of his income from his investments, in particular from dividends and capital gains that are taxed at a rate of 15%.

What he doesn't say is that much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%.

This onerous tax on capital is a U.S. competitive disadvantage in the global economy, which is why Congress agreed in 2003 to cut the rates on dividends and capital gains. Even as the rest of the world is cutting tax rates on corporate income, Mr. Buffett wants to raise U.S. rates in a way that would make America less attractive for investment. Under a sensible tax reform, the feds would impose either a corporate tax or a dividend and capital gains tax, but not both.

• The middle-class bait-and-switch. Like Mr. Obama, Mr. Buffett speaks about raising taxes only on the rich. But somehow he ignores that the President's tax increase starts at $200,000 for individuals and $250,000 for couples. Mr. Obama ought to call them "thousandaires," but that probably doesn't poll as well.

The President needs to levy his tax increase at such a lower income level because that's where the money is. In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.

But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama's plan aren't millionaires, and 99.99% aren't billionaires.

Mr. Buffett says it's only "fair" to raise his taxes, but he's lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren't rich and may earn $250,000 for only a few years of their working lives. How is that fair?

• The charity loophole. For billionaires like Mr. Buffett, the single most important deduction in the tax code is for charitable giving. Middle-class earners can't give nearly as much money away to reduce their overall tax burden. Yet we don't hear Mr. Buffett calling for the elimination of that deduction in the name of fairness.

Mr. Buffett has also already sheltered the bulk of his fortune from federal taxes by putting them into a foundation that will give the money away. That's an act of generosity, but if the government's purposes are so vital, why doesn't he simply give the money to the IRS?

Rebecca Quick of CNBC put that question to Mr. Buffett in 2007. His answer: "Well, that's a choice and it's an option . . . If I had to give it to a single individual, or make some young Buffett a multibillionaire, or give it to the government, I'd absolutely give it to the government. I think that on balance the Gates Foundation, my daughter's foundation, my two sons' foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government."

Mr. Buffett is no doubt right about the relative efficiency of private donors, but should billionaire philanthropists get such a large tax preference? Another case of fairness?

Mr. Buffett is one of the great stock-pickers of his time, and we don't begrudge him a single dollar of his wealth. We only wish that, having already made himself rich, he weren't so intent on making it harder for others to become rich too. If he's worried about being undertaxed, we'd suggest he simply write a big check to Uncle Sam and go back to his day job of picking investments.