What was said: President Obama has been hammering the so called “Buffett Rule” as a key part of his 2012 campaign and an important way to distinguish himself from Republicans on issues of economic justice and deficit reduction. Obama was in Florida today pushing the Buffett Rule, while his administration released a new report on it. From the White House’s Buffett Rule report:
The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett has famously stated that he pays a lower tax rate than his secretary, but as this report documents this situation is not uncommon. This situation is the result of decades of the tax system being tilted in favor of high-income households at the expense of the middle class. Not only is this unfair, it can also be economically inefficient by providing opportunities for tax planning and distorting decisions. The President has proposed the Buffett Rule as a basic rule of tax fairness that should be met in tax reform. To achieve this principle, the President has proposed that no millionaire pay less than 30 percent of their income in taxes.
Whom the statement is for: The Buffett Rule is a well tested political idea that is meant both to rally the Democratic base and to appeal to moderate voters. Polls have consistently shown majority support for raising taxes on the rich to reduce the deficit. An AP-GFK poll from February found that 65 percent of the country favors the Buffett Rule.
Talking about this tax change also has the added benefit of highlighting how rich Mitt Romney is and the fact that he pays only about 14.5% in taxes. It makes Romney look out of touch and can potentially increase personal animosity towards an already unliked politician.
Does he really mean it/The record: Obama has a pretty poor track record on fulfilling his campaign promises to raise taxes on the rich. Ending Bush tax cuts for those making over $250,000 a year was a huge part of Obama’s 2008 campaign, yet after his election he made almost no effort to fulfill it. [cont’d.]
Despite holding historically big majorities in Congress Obama did not push Democrats to quickly end the Bush tax cuts in early 2009. Obama did not ask the Senate to include budget reconciliation instructions to make it easy to eliminate them with a simple majority in the Senate. Finally, when they were about to expire, Obama agreed to extend them as part of a broader deal.
One would be remiss not to question Obama’s commitment to the Buffett Rule, given that he only started really pushing for it after Democrats lost the House, making its passage very unlikely. In fairness to Obama he has now spent so much time pushing for it that not trying to get it adopted would make him look terrible.
Likelihood it will ever actually happen: about 16% It is unlikely that Congressional Republicans would ever vote for the Buffett Rule, although there is probably a 2-3% chance they might accept it as one part of some larger, heavily lop-sided deficit deal that Obama still seems determined to achieve.
Most likely the only way the Buffett Rule will be approved is if Obama wins re-election and Democrats control both the House and the Senate. Currently Intrade puts the odds of Democrats winning the House at only 31.5% and that is probably too high.
Even if Democrats win control of Congress there is no guarantee they would even adopt the Buffett Rule. Again, think back to their handling of the Bush Tax cuts for the rich in 2009, and that was after winning historically big majorities. There is no way Democrats will win majorities that big this November. At best I think the chances of a victorious Democratic party actually implementing the Buffett Rule is only 50/50. All factors combined that gives you about a 15-16% chance of it ever happening.
Hedge fund managers are huge donors to both parties, and they have been very successful at protecting their unpopular tax breaks over the years. Betting they will eventually win again in our political system is normally a safe bet.