Obama Proposes Millionaire ‘Buffett Tax’ and Sets the Stage for a New Government Showdown [Updated]


The congressional super committee has barely been up and running a week or so, and already Democrats and Republicans are pulling it in opposite directions, like two kindergarten girls fighting over a Raggedy Ann doll — if either side pulls too hard, they threaten to tear the whole thing apart. The party doing most of the pulling, not surprisingly, is the Republicans, with House Speaker John Boehner bluntly laying down a limit on the committee's mandate: no new taxes. That, while the Democrats, in the form of Nancy Pelosi and the president, have gone to pains to emphasize that every option, including raised revenues, should remain on the table. Unwilling to let Boehner dictate the terms of the game, President Obama has decided to call his bluff. Late yesterday, the White House announced that the president plans to unveil this Tuesday a $2 trillion deficit-reduction plan — a fair bit more than the $1.5 trillion the super committee has been tasked with slashing — that includes a tax on the country's 500,000-or-so millionaires, and which will be dubbed the "Buffett Tax."

Naturally, Republicans are going to have a field day with this, dusting off the old trickledown economics anecdote that rich people with more money in their pockets go on to invest it in creating new jobs. In fact, looks like Wisconsin Representative Paul Ryan, author of the GOP's budget plan, has already gotten that ball rolling. Speaking about the president's proposal on Fox News Sunday:

It punishes job creation and those people who create jobs. Class warfare may make for really good politics but it makes for rotten economics.

But what Representative Ryan fails to mention — as it would clunkify his so-nice talking point there — is that most of the wealthiest Americans' money is not tied up in the "real" economy, where it can create more jobs, as he claims, rather it is parked on Wall Street, in hedge funds, stocks, bonds, any number of exotic financial products. As such, it is only taxed at the 15 percent capital gains rate, while most middle and upper middle class Americans find themselves paying anywhere from 25 to 35 percent marginal income tax. This is why Warren Buffett calls Representative Ryan and his colleagues the "billionaire-friendly Congress" — and why Obama plastered the Sage of Omaha's name on his new initiative. In reality, the money of the megawealthy feeds on itself. These trillions of dollars circulate between investment accounts, banks, and traders earning dividends and racking up returns as the prices of stocks and bonds shift, but it rarely ends up in a company's coffers, where it could actually be used to hire new workers. There is a reason, after all, why the richest Americans have kept on getting richer these past few decades while average pay and employment have languished.

But where Representative Ryan does have a point is that "class warfare may make for really good politics." From the Democrats' point of view, the "Buffett Tax" may be their best opportunity yet to target that odd class alliance at the core of the Republican party: America's blue-collar workers and the $1 million-plus club. The party's no-tax policy is clearly a boon for the latter group but not so much the former, who even the Tax Foundation, granted not the most unbiased source around, said got back more bang for their tax buck. Now, if only the Democrats knew how to make that point in a spiffy soundbite.

As it stands, the "Buffett Tax," and the broader (and more aggressive) deficit-reduction plan it is a part of, may be Obama's best bet at staving off his sagging popularity — at its lowest level ever, according to a recent CBS/New York Times poll — and an increasingly focused GOP field. It is a chance for the president to show the American people that he is willing to do more than the Republicans to set the country's fiscal house back in order. And with GOP lawmakers certain to hold the no-tax line, it may even reignite some of the incipient fury aimed at intransigent Republicans during the debt ceiling debate. But if Obama waffles again, strips out all revenue increases and caves into all of Boehner and the tea party's demands, then some people may start to wonder: When did we elect a Republican president?

Update: The speech will now take place in the Rose Garden on Monday at !0:30 am. It's now said that the plan's goal will be a $3 trillion reduction to the federal deficit. Obama is also expected to cut $248 billion from Medicare and $72 billion from Medicaid, though that money is supposed to come back through "new revenues." Additionally, he is expected to announce his intention to veto any supercommittee package that cuts entitlement program benefits without tax hikes for the wealthy.

Obama Tax Plan Would Ask More of Millionaires [NYT]
House Speaker: Tax Hikes not "viable" for special panel [CNN Money]
Obama to offer his own debt reduction package [AP]