The minimum tax mutation

On Tuesday evening, the Wall Street Journal looked at the ever-shifting rationale offered for President Obama’s “Buffett Rule” obsession, noting that once upon a time Obama assured us this pitiful 0.1% increase in federal revenue would be enough to “stabilize our debt and deficits for the next decade,” but these days White House aides are saying it was “never intended to bring the deficit down and the debt under control.”  Instead, it’s a all about establishing “a basic issue of tax fairness.”

Although the Journal has other fish to fry in their editorial, it should be noted that the Obama Administration is blatantly and openly lying about whether or not he ever claimed the Buffett Rule would address the deficit.  His explicit statements that it would do so, quoted by the Wall Street Journal above, were delivered during a State of the Union address, and the Weekly Standard noted that the President’s official web site still says “The Buffett Rule would reduce the deficit while helping to pay for investments in education, clean energy, jobs, and other programs that will help our economy grow…” but on Tuesday White House press secretary Jay Carney asserted that “no one ever suggested that implementing the Buffett Rule would contribute in large measure to reducing the deficit.”

The most interesting fish sizzling in the cast iron logical pan of Tuesday’s Wall Street Journal editorial is that class warfare rhetoric always sounds nice and simple, but the implementation invariably turns out to be dizzying in its complexity, as “fairness” mutates faster than the graduating class of Professor Charles Xavier’s School For Gifted Youngsters:

The Buffett tax would only make loopholes more valuable. The White House has already carved out one exception to its own Buffett rule: charitable donations. So a billionaire could avoid the 30% effective tax rate by giving away millions of dollars—say, the way Mitt Romney so generously does.

Want to guess how long it will take for the suits on K Street to get busy trying to reinsert tax breaks for “investments” in the likes of municipal bonds, mortgages, energy-efficient toasters, windmills or by Chuck Schumer’s hedge-fund buddies?

The century-long history of the federal income tax teaches us one lesson over and over: The higher the tax rates, the more loopholes Congress inserts as a way around those rates. This is why the government collected roughly as much tax revenue as a share of GDP when the top tax rate was 70% in the 1970s as it did when the rate fell to 28% in 1986.

Of course that’s what will happen.  Government is power, liberals worship power, and the ability to shape both society and the economy through a complex tax code is one of the greatest powers the leviathan State enjoys. 

Among its other attractive features, this power is easy to present to the public as pure generosity and wisdom.  There is never any talk about how the rest of us pay higher taxes to fund tax exemptions the Left favors.  They only become evil “loopholes” and outrageous “subsidies” when the recipients are politically out of favor.  The opportunity cost of beating free-market choices into compliance with centrally planned agendas is never discussed. 

In addition to watching the politically well-connected drill loopholes into higher tax rates, we also see exemptions appear rapidly when mindless class-warfare politicians realize they have wrapped their hands too tightly around the neck of the private-sector geese that lay their golden eggs.  Nothing is more predictable than the dreary saga of self-proclaimed “technocrats” promising to “Win the Future” by granting a flurry of waivers and targeted tax breaks, while the economy collapses under the weight of their attempts to impose “fairness.”

The Buffett Rule is really just a virulent mutation of the Alternative Minimum Tax, which was also originally proposed as a precision-guided weapon of fairness, aimed at a tiny handful of “millionaires” who weren’t paying enough taxes.  Now it hammers millions of taxpayers every year, and according to the Tax Foundation, most of them earn between $150,000 and $500,000 per year.

These alternative minimum tax ideas are a fundamental act of dishonesty by Big Government, because they allow government to retain its power to shape the private sector through targeted tax breaks… but then yanks the rewards away from anyone who pursues those incentives with too much vigor.  Many of these exemptions are designed to reward specific behavior, which the government finds desirable.  Obey this complex agenda too aggressively, and you magically become an Evil Rich class enemy who needs to be punished.  Reach for too many carrots, and you get the stick.

President Obama’s own arguments are a powerful admission that the type of monstrous, all-encompassing corporatist government he favors is inherently corrupt.  It manipulates the citizens with tax-code illusions, and the instruments of manipulation also violate its own self-professed principles of “fairness.”  The old “deficit reduction” argument could be interpreted as a claim that the government can’t afford to hand out all the incentives it promises.  The new “fairness” argument asserts that our bloated tax laws are corrupt… but instead of replacing them with a simpler and more reasonable system, a flatter tax will be imposed on top of the corruption.

By the middle of the week, Obama was reduced to picking up a stupid argument offered to him by far-left blogs, and claiming Ronald Reagan would have favored the Buffett Rule.  As Phillip Klein at the Washington Examiner explains, anyone who actually reads the speech where Reagan spoke of executives and their secretaries will see that he was making the exact opposite point from Barack Obama:

“Lower, flatter tax rates will give Americans more confidence in the future,” Reagan said that day. “It’ll mean if you work overtime or get a raise or a promotion or if you have a small business and are able to turn a profit, more of that extra income will end up where it belongs — in your wallets, not in Uncle Sam’s pockets.”

So there are several key differences with Obama. To start, Reagan was talking about simplifying the tax code, whereas Obama’s Buffett Rule would add another layer of complexity. Reagan was arguing for allowing people to keep more of their own money and reduce the burden of government. By contrast, Obama is arguing for instituting the Buffett Rule so that more money is available to pay for government programs.

America will be hard-pressed to endure four more years under someone who thinks “fairness” requires installing a pit full of alternative minimum spikes at every exit from the tax code maze.