Approaching Warren Buffett Without Violating Grover Norquist

Warren Buffett, (left) the third wealthiest person in the world, believes that the richest Americans should pay their fair share in taxes. “How can this be fair?” Buffett asked, regarding how little he pays in taxes compared to his employees. The so-called “Buffett Rule” would require billionaires to pay at least the same marginal income tax rate as Americans making $388,350 per year.

Nearly all of his income is taxed at the 15% top marginal rate for dividends and capital gains, the same rate as workers making under $44,000 in wages. The income for most Americans, the 99% if you will, is from wages, not investment income, unlike many in the 1%. Wages for the 99% are taxed up to a 35% marginal rate. Treating investment income the same way we treat wages would go a long way to restoring tax fairness.

Buffett also believes firmly in the inheritance tax, saying that repealing it would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.

Unfortunately, making these common sense changes is impossible because of Grover Norquist (right). Grover Norquist is the founder and president of Americans for Tax Reform. Presidential candidate Mitt Romney and over 95% of all Republican Congressmen have signed Norquist’s “Taxpayer Protection Pledge” requiring them to “oppose any and all efforts to increase the marginal income tax rate for individuals and business; and to oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates”.

These Congressmen hold a majority in the House of Representatives and block any action in the Senate through their misuse of the filibuster.

It would therefore seem impossible to get past Norquist, but there is a gambit that just might work.

First, do absolutely nothing until January 2013 at which time, absent action by Congress and President Obama, all of the Bush tax cuts will finally expire restoring 2001 marginal tax rates:

  • 15% for first $43,850 (assuming married filing jointly),
  • 28% on the next $62,100,
  • 31% on the next $55,500,
  • 36% on the next $126,900, and
  • 39.6% on any remaining income.

Once rates are restored to the levels we had in the Reagan and Clinton era — a time of economic prosperity it is well to remember — Democrats will have enormous leverage to push Republicans to accept a more progressive tax code. By packaging the Buffet Rule with lower rates for the 99%, the Democrats would force Republicans into voting for the Buffet Rule as part of a package of tax cuts for the vast majority of working Americans (retroactive to January 1, 2013) in order to keep their pledge. Should they fail to do so, they would be widely and rightly pilloried for serving not the 1% but the .01% making in excess of $5,000,000/year and spitting in everyone else’s eye.

This change would be considered a tax cut according to Grover Norquist’s pledge, and could be at least partially offset by increasing the tax on investment income from 15% to something more comparable to the income blue-collar Americans earn through their blood, sweat and tears.

The alternative would be to vote out Congressmen who insist on voting according to their pledge to a lobbyist instead of according to common sense and the wishes of the overwhelming majority of Americans. But that’s just crazy talk.

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