Taxing millionaires might be smart politics, but not much more. It's definitely not a serious plan for lowering the unemployment rate.
On the seventh and final page of its background report on the "Buffett Rule," out this morning, the Obama administration finally dives into what it calls "the economic rationale" for imposing a new minimum tax rate on millionaires. If you're an unemployed American, that placement should be your first red flag. The second should be the rationale itself. Once you read it, you'll realize the Buffett Rule has nothing to do with helping you, or the 13 million other Americans looking for work as of March, find a job.
Voters overwhelmingly want the presidential election to focus on jobs and the economy. In Florida today and on the campaign trail for months to come, President Obama will attempt to narrow that focus to the idea that wealthy Americans should pay at least the same effective income tax rates as their middle-class counterparts.
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That's not a jobs plan in anything but the most abstract, long-run terms. As the White House puts it at the top of the Page 7 "economic rationale" section of today's report: "Economic research has shown that taxes are more efficient (or less distortionary) when taxpayers have fewer opportunities to avoid them. The Buffett Rule would reduce these opportunities for the highest-income Americans, limiting the extent to which they can take advantage of inefficient tax shelters or accounting mechanisms to avoid paying taxes."
What that means in English is that Obama wants to simplify the tax code for the wealthy. This is, broadly speaking, good for the economy in the long term. Economists generally agree that simpler tax codes with fewer breaks tend to yield stronger growth. Obama and leading Republicans, such as likely GOP presidential nominee Mitt Romney and Rep. Paul Ryan, R-Wis., all praise the idea of loophole-closing, base-broadening tax reform as a vehicle for future growth.
The Buffett Rule, though, isn't a full tax-reform plan. It's just a small chunk of one -- less than $5 billion a year, if you assume that the Bush tax cuts expire at year's end. Which is to say, it's certainly not big enough to jolt growth any time soon.
It's also not nearly enough to dent the widening income inequality in America that research suggests is a serious underlying problem in the economy but probably not the main driver of persistently high unemployment now.
If the Buffett Rule was a serious pitch to help the jobless, it would deal with one of those main drivers of unemployment. It would boost persistently weak aggregate demand or incentivize business investment. It does neither. Instead, it tells America's job-seekers, Don't worry, we're going to make the tax code look more fair to you. Lots of polls suggest that's a good political argument. But that's what it is: a political pitch.