The “Buffet rule” bill, Senate Bill S. 2059, Paying a Fair Share Act of 2012, was shot down Monday.  The bill is a tax proposal by President Barack Obama from 2011 forcing the nation’s top earners to pay at least 30 percent of their income in taxes.  Once again, in a completely politically motivated ploy, Barack Obama and his Democratically lead Senate, proposed the bill on the day before Americans pay their taxes.  This nonsense is one of Obama’s signature election-year issues.

The bill faltered with a near party-line 51-45 tally.  The vote by senators keeps the bill alive but falls nine votes short of the 60 needed to continue debating the measure. The anti-climactic result was not a surprise since the a vote was designed more to win voters and embarrass senators, than to pass legislation into law.  Obama denounced the vote, saying Republicans chose “once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class.”  The rule was not even in the President’s 2013 budget proposal and the White House initially stressed it as a guideline rather than a legislative initiative. The Buffet Rule, however, was later submitted for deliberation as Senate Bill S. 2059, Paying a Fair Share Act of 2012.  Wow, does that seem politically motivated?

Let’s see how the statement by Obama stacks up with the numbers.  People making $1 million or more annually paid an average effective rate of 25 percent last year in federal income and payroll taxes that finance Social Security and Medicare, according to the nonpartisan Tax Policy Center.  Those earning $50,000 to $75,000 paid an average effective rate of 12 percent, the group said.  Hmmm, it looks like wealthier folks pay more taxes!  Obama would just love to impose a minimum tax of 30 percent on any American earning more than $1 million a year.  In January, the president touted the idea as a way to balance the budget, slash the debt and, above all, impose more “fairness” upon the land.  However, administration officials have conceded that by itself it would do little to trim budget shortfalls.

Clearly, the “Buffet Rule” will not fix the deficit, but it sounds good as a re-election gimmick, albeit a lame one. The Treasury Department says the scheme would raise at most $5 billion a year; $47 billion over the coming decade, barely enough to notice against nearly $7 trillion in budget deficits.

“This legislation will do nothing with regard to job creation, with regard to gas prices, with regard to economic recovery,” said Sen. Jon Kyl of Arizona, the No. 2 Senate GOP leader.  Democrats’ goal, he said, was “to try to draw attention away from the issues that the American people are most concerned about.”

Back to the numbers.  Under the current code, about half of all Americans pay no income tax, or in some cases receive a “refund” on taxes they didn’t have to pay in the first place. Meanwhile, America’s richest 5 percent who earned 31.7 percent of the nation’s adjusted gross income in 2009, and paid roughly 58.7 percent of federal income taxes, according to the Tax Foundation.

Golly, Obama knows the wealthy already foot the tax burden for the country, but since he has no plan to fix the budget or the economy, he might as well shout about nothing and attack American patriots!

Let’s look at Paul Ryan’s budget plan.  Ryan proposes to reduce the current 6 federal income tax rates to just 2, 10% and 25% (previously proposing the 10% rate would apply to couples earning less than $100,000 a year, and singles earning less than $50,000, with the 25% rate applying to incomes above $100,000).  But in the budget he rightly leaves those precise thresholds to be determined as necessary to leave the reform revenue neutral.

Ryan also proposes to reduce the federal corporate income tax rate from 35% to 25%, the same rate as in China and the international average.  Ryan’s proposed reduction is the minimum needed to restore global competitiveness to American business.

The Congressional Budget Office (CBO) score of the Ryan budget has federal revenues virtually double over the next 10 years from $2.444 trillion today to $4.601 trillion by 2022. That is a huge revenue increase, roughly $2.2 trillion.

This estimate is undoubtedly lower that what will actually result from Ryan’s plan.  The CBO uses a simple minded, static scoring method that forecasts no increase for additional revenues resulting from economic growth stimulated by the tax rate cuts in Ryan’s budget.  Such rate reductions would encourage increased production because the marginal tax rate, the tax rate applied to the last dollar of earnings, drives the incentives for production.  Reduced taxes sharply increase incentives for all productive activities, resulting in more jobs, higher wages, and faster economic growth.

What does history tell us?  In 1997, Congress proposed a cut in the capital gains rate from 28% to 20%.  The CBO estimated that revenues would increase by $7.8 billion from 1997 to 1999, but turn to a loss of $28.8 billion over the following 7 years, estimating a net loss of $21 billion over 10 years. The actual numbers after the 30% tax cut was passed resulted in an increase of $84 billion over the pre-tax cut projections for 1997 to 2000.

Similarly, in 2003, when Congress again proposed cutting the capital gains rate from 20% to 15%, the CBO estimated that this would result in a loss of $5.4 billion in revenue between 2003 to 2006. However, capital gains revenues increased by $133 billion during those years.

President John F. Kennedy, Obama’s supposed role model, understood the concept and proposed legislation to reduce income tax rates across the board by nearly 30%.  Kennedy said:

“It is a paradoxical truth that tax rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates….[A]n economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or enough profits.”

Kennedy’s tax rate cuts were adopted in 1964, cutting the top tax rate from 91% to 70%, as well as reducing the lower rates. In 1965, economic growth soared by 50% and income tax revenues increased by over 40%!  By 1966, unemployment had fallen to its lowest peacetime level in almost 40 years.

Similarly, President Reagan cut tax rates by 25% across the board, and reduced the top income tax rate from 70% down to just 28%.  Te result, federal tax revenues doubled during the 1980s.

The budget cannot be balanced without a combination of spending cuts and increased tax revenue.  Not raising tax rates, but spurring increased revenue through economic stimulation.  Ryan’s budget would produce sharp increases in revenues even under CBO’s byzantine static scoring.  The dominant effect on the deficit comes from the economy, not tax policy.  If the economy is booming, creating strong revenues, then the deficit declines sharply. If the economy is weak, resulting in lagging revenues, then the deficit grows, even in the face of tax increases.

The last couple of times we tried the opposite, raising taxes, the economy faltered, revenues dropped and the budget deficit soared.  President George H.W. Bush’s 1990 budget violated his no tax increase pledge (“Read my lips, no new taxes”), in return for promised spending cuts.  Those tax increases pushed the economy into recession, with the deficit ballooning over the next two years, from $221 billion in 1990 to $290 billion in 1992

In 1993, President Clinton and a Democrat Party controlled Congress approved a tax increase for promised spending cuts as part of another budget deal.  With the deficit exploding, the country “cleaned the house” in 1995, electing a Republican Congress.  They cut the capital gains tax rate by 40%, and reduced other tax burdens on capital investment and sharply restrained federal spending. Between 1994 and 2000, federal spending fell by 14% leading to an economic recovery and ending fifteen years of continual $200 billion federal deficits.  Starting in 1998, and continuing for 4 years, the government ran surpluses peaking at $236 billion in 2000 resulting in total surpluses of $559 billion, the largest reduction in federal debt in U.S. history.

Ryan’s budget follows the one proven process to balance the budget; cut tax rates leading to a booming economy and robust tax revenue growth, while restricting federal spending so that revenue moves above spending .  In fact, the CBO (even with its static scoring model) states that by the fifth year under Ryan’s budget, the federal deficit is reduced by 86%, from $1.327 trillion to $182 billion.

Ryan’s budget restores federal revenues to their long term average over the last 70 years of 18.3% of GDP.  Conversely, under the Obama budget policies federal spending soars to 30% of GDP by 2027, 40% by 2040, 50% by 2060, and 80% by 2080.

So you decide.  Obama, communism and a destitute nation or Ryan and the Republican proposal resulting in growth, balanced budgets and prosperity for the USA.  That is what the 2012 election is about.  The tax code should reward investment and encourage growth, not punish it or drive wealth overseas.  Ryan has a plan.  Obama has rhetoric and the “Buffett Rule.”  Come on Americans, support common sense and American values.

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