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'Class warfare' or common sense? Obama's tax plans given slim chance in Congress

This article first appeared in the St. Louis Beacon, Jan. 29, 2012 - WASHINGTON - Billionaire investor Warren Buffett thinks he should pay more taxes. Ditto for billionaire Bill Gates. And so does millionaire President Barack Obama, as he made clear in his State of the Union addressand speeches around the country last week.

"If you make more than $1 million a year, you should not pay less than 30 percent in taxes," said Obama, calling on Congress to make tax-code changes including "the Buffett   rule" -- a reference to Buffett's argument that his secretary's tax rate of about 35 percent should not be higher than his effective tax rate of 17.4 percent.

With that secretary, Debbie Bosanek, sitting in first lady Michelle Obama's box in the House chamber, Obama conceded that some would call his populist tax message "class warfare." The president added: "But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense."

Some congressional Republicans rolled their eyes at that bit of political theater, but many Democrats -- including Senate Majority Leader Harry Reid, D-Nev., and assistant leader Sen. Dick Durbin, D-Ill. -- took up the call the following day for a fairer tax system that would include the Buffett rule and other tax initiatives that Obama outlined in his "Blueprint for an America Built to Last."

Durbin told reporters that the proposed 30 percent minimum effective tax for those making over $1 million a year "is not an outrageous amount. By historical standards, it is a moderate amount, compared to those rates that have been charged in the past." (ABC News reviewed tax rates since Eisenhower.)

Start of update: He and other Democrats cite studies -- including this Congressional Budget Office analysis -- that show the widening gap between the wealthy and the middle class over the last couple of decades. End of update.

The Illinois Democrat added: "It isn't a matter, as Republican critics would say, of paycheck envy or class warfare. It's a matter of reality. ... If we don't have a fair tax code, then those at the top who are getting off the hook, are going to add to our deficit or make it more difficult to provide the most basic services we count on in America."

But GOP Senate leaders dismissed Obama's plan as a mere re-election campaign blueprint and downplayed the chances of Congress approving a tax-code overhaul in an election year. "It's not going to happen," said Sen. Roy Blunt, R-Mo., who started last week in the 5th-ranking Senate GOP leadership position. "And I don't think the president intends for it to happen."

In an interview Friday, Blunt said the Buffett rule "makes no sense when you begin to peel pack the onion a little bit and see that -- for the Buffett rule to be a real rule -- you would have to start taxing capital gains and other investment income in ways that we never have, and for good reason." Why not? "If you tax that income, people don't take that risk. And you want them to take that risk."

Senate Republican Leader Mitch McConnell, R-Ky., has the same attitude, telling NBC's Meet the Press when congressional Democrats first floated the idea of a surtax on millionaires: "With regard to (Buffett's) tax rate, if he's feeling guilty about it, I think he should send in a check."

Even though Obama's tax-overhaul proposals are given little chance to move forward this year in Congress, Blunt and other Republicans predict that a way will be found to extend the payroll tax cut -- now scheduled to expire in a month -- until year's end.

"There are at least 70 senators, and maybe closer to 90 senators, who believe this problem needs to be solved," said Blunt. "Surely, they can figure out how to get [filibuster-proof] 60 out of that 90."

Overhaul of Tax System is Difficult

It is devilishly difficult to make major changes in the tax code, all sides agree, especially in an election year with the House and Senate controlled by different parties.

The last major revision in the tax code was a months-long marathon in 1986, during which former Rep. Richard A. Gephardt, D-St. Louis, and former Sen. John Danforth, R-Mo., played key roles -- and this reporter covered. Some called it the "battle of Gucci Gulch," a reference to the lobbyist-filled hallways outside of tax-writing committees.

At a Joint Committee on Taxation hearing last spring, Gephardt and former Treasury Secretary James Baker, who also helped shape the '86 tax overhaul, told lawmakers that the tax code should be revamped but also cautioned that a tax rewrite should be decoupled from the divisive budget debate in Congress.

"You've got to be bipartisan, you've got to have a core group that really believes in this and is willing to do the heavy lifting to get it done," said Gephardt, a Democrat who represented St. Louis in Congress from 1977-2005 and now heads a consulting and lobbying firm. "And I think it is important to try, if you can, to disassociate [tax reform] from the budget issue."

But separating the tax code from the nation's serious deficit and debt problems would be nearly impossible this year, lawmakers say. Obama, for one, has framed his tax proposals in the context of "economic fairness." He told House Democrats at an "issues conference" Friday that addressing the debt problems will require hard choices. "When we've got ... more than $1 trillion worth of tax breaks that were supposed to be temporary for the top 2 percent slated to continue, we've got a tax code full of loopholes for folks who don't need them and weren't even asking for them -- we've got to ask ourselves, what's more important to us?" Obama said.

"Is it more important for me to get a tax break, or is it more important for that senior to know that they've got Medicare and Social Security that's stable? Is it more important for me to get a tax break, or is it better for that young person to get a break on their college education? Is it more important for me to get a tax break, or is it more important that we care for our veterans?"

But Republicans contend that Obama is framing the tax issue in a populist, political mode -- not in a way that is likely to find compromise on Capitol Hill.

"The Buffett rule, as the White House explains it, is a joke," Blunt said last week. "Everybody that understands tax policy knows it's a joke." He alleged that Obama was playing "a trick on the American people" by implying that Buffett's tax rate has much to do with the top tax rate on earned income.

"If you don't reward risks in an extraordinary way, people don't take risks. And if they don't take risks, they don't create opportunity for others." He said that makes it "more difficult for American job creators and investors to take risks."

U.S. Rep. Todd Akin, R-Wildwood, contended that Obama "uses the bogeyman of the rich guy as a way of trying to convince people that he can spend recklessly. I have a hard time understanding why he is complaining about our tax code when 47 percent of Americans pay no taxes at all, and the top 1 percent are paying 40 percent of the taxes."

Sen. Claire McCaskill, D-Mo., told reporters in a conference call on Wednesday that she agreed with some aspects of Obama's tax proposals, including "the notion that we can make the rules of the road, in terms of taxes in this country, fairer." But she believes revamping the tax code should not be separated from interrelated efforts to cut yearly deficits and reduce the national debt.

"We've got to make changes to the tax code; folks at the very tippy-top can pay a little more and that can go toward the long-term debt," she said.

In December, McCaskill and Sen. Susan Collins, R-Maine., had proposedpaying for an one-year extension of the payroll tax cut by ending tax breaks for Big Oil and imposing a tax surcharge on millionaires that would include a "carve-out" that would exempt most small business owners who report their business income as part of their personal incomes.

Rep. William Lacy Clay, D-St. Louis, praised Obama for "speaking about the common American values that we all share, like hard work and everyone paying their fair share -- instead of a two-tiered tax system that rewards the very wealthy, while punishing the rest of us." Clay said he "would be open to consider some type of flat tax that taxed everyone at the same rate. It needs to be simplified."

Is 'Buffett Rule' a Campaign Move?

As Obama sharpens his focus on "economic fairness" and advocates a "Buffett rule" with little hope of it becoming law, many Republicans believe he is laying the groundwork for a general election campaign against the GOP's Mitt Romney, who reported paying an effective tax rate of about 14 percent last year.

Blunt, who backs Romney, said it was unfair to single him out. "I don't recall anyone saying anything about the tax rate that [former Democratic presidential candidate Sen.] John Kerry paid," which Blunt said was in the 14 to 16 percent range.

Blunt told reporters that Obama has kept adjusting his target for higher taxes -- which started at about a quarter million in income and is now millionaires -- "depending on what the polling has (indicated) about what people think are the wealthiest Americans."

"There's always been a belief in this country that you want to encourage people to take risk," Blunt said. "You could set the top rate where the capital gains rate is. ... But if you get that much higher than where it is now, people just won't take the risk that they need to tak. ... I really don't believe the president understands the risk/reward element of capitalism."

But Buffett dismissed such arguments in interviews this week in which he contended that hiking taxes on the wealthy would make the tax system fairer. He told ABC News that raising taxes "will not change my behavior. I have paid all different kinds of rates, and I've always been interested in making money."

While Buffett said his secretary Bosanek "works just as hard as I do and she pays twice the rate I do," Bosanek told the network that her presence during the State of the Union speech was representing "just the average citizen who needs a voice and wants to be treated fairly in the area of taxation."

A Forbes magazine columnist estimated that Bosanek is hardly a typical secretary -- likely earning more than $200,000 a year and recently buying a second home. But Buffett told the Omaha World-Herald that the columnist "doesn't have any idea, just zero," about the secretary's salary.

As for the avuncular Buffett, known as the sage of Omaha, his public reputation as sort of a billionaire populist is not exactly in synch with his reputation on Wall Street, which a Daily Beast article this week described as "a wily and extremely tough investor who uses both his outsized reputation and his billions of Berkshire Hathaway money to strike deals that no individual or indeed institution could ever hope to emulate."

Buffett said he does not blame Romney or other wealthy people for taking advantage of the lowest tax rates, but he also disagreed with Republicans who contend that the "Buffett rule" represents a form of class warfare.

"If this is a war, my side has the nuclear bomb," Buffett told ABC. "We have K Street" -- where lobbying firms have their offices. "We have Wall Street. ... I want a government that is responsive to the people who got the short straw in life."

Bringing the issue closer to the upcoming presidential race, Majority Leader Reid said Romney "is a perfect example of what's wrong with the tax code. An individual who makes, in a two-year period, $43 million and pays a tax rate of less than 15 percent, suggests that maybe things need to be changed a little bit."

Tax Overhaul Unlikely to Go Far This Year

While the Buffett rule got most of the publicity, Obama also called for other changes to the tax system during his speech.

He called for new tax breaks for companies to move operations back from overseas, as well as a new tax on multinationals to offset a tax break for domestic companies. Obama wants manufacturers to get a bigger tax break, and for doubling that break if they are high-tech firms with production in this country.

The president also proposed extending the tuition tax credit, expanding some tax relief for small business century and ending tax breaks for Big Oil while expanding tax credits for clean energy.

An analysis of the tax proposals by Taxpayers for Common Sense - a nonpartisan budget watchdog group -- agreed with some policy goals but predicted that, overall, the changes would make the tax code more complex (going against the general feeling that it should be simplified) and would not do much to help the nation's deficit and debt.

"Slathering on new tax breaks, preferences, and loopholes with one hand, while trying to prune the breaks elsewhere and increase some rates is never going to work," predicted the Taxpayers for Common Sense analysis.

"The last time a tax code thicket was cleaned out with a good burn was 1986. More than 25 years later we need a fire to sweep through the code and eliminate the underbrush of tax expenditures, breaks and loopholes."

McCaskill told reporters Wednesday that she favored some of Obama's tax proposals but wanted more discussion of ways to keep lowering federal budget deficits and tackling the nation's disturbing debt problem.

"Lowering the corporate [tax] rate was an important part of the president's speech, as we try to compete globally," McCaskill said. "But I also think it doesn't make sense to give folks a tax break when they want to move their companies offshore. I'm not sure the cost of moving jobs to other countries should be deductible on your [U.S. tax] return. And I think that is a very positive proposal" made in Obama's speech.

McCaskill said she wanted more discussion of the nation's debt and deficits because "we've still got real problems to grapple with, as it relates to the long-term debt of this country." Obama mentioned that he would be willing to talk about changes in the Medicare and Medicaid if the Republicans will talk about reforming the tax code in a way that gives more fairness to the middle class.

"It's going to take all three: spending cuts, some reform to Medicaid and Medicare, and obviously also some reform to the tax code," McCaskill said.

On Friday, Obama told students at the University of Michigan that "when people talk about me paying my fair share of taxes, or Bill Gates or Warren Buffett paying their fair share, the reason that they're talking about it is because they understand that when I get a tax break that I don't need . . . either the deficit will go up and ultimately you guys are going to have to pay for it, or alternatively, somebody else is going to foot the bill."

The list of the sorts of Americans who would "foot the bill" is likely to become a keystone of Obama's reelection campaign. As he told students, the list includes "some senior who suddenly has to pay more for their Medicare, or some veteran who's not getting the help that they need readjusting after they have defended this country, or some student who's suddenly having to pay higher interest rates on their student loans."

For that reason, Obama said, "we're going to push hard for the Buffett rule. We're going to push hard to make sure that millionaires, somebody making over a million dollars a year isn't getting tax breaks and subsidies that they don't need."

Start of update: But economists caution that raising taxes on millionaires would have a limited impact on the nation's budget deficits. In a column Monday, economist Robert J. Samuelson -- noting that the top capital gains tax rate was 28 percent under President Ronald Reagan, versus 15 percent today -- called on Republicans to back an increase in that investment tax rate that would meet the Buffett rule's goal.

But Samuelson argued that "the anti-wealthy populist rhetoric is mostly political expediency," mainly because revenue from the proposed millionaires' minimum tax -- estimated at $40 billion to $50 billion a year -- would not make much of a dent in the nation's budget deficits, which are projected to total about $8.5 trillion over a decade. It would be a mistake, he wrote, to "pretend, as Obama does, that taxing the ultra-rich would solve the deficit problem." End of update.

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.