What is the purpose of government’s economic policy? Is the goal to achieve the greatest possible level of fairness, or to increase the nation’s economic growth? Of course, most would strive for some mix of the two, but ultimately one is usually given higher priority than the other.
In recent speeches on the economy, President Obama has placed himself squarely in the “fairness” camp. Of course, this is not a new preference.
During the 2008 Democratic primary, candidate Obama faced a question from moderator Charles Gibson. Gibson went through the history of capital gains taxes, giving instances where dropping the capital gains tax rate resulted in higher revenues for the government, with the candidate giving assent at each step in the question. But he answered by saying, “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for the purposes of fairness.”
Now in his reelection campaign, President Obama is sounding similar themes. He still advocates raising capital gains taxes, but his primary emphasis is on the so-called Buffett Rule, designed to ensure that taxpayers earning a million dollars in a year pay a minimum effective tax rate of 30 percent.
Facing annual deficits of more than a trillion dollars the last three years, and similar numbers in future years (and a total debt that has blown past $15 trillion), the President has made the Buffett Rule the central plank of his economic speeches. His administration says it is “a basic principle of tax fairness.”
The rule has to be framed as a question of fairness, because it has an entirely negligible impact on government revenues. According to the Joint Committee on Taxation, the rule would result in $47 billion in revenues over the next decade—an average of $4.7 billion per year. It sounds like a lot of money, but for comparison’s sake, that annual number represents 0.4 percent (that’s zero-point-four) of this year’s expected deficit of $1.2 trillion.
For those concerned with growth, we are going through one of the weakest recoveries in American history. Should there be more emphasis on policies designed to stimulate growth, bridge the deficits, and reduce the debt? Or is a focus on fairness, as the Buffett Rule and Occupy Wall Street represent, the appropriate goalpost for our president? November will tell.