Obama's Taxing Psychology

Obama needs the Gandhi Rule, not the Buffett Rule, if he wants the rich to pay more taxes.

President Obama has been on the stump condemning Senate Republicans for the defeat of the so-called Buffett Rule, his plan to make high-earning Americans pay at least 30 percent of their income in taxes. The naysayers, Obama thunders, chose "once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class."

But if the president is serious about making the rich pay their "fair share"—as opposed to scoring political points in an election year—he needs the Gandhi Rule, not the Buffett Rule. In other words, he ought to apply the Gandhi quote that he repeated ad nauseam during his first campaign—"Be the change you wish to see"—to his own tax returns.

Obama's latest tax returns show that he paid a lower tax rate than his secretary, just like his billionaire buddy Warren Buffett. Buffett created a stir last year—spearheading the Buffett Rule—when he complained in an op-ed that he was not being taxed enough. His secretary paid a whopping 35.8 percent tax rate on her $60,000 annual income, while he paid a paltry 17.4 percent rate on his multimillions. There is some fuzzy math involved in this claim. But if this inequity was Buffett's real concern—as opposed to doing quid-pro-quo propaganda for the billions in bailout money that he received from Obama, as Peter Schweizer documented in Reason—he could have simply gone to the Treasury website and voluntarily paid more taxes.

If Buffett has trouble putting his money where his mouth is, he's not alone. Obama's tax returns (released last week) show that he paid a 20 percent effective tax rate on his $790,000 income—slightly lower than his secretary's and a whole four points lower than the average rate for people in his income category. He could have easily avoided this by filing his tax returns the way he advocates millionaires do—by forgoing all deductions. But he didn't. Not only did he claim a $47,564 mortgage deduction on his $1.6 million home in Chicago, he also claimed tax breaks on the $172,130—about 22 percent of his gross adjusted income—he gave to charity.

This would be perfectly legitimate for someone who didn't believe that the government is the best vehicle for doing good. But the president does. He has repeatedly said that the Buffett Rule is not about raising revenues to pay down the country's massive deficits and debt.

After all, 250 years of Buffett revenues wouldn't so much as pay for last year's deficit.

Rather, Obama insists that the rule is about "fairness," ensuring that the rich pay at least the same tax rate as middle-income people. But if that's the case, why didn't he hand Uncle Sam the donations he gave to charity or at least not take deductions for them?

It seems as if the president would rather give his money to literally anyone but the government. He didn't break any laws in the process, but many of his fellow tax-and-spend liberals in fact do. Indeed, Buffett himself is engaged in dueling lawsuits with the IRS over nearly $1 billion in unpaid back taxes. Treasury Secretary Timothy Geithner conveniently forgot to pay his taxes (even though the International Monetary Fund, his employer, gave him the money to do so). And in 2010, 41 White House aides owed $831,000 in unpaid taxes.

This is not to suggest that liberals are more dishonest than anyone else. But they are also no better. Despite all their lofty talk about using the tax code to ensure equity and fairness, they want to fork over as few of their hard-earned dollars to the government as possible—just like everyone else.

This isn't about selfishness or stinginess. Americans are the most charitable people on the planet and rich Americans give a bigger share of their income to charity than low- and middle-income Americans. Tax avoidance rather has more to do with the desire to retain control over one's money, to ensure it is used effectively for one's most valued causes (which, for most people, do not include $800,000 soirees in Las Vegas for General Services Administration personnel).

The blindness of many progressives to how this desire affects their own behavior perhaps makes it hard for them to understand the economic downside of higher taxes, the real issue here. Jared Bernstein, Vice President Joe Biden's chief economic adviser, was on the air this week insisting that letting the Bush tax cuts expire in January—the real tax battle, in which the Buffett Rule was just the opening volley—won't affect investments and growth.

But consider this: Sen. John Kerry, husband of the heir to the Heinz ketchup fortune, docks his yacht in Rhode Island instead of Massachusetts, his home state, where it would be subject to hefty taxes. Can anyone seriously believe that if the Bush cuts are scrapped and Uncle Sam once again starts taxing capital gains and dividends at 20 percent instead of the current 15 percent, Kerry won't put his money in tax-free muni bonds, blow it on expensive vacations, or stick it under his mattress? This will misallocate capital and reduce investments, none of which the economy can currently afford.

The point is that if you won't do voluntarily what you want to compel other people to do, your policy is unlikely to succeed. Call it the Gandhi Test. And the Buffett Rule flunked it—as will the coming liberal jihad against the Bush tax cuts.

Shikha Dalmia is a Reason Foundation senior analyst and a columnist at The Daily, where this column originally appeared.