Is “Buffett Tax” a good idea?

Warren Buffett Pictures, Images and Photos
Tomorrow President Obama will make a speech about his plan to get the U.S. debt under control for the long term. Reports have surfaced that he will announce tax reforms that are now known as the “Buffett Tax”. A few weeks ago, billionaire Warren Buffett (3rd richest person in the world, 2nd richest in the U.S.) wrote an Op-Ed in the New York Times about how he pays less tax than anyone else in his office, including his secretary. He suggested that the government should have some sort of minimum tax on millionaires so that they at least pay as much as middle income Americans. Right now, the tax code favours the rich, which makes no sense…unless you’re a Republican.

The Republican argument for having rich people pay a lower tax than the middle class is that the rich are the job creators and by increasing their taxes it will hurt job creation. In reality, historical facts don’t really back that up at all. More importantly, the premise does not make much sense. It is true that small businesses make up the most jobs in the U.S. It is also true that many of the rich are business owners. The problem with this theory is that increasing personal income tax on rich people has anything to do with job creation.

Businesses that hire people (meaning companies that are more than just a one or two person operation) typically cut a check to the owner just like they do to every other employee on a by-weekly basis. A personal tax increase on that rich owner will not affect the business’ tax rate or the business’ cash flow. Linking the two the way the Republicans do is simply misleading.

Hopefully the American people will put enough pressure on the Republicans to pass this tax reform plan or something very similar to it. It is a good idea that will reduce the debt and will do so while not hurting the economy or job creation.