Skip to content

Buffett, Obama & Portman

Sometimes one can find a real gem in a Congressional hearing like this one from a March 5 Senate Finance Committee’s hearing on the President’s FY 2015 Budget. Senator Rob Portman (R-OH) is in a colloquy with Treasury Secretary Jack Lew over the infamous “Buffett Rule,” Warren Buffett’s contribution to tax policy which is now incorporated in President Obama’s budget.

PORTMAN: Let me ask again, Secretary Lew, about the impact of taxes on the economy. Let me give you an example to be sure you know what I’m talking about. You got the Buffett Rule in here again this year. And you say we need to increase taxes on what is really investment capital because the latest joint tax committee—an analysis of this says that it essentially creates a 30 percent minimum tax on income over a million bucks, raised $71 billion over 10 years, payroll taxes count towards the minimum, phased in.

Most of the taxes they say are going to hit capital gains and dividend income, which you know, help fuel investment that brings economic growth. Is it possible that such a steep tax increase for these kinds of investment income could reduce economic growth by even 1/40th of 1 percent? In other words, from 2.445 percent, which is projected to 2.420 percent. One-fortieth of 1 percent, is that possible, those kinds of taxes on investment income could do that?

LEW: Senator, I’m happy to go back and look at different estimates. On the back of an envelope it’s hard for me to tell.

PORTMAN: Well, the reason I ask you that is because if so, then the entire $71 billion that you’re raising through that tax is negated by slower economic growth.

It’s encouraging to have allies on Capitol Hill like Senator Portman, who has been a friend of the ACCF throughout his incredible career, when he served on the Ways & Means Committee, as OMB Director and Special Trade Representative and now as an influential US Senator.

“Drafts”

With only 10 congressional working days left, Senate Finance Chairman Max Baucus (D-MT) and House Ways & Means Chairman Dave Camp (R-MI) are keeping a fevered pace to follow through on tax reform. They both know it’s not going to happen in 2013 but are preparing for 2014.

This week Senator Baucus is releasing tax reform drafts on international taxation, tax administration and capital cost recovery. Tax reform proposals specifically affecting the investor will eventually follow. Congressman Camp said his tax reform plan will be out next month or in January. While he hasn’t shown any of his cards yet, Camp said his draft plan would be “revenue and distributionally neutral.”

Is tax reform possible in 2014 during mid-term elections? Absolutely. Remember the 1986 Tax Reform Act also succeeded during bitter partisan times and in the heat of the campaign season.

254505-MWith individual tax reform proposals likely to be announced as soon as the end of this month, the investor faces three headwinds. First, today’s tax reform proposals are based on an income tax model which rightfully reduces marginal tax rates but wrongly does so by penalizing saving and investment, including the tax treatment of capital gains. Second, the “Simpson-Bowles” plan, the Congressional Budget Office’s new report, “Options for Reducing the Deficit,” and, very importantly, the Tax Reform Act of 1986— the model for today’s tax reform discussions—propose increases in capital gains taxes. Third, today’s populist environment cries out for higher taxes on the wealthy with a bull’s eye on capital gains and other provisions important to the investor. Finally, businesses may be willing to play along with higher rates on saving and investment provisions as long as their own respective pet provisions are protected. If we go down this road, we will see a repeat of what happened in 1986 as documented in the historical book Showdown at Gucci Gulch.

For more than three decades the ACCF has said that tax reform should not only be about tax rates, but also the tax base. Switching from our current income tax to a consumption-based tax system would increase saving, investment and economic growth, provide a simpler tax regime and fairer tax system because concerns about progressivity could be addressed. See ACCF report here. Under this system, capital gains and other investor provisions would not be penalized.

The battle is just beginning and the ACCF will be on the front lines, just as we were in 1978, 1981 and 1986.

Ultra-Marathon

Once again, by the skin of the teeth, Congress and the President inked an eleventh hour deal to reopen the government after a 15-day shutdown and avert a default on U.S. debt. That’s the good news.

The bad news, of course, is that our leaders in Washington remain incapable of breaking their habit of “governing-by-crisis.” The past several weeks have left a bad taste in the mouths of just about everyone—voters, the media, business community, Wall Street and investors.

What now? Many might suggest collecting our marbles and going home, and who would blame them? But I am reminded of a similar time many years ago when I discussed policymaking and our gridlocked leaders with a frustrated ACCF supporter. After much discussion we agreed that we have to persevere and continue the fight.

That leads me to Senate Finance Committee Chairman Max Baucus, who is an active runner. Through determination and perseverance he finished the “JFK 50 miler.” Most recently, Ways & Means Chairman Dave Camp joined Baucus on another kind of marathon. Over the last year they have devoted themselves to tax reform, understanding the ups and downs of this long road, including traveling coast to coast to meet with taxpayers and businesses to get their perspectives on tax reform.

Just last week, both tax-writing chairmen thanked the ACCF.

Baucus noted:

“For three decades, the ACCF has provided a forum where Members of Congress, from both sides of the aisle can gather to discuss key economic and tax issues. We need these conversations to continue.”

Camp similarly noted:

“After 30 years, the ACCF provides one of the hottest tickets in town—a meaningful dialogue about some of the most critical issues facing our nation—of course tax reform remains at the top of that list.”

“Tax reform” will be part of the new 90-day sprint on a budget deal. The ACCF is uniquely positioned to promote pro-investor and pro-growth tax policy. We remain the only organization with a three-decade run that has bridged the divide between Democrats and Republicans, Progressives and Tea Party members, earning accolades from congressional committee chairmen and other leading policymakers.

Winston Churchill once said, “You can always count on the Americans to do the right thing after they have tried everything else.” That’s important to bear in mind as we get a temporary reprieve and resume the ultra-marathon once again.

P.S. This week marks the centennial anniversary of the income tax. Yet another reason to remain committed to the ultra-marathon for pro-growth tax reform.

Hill Tube: ACCF’s 200th Economic Policy Evening

My interview with Bob Cusack, Managing Editor for The Hill on ACCF’s 200th Economic Policy Evening and a look back at our last thirty years.