Washington Dysfunction: Buffett Rule Defeated (For Now)

Yesterday, the Senate voted down debate on the ‘Buffett Rule,’ effectively ending push by Democrats, including President Obama, the most vocal proponent of the law, to make the rule law. In a highly partisan vote, the measure was voted down 51-45, with only one Republican voting to continue debate, and one Democrat voting against the bill.

Republicans, with their blind intransigence to any sort of tax increase, do not see the bill as a viable solution to addressing either the deficit problem or unemployment. House Majority Leader Eric Cantor has a better idea (more on that shortly).

Republicans essentially have two points of contention with the ‘Buffett Rule’. One, they argue, is that the bill does not significantly address the mounting debt in the country, which is true. The bill will only raise about $46 billion over 10 years. And that money would likely go to small businesses in the form of tax breaks for hiring new workers. Their second contention is that the target group, those making more than $1 million per year, is unfairly asked to pay an even greater share of the overall tax burden. Republicans argue that the wealthy pay an enormous sum of federal taxes, while many in the middle and lower classes pay nothing at all. Again, that’s all true, but when the top 20% control 80% of the total wealth of the country, yet only pay 40% of the total tax burden, their argument loses some leverage. And what Republicans never account in their “the wealthy pay enough taxes” argument is that the middle and lower classes pay a substantially higher proportion of their tax burden in state, local, and payroll taxes.

Republicans do, however, have an alternative solution. House Majority Leader Cantor is expected to bring a bill forward this week targeting tax breaks for small businesses in an attempt to spur investment and hopefully new hiring. The problems with Cantor’s bill are that one: the $47 billion price tag is simply going to be added to the deficit, a seemingly anathema proposal to Republicans over the past two years, but now do not seem to think much of a problem since tax breaks always lead to new hiring and hence more tax revenue. Except they don’t… And that’s the second problem, the Republican alternative relies solely on optimism and that business leaders will invariably invest their tax breaks back into their business to grow. But without customers, businesses are not likely to do any such thing.

At least with the Democrats proposal, the money generated from the ‘Buffett Rule’ will provide additional tax breaks to small businesses by incentivizing new hiring. Republicans protestations that the ‘Buffett Rule’ does nothing to address the unemployment problem are simply not accurate.

But I think this latest squabble again encapsulates perfectly the growing dysfunction in Washington. Republicans propose a plan that adds roughly $45 billion on to the deficit. Democrats have a plan ready to raise roughly $45 billion over the same time period. Why is it so difficult for any of the over 400 members of the House, or the 100 members in the Senate to see they need only put these two bills together? The costs offset. Republicans get their small-business tax breaks to spur investment (a popular position with the American people). Democrats get to raise taxes on the wealthy and address ever-so slightly the deficit problem (popular positions with the American people).

But I don’t foresee this happening. By doing so, Republicans would inadvertently admit that you can spur investment and growth by taking slightly from the rich and giving to the poor(er).