Is Obama using Buffett Rule trickery to raise taxes on individuals making $125K or more?

There's an old adage that says:

Figures don't lie,

but

Liars sure figure.

During the past several months, the President of the United States has been running around the country claiming that millionaires do not pay their fair share of taxes. He's championing the "Buffett Rule", which asserts:

• "About 55,000 millionaires pay a lower effective tax rate than millions of middle-income Americans".²
• "President Obama has proposed the Buffett Rule, based on the simple idea that people who make more than $1 million each year pay at least the same share of their income in taxes as middle-class families do" ¹

Then, he switches from millionaires to the affluent, those making $250,000 per year:

• "Instead of giving more than a trillion dollars in tax breaks to the very wealthiest Americans those who make more than $250,000 a year ..."¹
• ".. it makes it affordable for us to be able to say for those people who make under $250,000 a year -- like 98 percent of American families do -- then your taxes don’t go up." ¹

But, actually, he means households earning $250,000 per year and individuals making $125,000 per year. ⁷

So, why is Obama promoting this bait and switch plan?

The answer is two-fold.

First, Mr. Obama needs to receive public support for this tax raising plan. In order to do this, he attacks millionaires because there are there are not many of them, and most people are envious of this successful group. According to various sources (which vary slightly), there are approximately

• 4.6 million households - 4%⁴ (in 1998),
• 5.94 households - 5.08%⁵ (in 2011), or
• 3.1 million individuals⁶ (in 2010),

who can be classified as millionaires. Of these,

• "North American millionaires had a combined wealth of $11.6 trillion"⁶, and
• "40,000 individuals had wealth of $30 million or more"⁶, (2010)

Here we can conclude two fallacies in Obama's logic:

1. Of the 55,000 millionaires that Obama cites, about 72.7% have wealth of at least $30 million, and
2. Since the combined wealth of all millionaires is only $11.6 trillion, it is impossible for this entire group to receive more than a trillion dollars of tax breaks each year.

This all means that by taxing the millionaire group as a whole will not yield significant tax revenue for the Obama Administration to lavishly spend and give away to his donors.

Thus, the second reason for bait and switch. To gain sufficient revenue, Obama must tax a larger group. Thus, he switches his logic to those earning $250K per year. This was best explained by FactCheck.org during the 2008 election:

• "For simplicity, we’ll just focus on the over-$250,000 group. Those reporting adjusted gross income of more than $250,000 to the IRS are projected to make up 2 percent of households next year, when the new president will take office. Those folks will earn 24.1 percent of all income, and pay 43.6 percent of all personal federal income taxes, the Tax Policy Center figures. Under either Obama or Clinton, they might pay even more".⁷

Notice that while this group makes up approximately 2% of households (consistent with Obama's 98% of others), they earn 24% of all income and pay 43% of all taxes.

But, since households usually consist of two or more individuals, Obama must insure individual taxpayers pay their fair share as well, i.e. individuals making $125,000 per year:

• "Joint returns with more than $250,000 adjusted gross income and single returns with more than $125,000 adjusted gross income together are estimated to make up 3.1 percent of households next year. That group is projected to earn 27 percent of all personal income and pay 47.9 percent of all personal federal income taxes in 2009, according to the TPC’s calculations".⁷

So now that the switch is complete, we have increased the taxes of those earning 27% of all income and who pay nearly 48% of the federal income taxes.

Why should you care. All U.S. taxpayers should be concerned about Mr. Obama's Buffett Rule ploy for several reasons:

1. With a minimum of $125,000 income threshold, single older individuals who are at the peak of their earning potential will suffer most (policemen, firemen, teachers, municipal workers, doctors, health care providers, Obama Administration employees, etc). These are people whose spouse may have died, divorced, or perhaps never married.
2. With the $250,000 household income threshold, those with two family members working, and children under the age of 22 who are working or saving for college will be forced to pay higher taxes.
3. The 40,000 individuals worth $30 million or more will simply move their money and primary residences off shore to avoid taxes. 
4. A President who wants to raise your taxes should be blunt and say so directly, not intending to trick the public by pretending to tax one group only.

Aside

As an aside, the President and Vice President released the 2011 Tax returns today. Using the White House Buffett Rule Calculator , we find that:

• the Obama's effective tax rate was 23%, and
• the Biden's effective tax rate was 26%.

Since both of these households paid less than Mr. Obama's proposed Buffett Rule minimum of 30%, we encourage both the President and Vice President to voluntarily making up the difference now by paying an additional 7% and 4% of taxes rather than waiting for an Executive Order.

By doing this, the President would demonstrate that he is leading by example and not rhetoric.

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Sources:

1. President Obama Makes the Case for the Buffett Rule
2. The Buffett Rule
3. President Obama and Vice President Biden’s 2011 Tax Returns
4. Fewer Millionaires Than Thought in U.S.
5. US States With the Most Millionaires 2011
6. U.S. Has Record Number of Millionaires
7. Americans Making More than $250,000