US President Barack Obama, in a populist step designed to appeal to voters, will propose a “Buffett Tax” on people making more than US$1 million a year as part of his deficit recommendations to Congress today.
Such a proposal, among suggestions to a congressional super-committee expected to seek up to US$3 trillion in deficit savings over 10 years, would appeal to his Democratic base ahead of next year’s election, but may not raise much in revenues.
White House Communications Director Dan Pfeiffer said in a tweet on Saturday the tax would act as “a kind of AMT” (Alternative Minimum Tax) aimed at ensuring millionaires pay a minimum rate of tax that at least matches that of middle-class families.
The “Buffett Tax” refers to billionaire US investor Warren Buffett, who wrote earlier this year that rich people like him often pay less in tax than those who work for them due to loopholes in the tax code and can afford to pay more.
Obama will lay out his recommendations in White House Rose Garden remarks at 10:30am today and is expected to urge steps to raise tax revenue as well as cuts in government spending.
Those could include reforms of the Medicare and Medicaid government healthcare programs for elderly and poorer Americans. The White House has already said Obama would not recommend any changes to the popular Social Security federal retirement plan.
Obama, who has been hammered in opinion polls over his handling of the faltering economy, wants to use his plan to counter Republican claims he is a “tax-and-spend” liberal as he campaigns for re-election next year.
Congress is at liberty to ignore his suggestions and Republicans, who control the US House of Representatives, have said that they would not agree to tax hikes.
If the president pushes for tax increases that stand little chance of being passed by a divided Congress, it may help him blame lawmakers for thwarting his plans at a time when the public’s opinion of the US Congress has touched record lows.
However, he is also under pressure to show leadership after rating agency Standard and Poor’s cut the US’ “AAA” credit rating, and as investors scrutinize Washington for evidence it can curb the country’s towering deficit and mounting debt.
The super-committee of six Democratic and six Republican lawmakers must find at least US$1.2 trillion in deficit savings before the end of the year to avoid painful automatic cuts, and is mandated to seek savings of up to US$1.5 trillion.
Those savings are on top of US$917 billion in deficit reduction agreed to in last month’s deal to raise the US debt limit and Obama wants the super-committee to go further.
Obama has separately urged the super-committee to consider US$467 billion in tax increases on top of that goal to pay for a jobs bill he unveiled earlier this month.
He has repeatedly called on Congress to close tax loopholes for “millionaires and billionaires” as he seeks to draw a sharp distinction between himself and the Republicans before next year’s election.
The Buffett Tax could help energize Obama’s base by highlighting a feature of the US tax code that allows the super rich to pay lower rates of tax than less wealthy Americans because much of their income comes from investments.
Those are taxed at 15 percent, compared with income tax rates of 10 to 35 percent.