Michael Tanner

Shortly after President Obama was elected, NBC News interviewed a young woman from Detroit named Peggy Joseph. She explained that she was excited about Obama’s election because “I won’t have to worry about putting the gas in my car. I won’t have to worry about paying my mortgage.”

In the three years since, President Obama may not have actually paid her mortgage or filled up her tank, but judging from last night’s State of the Union address, he’s still trying.

The president’s address — more campaign speech than policy platform — was long on calls for “fairness” and “opportunity,” but it really boiled down to the president’s vision of a society where government does everything for everyone — financed, of course, by higher taxes on “the rich,” who need to pay “their fair share.”

The president’s argument ignores the fact that the rich already pay a disproportionate share of federal income taxes. In fact, the much-reviled 1 percent earns 16 percent of all income in this country, but pays 36.7 percent of all federal income taxes. One might conclude that this group is already paying its fair share.

Take, for example, the president’s renewed push for a so-called “Buffett rule,” based on the idea, in Obama’s oft-cited formulation, that investors such as Warren Buffett should not pay a lower effective tax rate than their secretaries. He even had Buffett’s secretary, Debbie Bosanek, sitting in the presidential box.

Buffett makes most of his money from investment income (capital gains and interest), and he pays a capital-gains tax rate on that money. That tax rate could theoretically be lower than the tax rate that Ms. Bosanek pays on her wage-based income, although only if Ms. Bosanek’s income is fairly high and she took few deductions. However, the president’s narrative ignores the fact that Buffett’s income had already been taxed at the corporate level. When the effect of both taxes is combined, the real effective tax rate is closer to 45 percent. That is quite a high rate on an inherently risky activity — investing — that our tax code should encourage.

And significantly, note that the president’s solution to this supposed problem is not to reduce taxes on Ms. Bosanek, but to raise them on Mr. Buffett.


Michael Tanner

Michael D. Tanner is a senior fellow at the Cato Institute, heading research into a variety of domestic policies with particular emphasis on health care reform, welfare policy, and Social Security. His most recent white paper, "Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law," provides a detailed examination of the Patient Protection and Affordable Care Act (Obamacare) and what it means to taxpayers, workers, physicians, and patients.