When the Senate returns from the congressional spring recess next Monday, it will take a procedural vote on legislation that would require people making more than $1 million annually to pay a tax rate of at least 30%.
It's unlikely that the so-called Buffett rule, named after billionaire investor Warren E. Buffett, will garner the 60 votes required to overcome a Republican filibuster. But this first step in the legislative process will make a political point for Democrats.
President Barack Obama and his party colleagues on Capitol Hill are pushing the theme of fairness in the tax code in the upcoming election and attempting to portray their Republican counterparts as promoting tax cuts for the wealthy.
“Congress is capable of taking on special interests, doing something that is fair and right, and standing up for the middle-class taxpayer — with the added benefit of $50 billion [over 10 years] going to [reduce] our debt and deficit,” Sen. Sheldon Whitehouse, D-R.I., said last Thursday in a conference call with reporters.
Mr. Whitehouse, who wrote the Buffett rule bill that the Senate will consider next week, knows his legislation likely will meet a solid wall of Republican opposition. If the 47 members of the GOP Senate caucus stay united, they can comfortably sustain a filibuster.
“This is yet another proposal from Democrats that won't create a single job or lower the price at the pump by a penny,” Senate Minority Leader Mitch McConnell, R-Ky., said in a statement Thursday. “This is yet another sign that they're out of ideas and simply focused on tax hike show-votes.”
Democrats don't intend to quit.
“Even if we come up short on the 60 votes needed, we're going to keep pushing this issue all year long,” said Sen. Charles Schumer, D-N.Y. “There's a decent chance it might pass, no matter what Republicans say now.”
Tim Steffen, director of
financial planning at Robert W.
Baird & Co. Inc., doubts it will happen.
“At this point in the election cycle, the importance [of a Buffett rule vote] is, it gives each side the chance to get the other on the record,” Mr. Steffen said.
POST-ELECTION DECISIONS
Between now and November, both parties will promote ideas that sharpen the tax policy debate. They'll put off until after the election decisions on whether to extend the Bush administration tax cuts set to expire Dec. 31.
For instance, the Republican-led House approved a budget last month that included a provision to reduce the current six tax brackets to two, and lower the top rate from 35% to 25%. Last week, Mr. Obama derided that plan as a sop to the rich.
But Jacqueline Pierre, founder of the investment advisory firm Good Steward Financial Services, said that the Buffett rule is not the right way to bring balance to the tax system.
“Taxpayers should be paying based on their ability to pay, not on this magic-threshold amount, which Congress thinks the wealthy should pay,” Ms. Pierre said.
The Buffett rule wouldn't necessarily set back most advisory firm clients, because it would be levied on people earning more than $1 million annually, not those with $1 million or more in assets.
“For our clients, I don't think the Buffett rule would come into play,” said Brian Fricke, president of Financial Management Concepts Inc.
DEBATE DISCONTENT
He echoed a frustration ex-pressed by several advisers about the federal tax and budget debate.
“There's all this talk in Washington about everyone paying their fair share, but nobody's talking about how good a job Washington is doing with the tax revenue they already receive,” Mr. Fricke said.
Ms. Pierre has noticed a similar attitude among clients.
“Too much time has been spent looking for loopholes, because people don't want to put money in the hands of the wasteful government,” she said.
There will be less money going to Washington if Congress approves other tax measures likely to come up shortly after it returns from spring recess. The House is poised to vote on a bill that would give businesses with fewer than 500 employees a tax cut equal to 20% of their income.
The measure would apply to a small business regardless of how it were set up. Subchapter S corporations — the format used by many investment advisory firms — would qualify.
Senate Democrats are offering an alternative bill that would offer tax cuts only to small businesses that hired additional employees or made capital purchases this year. They criticize the House legislation for potentially rewarding “millionaires and billionaires” involved in partnerships that do not create jobs.
Mr. Fricke welcomes the tax cut outlined in the House bill. He said the Democratic version smacks of big-government control of the economy.
“The marketplace will take care of job growth,” Mr. Fricke said. “The government doesn't have to get involved with stimulating that.”
But government does need to determine long-term tax policy, some observers noted.
“Let's put the effort into substantial, substantive tax reform,” Mr. Steffen said. “You can't keep getting by with these one-year patches, especially when the patches don't get extended until very late in the tax year.”
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