On Monday, the Senate defeated the Buffett Rule, a tax proposal that asked the wealthiest Americans to pay at least 30 percent of their income in taxes.
The proposal’s moniker alone indicated the dire need for such a measure. Its namesake, billionaire investor Warren E. Buffett, made a personal plea to Congress in August to “stop coddling the super-rich.” He pointed out that his secretary paid a higher federal tax rate than he did.
Buffett is right to see this as a glaring injustice. How do the rich end up with more tax breaks?
The simplest answer is that the rich tend not to make money in the same way most Americans do. The standard payroll tax only affects a small part of their income, while the vast profits they make from stocks, real estate speculation and other large-scale investments are sometimes left nearly untouched.
Many of America’s wealthiest persons, including Buffett and presidential hopeful Mitt Romney, make the majority of their money by the latter means. Thus, they get away with tax rates as low as 13.9 percent (Romney’s rate in 2010) while those in the middle range of taxpayers pay an average of 16 percent in taxes.
Republicans argue that high tax rates, particularly on the rich, hurt the economy by interfering with American laissez-faire capitalism. In reality, the ways the rich earn their money have the greatest potential to damage the natural market forces that make capitalism possible.
Large-scale corporate monetary operations, such as banking and big investments, allow for what is essentially a legal counterfeiting process.
For example, banks loan out a large portion of customers’ money as soon as it is deposited. When customers return to their bank to withdraw a large chunk of their cash, they get it — but now their funds have been doubled. The borrower gets the original, and the customer gets a hastily crafted copy. Because banks are not limited by a fixed amount of hard currency, they do not immediately need to account for the extra, invented funds.
Investment might be a good way to encourage cash flow, but it does not directly bolster the American economy. It does not lead to a product or a service and it does not create jobs.
That doesn’t mean investments are evil or unethical, but it does mean the government must find ways to tax investments and put them to good use in federal programs.
The proposal of the Buffett Rule came at a time when, as President Barack Obama said in his speech Tuesday at Florida Atlantic University, “The share of our national income flowing to the top 1 percent has climbed to levels last seen in the 1920s.”
Let us not forget the sickening decadence that was the tail of the Gilded Age: lavish parties, massive ballrooms illuminated with electric lights and summer homes with 20-foot ceilings and 30 rooms.
The Buffett Rule was not only just — it was practical. Congress might have failed to make it a top priority, but in deciding between Obama and Romney, voters would do well to keep it in mind.
Francesca Bessey is a freshman majoring in narrative studies.
Point/Counterpoint runs Fridays.