President Barack Obama has identified tax reform as one of the few areas where he thinks he could find some agreement with new Republican congressional leaders in the coming months.
Taking it in the opposite direction, Rep. Louie Gohmert, R-Texas -- who just ran a failed attempt to take over as speaker of the House -- said Congress should just do away with the current tax code to put Obama on the defensive. In an appearance on Fox News Jan. 5, he said that would show Republican constituents that members of Congress are standing up for conservative values.
"There are people in the party that are willing to stand up and fight for the very things we promised we would do," Gohmert said. "We can put Obama on the defensive just by completing getting rid of the Internal Revenue code. I want a flat tax. Obama has said that, you know, it's a travesty for (billionaire Warren) Buffett to pay less in percentage than his secretary, yet he's not proposed one thing that would change that. We can do that."
Gohmert’s comment that Obama hasn’t proposed one measure to address tax inequality struck us as suspect right off the bat, considering Obama’s interest in tax legislation -- not to mention his well-publicized 2012 "Buffett rule" campaign.
We asked Gohmert’s office for comment several times but didn’t hear back.
The Buffett rule
For years, Buffett, the chairman and CEO of holding company Berkshire Hathaway, has said several times he pays a lower percentage of his income in taxes than anyone else in his office -- including his secretary. In 2011, he said that he pays 17.4 percent of his income in taxes, while others in his office (who have much, much lower incomes) -- paid around 36 percent.
Buffett, one of the richest people in the country, sees that as unfair and a problem. The discrepancy between Buffett and his secretary became a familiar refrain for other advocates of so-called tax fairness, including Obama.
"Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households," Obama said in his 2012 State of the Union address. "Right now, Warren Buffett pays a lower tax rate than his secretary."
But Obama didn’t just mention the Buffett paradox in passing without offering a solution, as Gohmert implies. In the very same State of the Union speech, Obama made a proposal to change the tax code so that it complies with the "Buffett rule" -- which attempts to ensure that high-income people pay a certain percentage of their income in taxes that is at least higher than what middle-class people pay.
"Tax reform should follow the Buffett rule. If you make more than $1 million a year, you should not pay less than 30 percent in taxes," he said. "Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense."
The Buffett rule proposal came to Congress in the form of the Paying a Fair Share Act of 2012, sponsored by Sen. Sheldon Whitehouse, D-R.I., and endorsed publically by Obama. (Procedurally, the president can’t introduce legislation; only members of Congress can.)
The bill, which failed in the Senate that April, would have required all people making more than $2 million per year to pay a minimum tax rate of 30 percent. People making between $1 million and $2 million would see their minimum tax rates increase on a sliding scale up to 30 percent.
Obama has proposed tax reform that involves observing the Buffett rule in his budget proposals for fiscal years 2013, 2014 and 2015. And it was a major point of his 2012 campaign, as he could point to the fact that his Republican challenger Mitt Romney paid an effective tax rate of 14 percent on his $42 million in earnings in 2010 and 2011.
There is some debate over how many people would be impacted by the Paying a Fair Share Act and the Buffett rule. There’s also a lot of debate over whether or not the Buffett rule is good for the economy, or if it would further complicate the tax code, but neither of those are the point at issue here.
The bill wouldn’t have affected all wealthy people in one sweeping motion. Most ultra-wealthy households already pay a higher effective tax rate than the average middle-class American, noted Kyle Pomerleau, an economist with the Tax Foundation, a business-backed group.
According to the 2012 Economic Report of the President, the median average tax rate for the middle 20 percent of Americans, in terms of earnings, was 13.3 percent. The median average tax rate for the top 1 percent of earners, on the other hand was 29.6 percent. Only one-tenth of that top 1 percent had an average tax rate lower than 10 percent.
A quick note: Here, we’re talking about effective tax rate, which is the percentage of their income people ultimately paid in taxes. This is different from the marginal tax rate. The federal government designates several brackets of taxable income, which are all taxed at different rates. The marginal tax rate is the rate applied to a person’s last dollar earned above a certain threshold. The marginal and effective tax rates tend not to line up.
Buffett and some other super-rich individuals pay lower tax rates than average Americans because they earn much of their living through investments and assets (as Buffett put it in a 2011 New York Times column: they "make money with money"). This distinction comes with a lower tax rate than people who earn their money through wages or salary.
At the height of Obama’s Buffett rule campaign in 2012, the Urban Institute-Brookings Institution Tax Policy Center think tank estimated that 217,000 households would have to pay a higher tax rate as a result of the Paying a Fair Share Act.
Regardless of the number of those affected, "did the president propose something that would have approximated a Buffett rule? Yes he did," said Roberton Williams, Tax Policy Center fellow. "It does what the Buffett rule would like to do, (though) it’s not perfect."
Gohmert said Obama has "not proposed one thing that would change" the fact that Warren Buffett pays a lower tax rate than his secretary.
In fact, Obama has on multiple occasions proposed changing the tax code so that it complies with the "Buffett rule," which attempts to ensure that high-income people pay a certain percentage of their income in taxes that is at least higher than what middle-class people pay. There’s debate over whether or not this is good policy or how many millionaires would be affected. But that doesn’t change the fact that Obama proposed something that addressed this issue.
We rate Gohmert’s claim False.