A Better Tax Idea

Over the weekend, President Obama proposed a new tax to make sure people earning over a million dollars a year don't get away without paying taxes, something that sounds a lot like what the Alternative Minimum Tax was supposed to do. He's calling it the "Buffett Rule" in honor of Warren Buffett, who often tells people that he pays a lower tax rate than his secretary. That's clever, because every time the term is used, journalists will have to repeat the explanation of where the name comes from, thereby repeating the White House's message. Republicans responded by saying that they too think it's absurdly unfair that wealthy investors can pay lower taxes than people who work for a living and pledged to work with Obama to devise a fairer tax system. Kidding! They decried it as "class warfare."

Everyone knows this will never pass Congress, so it's mainly an attempt to shape the debate about taxes and the economy. Which is fine, but as long as we're looking for persuasive tax-reform ideas that won't become law soon but can be used to frame the conversation, here's a better one: Treat all income the same.

Right now, we have different tax rate schedules for wages, capital gains, inheritances, and other kinds of income like "carried interest," which is what allows hedge-fund managers to avoid billions in taxes every year. The principle embodied in the current system is that money you work for should be taxed at a higher rate than money you get when your money makes you more money. This is morally indefensible, but it's also something conservatives believe in fervently -- in fact, many of them would like to entirely eliminate most taxes on things other than wages. They should be made to defend this position.

From a debating standpoint, proposing that all income be treated equally has lots of benefits. It's simple to communicate and understand. It's based on principle. It brings everyone's taxes into the conversation, instead of simply talking about the taxes that millionaires pay. And it lends itself well to discussions that are concrete. Republicans would like nothing more than for the operative question to be, "Should we raise taxes, or not?" But wouldn't you like to see John Boehner have to answer the question, "Why is it that a bus driver should have to pay higher taxes than a hedge fund manager?"