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Fresh Beer On Capitol Hill

State of the Union 2015 banner viewed on a laptop screen
photo by Buster Benson

With due respect to country singer Alan Jackson, the only Buffett Rule anyone needs to remember nowadays is that it’s five o’clock somewhere.

The other Buffett Rule - the one that said high-earning taxpayers should pay at least 30 percent of their total income to the federal government, regardless of any deductions or credits to which they are otherwise entitled - has vanished as thoroughly, if not quite as quickly, as an ice-cold beer on a Key Largo fishing charter. You could have listened to every word of President Obama’s State of the Union address this week without catching even the slightest reference to a certain Omaha billionaire who plans to leave the great bulk of his fortune to charity, and has since concluded that anyone intent on earning his or her first billion ought to pay at least $300 million in taxes for the privilege.

Obama used his State of the Union address in 2012 to proclaim the importance of the Buffett Rule, and not the one that relates to beer. He reiterated the call in 2013. He put it in his budget proposal last year. This year - nothing. Apparently, the Buffett Rule on taxes has passed its expiration date.

That is no surprise. A typical proposal in a presidential SOTU address has a pretty short shelf life, often not even making a repeat appearance the following year. The adage that “the president proposes, but Congress disposes” did not originate with Obama, but it has certainly applied during his presidency, especially after Republicans took control of the House of Representatives in 2011.

Four years later, with the Senate as well as the House now firmly in GOP hands, the president’s latest set of tax proposals - at least those calling for tax increases on the wealthy to fund additional breaks and cash transfers to the less-well-off - are as dead as the Buffett Rule, if not yet quite as buried.

The White House certainly knew Obama’s latest proposals, which include a higher capital gains tax, elimination of the basis step-up at death and reduced tax benefits for 529 college funding plans, had no chance of enactment in this Congress. There is plenty of speculation about why he made the proposals in the first place. Most of the proffered reasons are plausible, and they are not mutually exclusive. I imagine several of them apply.

The first and most likely is that there are simply a lot of ways in which the president wants Washington to spend more money. The money has to come from someplace, and the place Obama usually wants to get it is from people who have more than he believes they require. Though the details have varied, the president has proposed aiming higher taxes at the affluent in every SOTU speech he has given since taking office.

Another logical reason is that the president knows some sort of tax legislation is liable to come from the current Congress, and he wants to be in the strongest position to shape it, rather than merely vetoing whatever the Republicans put forth. The president and the GOP agree on the broad outlines of corporate tax reform, which would entail lower maximum rates in exchange for fewer deductions. Obama and his fellow Democrats want such reform to raise more money overall, while Republicans want to keep the changes revenue neutral. Pushing for higher rates on individuals allows Obama to try to trade those objectives for more of what he wants to see in the corporate tax arena. It might work or it might not, but from Obama’s perspective, there is little to lose by trying.

Then there is the need to rally a dispirited Democratic Party base in advance of the 2016 elections. There were about 10 Senate seats genuinely in play last fall, and the Democrats lost all of those races except New Hampshire. Then they almost lost Virginia, too, which was not even considered to be in play before Election Day. Most core Democratic voters believe, rationally or otherwise, their party would have done better had it hewed more closely to a liberal line, even in conservative states like Montana and Arkansas. (Core Republicans similarly believe their party’s prospects improve by taking hard-right positions, all contrary evidence notwithstanding.) Tossing out proposals that could only pass in a Congress dominated by liberal Democrats, such as the one that enacted the Affordable Care Act in 2010, serves to inspire hard-core Democrats to do everything possible to recreate such a Congress. Never mind that said Congress was voted out of office promptly thereafter.

It is not worth worrying too much about the details of the president’s tax hike proposals. They will soon evaporate, just as the Buffett Rule did. A State of the Union address is the president’s shindig, even though Congress furnishes the setting. Like any good host, President Obama likes to serve fresh beer at every bash he throws.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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