White House chief defends ‘Buffett rule’

A top White House official said the “Buffett rule” requiring higher taxes for US millionaires would restore confidence in the fairness of the country’s tax code, a key element of any effort to put the US on a credible fiscal path.

In an interview with the Financial Times on Monday, Jack Lew, White House budget director, rejected Republican claims that the “Buffett rule” amounted to class warfare, which would endanger the country’s troubled economy by stifling job creation.

“[Barack Obama] is not singling them out but they ought to be part of the solution,” Mr Lew said, referring to the wealthiest Americans. “This is about asking everyone to pay their fair share and to make their fair contribution and to say that the only group that ought not to be part of that are the most fortunate is not appropriate.”

The White House is proposing that one of the “principles” of any tax reform effort – along with lowering rates and cutting exemptions, and raising revenue for the government – is that millionaires should not be allowed to pay lower taxes than middle-class Americans. The details on how to implement the rule – named after Mr Buffett, the billionaire investor who has called for the wealthy to pay higher taxes – were not spelled out by the administration but instead left for Congress to iron out.

“On one hand, it’s a very simple idea. On the other hand, it’s the kind of thing that will greatly enhance confidence in the fairness of the tax code,” Mr Lew said.

The fairness of the US tax code has come under fire in recent months, with Democrats pushing for a more progressive system that would help tackle growing income disparity in the US. But Republicans argue that the richest Americans are already taxed sufficiently, and cite statistics showing that many low-income citizens do not pay any income taxes at all. They also claim that raising taxes on the rich would hurt disproportionately one of the driving forces of economic growth.

Despite concerns that the political gap on fiscal policy remains huge, Mr Lew said the White House’s aim in releasing the plan was to catalyse action towards more ambitious deficit reduction and tax reform in the “supercommittee” – a panel of 12 lawmakers from both parties that has to find at least $1,200bn in savings from future US budgets by late November.

“[The president] expanded the debate, he didn’t narrow it,” said Mr Lew. “Our goal was to put ideas out there to make it not just easier but to drive the supercommittee towards a harder goal, and we hope it has that effect.”

Mr Lew insisted that the cuts proposed by Mr Obama – including reductions in farm subsidies, federal pensions and some healthcare spending – were not modest. “What he laid out on the spending side is in any normal environment very hard stuff – it’s not easy policy,” Mr Lew said, adding that investors in US government debt should take note. “What it shows is that if you’re willing to do some difficult things, there is a very credible path to getting our fiscal house in order.”