A proposal to impose at least 30 per cent income tax on Americans making more than $1-million per year will not hurt the economy by stifling investment and growth, U.S. Treasury Secretary Timothy Geithner said on Sunday.
The so-called Buffett rule, a tax plan proposed by President Barack Obama to reduce income inequality, has been vigorously criticized by Republicans who argue it will discourage people from starting new businesses as it will raise capital gains tax and taxes on investment.
“No credible basis for that argument, in my judgment,” Mr. Geithner said on CBS’s “Face the Nation.”
The plan is named after billionaire businessman and Obama supporter Warren Buffett, who has noted that he pays a lower tax rate than his secretary.
The United States is saddled with a huge budget deficit and there is no consensus on how to address the problem. Mr. Geithner said that although the government has committed to cut $2-trillion in spending, more needs to be done.
“But we do not see a feasible, economically sensible or fair way to do this and still preserve room for investments in education, in infrastructure, help protect the safety net, help strengthen Medicare for seniors, without asking the richest Americans to pay a somewhat larger share of their income in taxes,” he said.
“And we think the most effective way to do that is to limit their ability to take advantage of deductions and exclusions, and that’s what this rule would do.”
There was no plausible path to tax reform that did not recognize that the economy cannot afford to extend these tax cuts for wealthy Americans, Mr. Geithner said.
“We just can’t afford to borrow to do it anymore, and we have to preserve room to these other priorities,” he said.
The Democratic-controlled Senate plans a Monday vote on the Buffett rule, one day before the U.S. tax-filing deadline.
Americans favour the rule by 60 per cent to 37 per cent, according to a Gallup poll released on Friday.
While the proposal has almost no chance of overcoming Republican opposition in Congress, it will provide ammunition for the November elections as Democrats say their rivals are more concerned with protecting the wealthy than addressing the concerns of less affluent Americans.
Mr. Geithner said the Obama administration was going to keep pushing on the rule and he was optimistic that it would pass through Congress.
“They’ve resisted all the things we did to take the economy out of the crisis and restart economic growth. Those are the right things to push for,” he said,
“If we don’t push for things that make sense, then we’re not governing – that’s our responsibility in this case. And again, you’re going to find broad support for this across the American people because there is no other way to meet the broad challenges of the country.”