Last year President Obama proposed that no household earning more than $1 million per year pay a smaller share of its income in taxes than middle-class families.  In support of his proposal he called for the imposition of a minimum effective tax rate of at least 30%.

This year in his State of the Union address our Orator in Chief in a shamelessly transparent move sat Warren Buffett’s secretary near first lady Michelle Obama while encouraging Congress to enact legislation to fix the “problem.”  The Buffett Rule as it’s come to be known seeks to address the real or perceived unfairness that a “rich person” pays a lower tax rate than Buffett’s secretary.

Some rules are made to be broken.  In this case the rule is broken from the start.

We’ve been told the Buffett Rule will help balance the federal budget.  Wrong.  Assuming no changes to GDP or behavioral changes by businesses, consumers and investors the increased revenue would amount to roughly $35 billion per year – barely a dent in the $1.3 trillion annual deficit.

We’ve been told the “rich” do not pay their “fair share.”  Wrong.  The Congressional Research Service reports the average effective rate among millionaires is already about 30%.  Of course averages can be skewed and not every millionaire pays an effective 30% but that tells us something else.  Federal tax policy goes beyond paying one’s “fair share” by addressing and seeking a balance among various objectives from economic growth to cost of administration to social policy to compliance and, yes, even fairness.  To suggest the “rich” do not pay their “fair share” speaks nothing of their contributions to other objectives.  The Buffett Rule is therefore myopic in its basis.

Imposition of the Buffett Rule would be tantamount to another Alternative Minimum Tax – another “fair share” policy that has gone awry.  Enacted in 1969 the AMT sought to ensure high-income Americans didn’t use “loopholes” to avoid paying taxes.  In effect the AMT has become a nightmare for millions of people.  Since the AMT isn’t indexed for inflation Congress must struggle each year to provide a “patch” that if not enacted deprives middle-class taxpayers of important and valuable deductions for things such as real estate taxes and dependent children.

Could it be that the Buffett Rule is not an additional AMT but a reform of the existing AMT?  Maybe.  If so why bother?  Why waste energy and spend political capital reforming AMT when the entire tax code is a disaster?

Therein lies the rub.  The Buffett Rule impedes needed reforms to an entire system in need of overhaul.  We should enact policies that raise needed revenues for operating our government while promoting a mix of economic growth, social policy, “fairness” and other objectives.  The most effective way as Apollo has lobbied for many times in the past is to broaden the tax base while lowering tax rates.  The Buffett Rule (as with every other policy promoted by President Obama) moves in the opposite direction – it seeks to narrow the base and impose higher rates.

There’s no debating Warren Buffett’s success as an investor.  As an influencer of tax policy the jury has rendered its verdict.