Taxation: Is Obama's "Buffett Rule" a meal or a snack?

Warren Buffett is not known as a Democrat so when he says that he uses all available legal tax breaks and, as a result, pays a lower percentage of his earnings in tax than the ordinary working man, his words have some weight.

But wait: Buffett is old, he's lived, by the standards of multi-multi-millionaires, a frugal life and he has buckets of cash in the bank and in investments. So he has been a significant beneficiary of the tax regime he now criticises. Those who are looking to build wealth want the same advantages.

It is not just the super-rich that benefit: tax deductions, tax credits and exempt investments are widely used by millions of ordinary people.

A ruthless removal of those, as Obama hints may, possibly, maybe be the plan, would remove both cashflow and long-term investment from the very people that Obama (who, it must be noted, never talks about "working people" but only "the middle class") sweet talked on his way to the White House.

Actually, Obama has delivered no detail: US Treasury Secretary Timothy Geithner is being left to flesh out the bones of the Obama plan - but so far he has no clear idea of what to do, saying there are a "bunch" of possibilities.

Bunching is what Democrats are doing now in the lead up to the next election. Their leader has been shown to be a paper tiger, he has had almost no successes in any of the schemes he has managed to put together and there are not many of those. To turn on their own core voters may be regarded as a seriously stupid idea.

The Democrats are saying that they are behind the proposal: the Republicans are already tossing figures around. The Democrats say they do not know how much additional revenue such changes would generate (surely a ridiculous position if the proposal were serious: shoot first, ask questions later is not a sensible strategy for leading what will soon be the world's second largest economy); Harry Reid for the Republicans says that 22,000 Americans earn more than USD1 million per annum - and pay less than 15% tax; Buffet says he pays 17.5%. But more than 22,000 people earn - or aspire to earn - more than USD1 million dollars a year. They are not going to be happy campers if their plans are thwarted.

Also, the Buffett Rule - at least on the sketchy detail presently available - omits to take account of what amount to double taxation relief: dividend income is free of tax because it has been taxed in the hands of the company - to tax it in the hands of the shareholder - is to tax already taxed income (as the UK does, for example).

The US Tax regime is one reason why the US generates more wealth out of its GDP than the UK, for example. Over time, US tax reliefs have been removed - such as full allowance on all borrowing regardless of the purpose.

The US would not like to lose its competitive advantage : indeed, that competitive advantage is often mentioned by Republicans when they are arguing against tax changes.

But it has to find a way of reducing its deficit. Unfortunately, as those states with Democrat leadership over periods of years know, spending money and increasing taxes is a downward spiral. Low spending, low taxing states such as Florida do not have the scale of fiscal crises that afflict left-leaning states such as California.

Why does Obama think the national economy will fare any better?