This is the Cato Daily Podcast for Monday, September 26, 2011.

I'm Caleb Brown.

The Buffett rule proposed by the president is aimed at collecting more revenues from high income

earners but we've been here before according to Alan Reynolds senior fellow the

Cato Institute he says there are good reasons why these particular attempts to raise new revenues are bound to fail.

The Buffett rule says it's not fair for someone who makes all their money on, say, capital gains and dividends, and therefore

pays a 15% rate, to be paying a lower tax than someone who makes all their money on salary or wages and is paying 1528 even 35% tax rate on labor

income.

So the implication is that labor income and capital income,

including capital gain, should all be taxed at the same rate. The key word is

should. It's a moral proposition. I'm not going to argue the morality. What I'm going to

argue is that it doesn't work. We've tried it. It doesn't work.

When you say it doesn't work, you're talking about raising tax on capital gains.

If anybody was talking about taking the tax and labor income down to 15% instead of raising the capital gains tax

No problem and in fact many people I'm one of them back in 86 said okay if you will cut the top labor

income tax to 28 percent we'll let you put the capital gains tax rate up to 28%. Trouble is the lower labor

income tax rate brought in a lot of revenue. All of a sudden people were

reporting income we didn't know they had. Second earners went back to work for example. But the higher

capital gains tax rate did not. And so after 10 years of trying a 28% capital gains

tax rate, Bill Clinton finally threw in the towel and cut it to 20%,

at which point revenues came pouring in, stock market soared,

and the government was flush with cash.

...