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Wednesday, September 28, 2016

Three Principles For Restoring Progressive Taxation

As part of the series “A Rooseveltian Second-Term Agenda,” advice on revamping the tax code to raise the revenue we need.

Our current tax system is a toxic legacy of the George W. Bush years. It loomed over Obama’s first four years, bearing deficits that limited the scope of economic stimulus, drove inequality to astonishing levels, and led directly to the debt limit showdown of the summer of 2011 that forced us into even more dangerous policies. President Obama’s second term offers a long overdue opportunity to restore the promise of progressive taxation and revenues that are adequate to our long-term economic priorities. It requires both short-term and long-term action.

The greatest failure of the tax system is not that it’s too complicated or inefficient or that there are too many “special-interest loopholes,” as House Speaker John Boehner put it on the day after the election. It’s that it doesn’t raise enough money and it encourages all sorts of manipulation because of the differential rates for investment income and income from work. These are not things that developed over time, as if by some natural process — they are the product of specific decisions made in 2001 and 2003 by Republican-controlled Congresses that used the budget reconciliation process to avoid any bipartisan compromise.

Here are some principles that the administration should hold to in restoring adequate and progressive taxation:

1. Start from the law, not current tax policy. Under the law, the Bush tax cuts expire on January 2, 2013 and revert to their levels at the prosperous end of the 1990s. This expiration, along with several temporary tax cuts that expire at the same time and the budget sequester devised to escape the House GOP blackmail on the debt ceiling in 2011 is what’s known as “the fiscal cliff.” There will be an effort to negotiate a deal on taxes and spending before we hit the cliff out of fear that expiration of all the cuts at once would tip the country back into recession. But the effect won’t be felt at once, and there’s plenty of time to negotiate a new round of cuts once the law as written goes into effect. There is no reason to negotiate based on rates that are set to expire within weeks or days.

Under the law, capital gains rates will rise to 20 percent from 15 percent, dividends will be taxed at the same rate as regular income, and two provisions that limit personal deductions and exemptions for the wealthy will come back into effect. All tax rates will rise, but the tax code will instantly be fairer, by every definition, than it was in December. From that baseline — which is not some accident; it’s what the law calls for — we can have a debate about which rates should be permanently lowered. There’s a strong argument, for example, for bringing the bottom rate back down to 10 percent, given that these are the households that were hit hardest during the recession and saw few gains even during the prosperous years before 2008.

  • How do we fix the tax code? By reminding people of the Uncle Sam posters that could be found everywhere in the days when people understood the need to pay for our wars and pay for the things we benefit from. The tax code needs improvement, but our biggest problem is lack of personal and social responsibility.

  • nobsartist

    I think that what needs to be done is to specify why people must pay taxes and then determine when a tax is a support to expenditures or a penalty.

    As an example, we have a Federally mandated minimum wage. Consider that a person making $15,000.00 per year presently pays about $3,000.00 per year in taxes leaving $12,000.00 to live on. A fair tax system would determine how much is acceptable to live on and if it is determined that the $12,000.00 that a minimum wage earner gets to keep, is sufficient to live on, then that figure must apply at ALL income levels.

    What this means is, if it is considered that $12,000.00 is sufficient to live on after making only $15,000.00 and paying $3,000.00 in taxes, the tax in this case is a penalty because NOBODY in their right mind can say that someone making only $15,000.00 per year can afford to spend $3,000.00 for something that they see no return on investment (ROI) on.

    Consider the fact that if you make$20 MILLION, it is acceptable to pay only $1.4 MILLION in taxes. You can still live quite well on your remaining $18.6 MILLION where as we already agreed on, it is quite difficult to live on $15,000.00 yet it is still acceptable to take $3,000.00 from that person. Take into account that although $1.4 MILLION is a lot to pay for taxes, look at what you get for your ROI. You get the use of airstrips throughout the US for your private jet. You get to use police and the court system. You get access to lawmakers.

    A “fair” tax system would be such that after taxes, the person making $20 MILLION would have only $12,000.00 left over to live on just as the person that makes minimum wage only gets $12,000.00 to live on.

    Of course, anyone reading this will say that is a ridiculous comparison but in reality, it is not. It is a point that must be considered because taxation should never be used as a penalty rather it should be used for the good of our society.

    Too much time is spent debating the Federal minimum wage. Elected officials on one side fight to lower it, on the other side they fight to save it. I believe that the minimum wage must be tied to taxation. If it is fair that someone making $20 MILLION gets to keep $18.6 MILLION, then I believe that the minimum taxable wage should be 500% of the minimum wage meaning that until you make$90,000.oo you have NO tax liability.

    The bush tax cuts found it acceptable that those making over $250,000.00 had minimum tax liability and that basically ruined the middle class. Therefore, since that experiment was allowed to run for 10 years, I believe that the exemption of taxes for the first $90,000.00 in income is the only way to prove that we actually have a fair” tax system.

    • InsideEye

      Taxes should not have to be so complex, If you want a one payer socialized medical structure then why not a one type NAtional Sales tax , that is it. …. for everyone to pay….no one will get away this way.

  • InsideEye

    A NAtional sales tax would force everyone to contribute: the mob and the Wallstreeters and the non working, that hide money in all kinds of loopholes. The middle class workers at present pay for both ends of the spectrum: the Wealthy and the poor. The poor do not contribute and the Wealthy do not contribute , Corporations like GE are not taxed, but they DO provide Jobs for the MIDDLE CLASS that help pay for the END of the Economic structure. Hmmmm!

    • 13observer

      NOW SOMEONE IS TALKING!!!!! YES YES YES. I AGREE! This makes everyone “RESPONSIBLE” and as a result no one can hold our democracy hostage! Because right now it is like this; hey, we want to TAX the wealthy so we can promise gifts to people in exchange for their votes so we can continue to demand taxes on the wealthy so we can win every election and promote our agenda. If you have a National Sales Tax then when wealthy people make big ticket purchases, they pay sales tax.

    • Sand_Cat

      Sales taxes are just about the most regressive kind. Note that you have attracted the support of a wing-nut below.

      • RodgerMitchell

        Right. The only worse tax is FICA.

        Of course, all federal taxes are unnecessary for federal spending. Those who do not understand Monetary Sovereignty do not understand economics.

  • TSB

    We need to determine the cost of living per year. Assume, it is $20,000 per capita. All income earnings would be exempt from taxes on that amount. The remaining income, all income, would be taxed at a rate of 25%, abolish all deductions and loopholes, until the country is in stable financial condition again. A person making $100,000 would pay 25% on $80,000 or $20,000 and a person making $5,000,000 would pay 25% on $4,980,000 or $1,245,000, as an example. That should give the Feds enough money to pay for infrastucture repairs, build the country and start another war or, if needed.
    Anybody could give money away to charity and weep after taxes.

  • The only fair tax is one that is commensurate with the holdings of the taxpayer.

    Surely, most would concede that a individual with $10 million in U.S. assets should pay more than someone that has $50,000 in U.S. assets. On the other hand, if that $10 million was in a working family farm, some arrangements need to be made so as to not require the sale of the family farm to pay taxes. Taxes assessed by local/municipal, state and the Federal governments need some cohesion as they all contribute to drain resources of the taxpayer.

    It should be voluntary payments, not compelled.

    • Amigdata

      All of the above comments miss the following points. The income tax as we all know it was introduced a hundred years ago. It is archaic and worthless as a source of funds for running our economy because it cannot furnish what the country needs in present times. President Bush, for instance, had to borrow money to fight his wars with no way to ever get that money back, but instead to dump the debt on future presidents.
      There are new things absolutely needed that didn’t exist a hundred years ago. We send kids to college and burden them with a hundred thousand dollars in debt, spend hundreds of millions to support prisons and at the same time allow things like investment short sales that create thousands of billionaires who are minimumly taxed. The present structure encourages continuing controversy between political parties of which the republican side preaches expenditure reduction while spending money on wars and paying great sums to billionaires. The present democrat majority will provide fiscal improvement over time by cleaning up the mess in Washington, but the only real improvement will be to design a new funding structure, which is easy enough to do if we can just get to it.

      If we want this country to be a great nation then let’s get to it instead of squabbling.

  • idamag

    We have become a nation of narcisists. We had it good for so long we didn’t learn to give and take. Instead of whiners realizing it takes revenue to run a government, that they use services no matter who they are, they cry because they are asked to pay taxes. Many, many, years ago, I was caught in a recession and lost my job. My husband became ill and times got very rough. After everything turned around, I never complained about paying taxes. I was thankful I had a job and paying taxes was a privilege.

    • RodgerMitchell

      Sadly, you do not understand Monetary Sovereignty, so are clueless about economic financing. If you had even a modicum of knowledge, you would know that federal taxes do not support federal spending.

      The federal government is not like you and me. If all federal taxes fell to $0 or rose to $100 trillion, neither event would affect by even one dollar the federal government’s ability to spend.

      You have been brainwashed into thinking federal taxes are necessary.

      The price of ignorance is slavery.

  • RodgerMitchell

    Someone kindly explain the mechanism by which “deficits limit the scope of economic stimulus”

    GDP = Federal Spending + Non-Federal Spending – Net Imports.

    Deficits increase both Federal Spending and Non-Federal Spending. So tell me again, how do deficits limit economic stimulus?

    Those who do not understand Monetary Sovereignty do not understand economics. The price of ignorance is slavery.

  • Dubya: worst president ever.

  • jebediah123

    The only fair income tax is a progressive flat tax—-for example, 10%, 20%, 30% and so on depending on your income level. There should be absolutely no exemptions or special deductions and all sources of income taxed the same way.

    For example, concerning exemptions for dependents—–two households—one with married couple and one with married couple with five kids, both with $50,000 income. Of course, the one with five kids is going to pay a lot less income tax than the one with no kids. In effect, the one with no kids is subsidizing the other. Is this fair??

    Just suppose the family with five kids are strong believers in the Catholic religion which professes that sexual intercourse is only for the purposes of procreation. Would you be supporting their religion by giving them unlimited exemptions in their income tax??

    Another unfair deduction is for itemizing taxpayers who are able to deduct their property taxes. How about renters?? They pay property taxes also (included in their rent)—I know, I used to own a duplex.

    Of course, I know that most people will say the “standard deduction” takes all this into account for people that don”t itemize. I personally don”t believe so. Yes, I wish there would be a complete overhall of the income tax system.

  • onedonewong

    No question that some of our tax law problems started with W. There are too few people paying taxes and the new congress needs to make sure EVERY one has skin in the game and that 51% who don’t pay taxes START

  • A flat tax is best so “everyone” is in it the same percentage of income. Only ones that escape though are drug dealers & people making cash money, so a consumption tax is also a good idea. But we still need to cut spending & lower taxes on everybody.

  • I doubt that I have ever seen so many absurd comments about any important subject, such as taxes.

    And that was only reading 17 comments.