Taxes

A New Economy from Old Roots?

Dave Johnson — Wed, 30 Sep 2009 16:11:44 -0700

How do we build a new economy out of the collapse of the old economy? How do we start fresh to begin creating jobs again, while building in economic and environmental sustainability, as well as workplaces that respect human needs and rights? How do we change things so that we all get to share the benefits of the economy rather than just contributing to the increasing wealth of a few vastly wealthy people?

While we look for a vision for a new economy, we should examine what has worked in the past. America had periods in which regular people enjoyed sustained increases in their standard of living. For a long time it was a conventional wisdom that each American generation would do better than the previous generation, more people would receive good educations, medical care would get better, the middle class would grow, leisure time would increase, poverty rates would decrease, retirement would be easier, etc.

But this pattern stopped. Beginning in the late 1970s and especially in the 1980s incomes began to stagnate, wealth increasingly concentrated at the top, working hours and workplace pressures steadily increased, availability of good health care started to decrease, etc. The standard of living of most Americans began to and continues to decline. At the same time corporations became more predatory as consumer protections vanished. Meanwhile outsourcing, deunionization and other anti-worker policies led to increasingly unpleasant, stressful and unrewarding worklives for more and more people.

Many of today's problems are traceable directly to the policy results of anti-government propaganda that was blasted out from well-funded conservative think tanks starting in the 1970s. The anti-government campaign led to defunding of many national, state and local government programs that improved education, helped the poor or enriched people's lives. We suffered deregulation in many areas where the government had protected consumers, workers, investors and the environment. Huge reductions in taxes for the wealthy were either offset by tax increases for the rest of us or government borrowing. And that borrowing has led to increasing problems of paying the interest and threats to funding even basic programs like Social Security and education.

So what worked, before the conservatives trashed the place?

Regulation

One thing we know for sure now, learned the hardest way thanks to the financial crisis: regulation worked. Regulation was necessary, it worked, it kept firms from taking risks that could bring down the economy. And we can also see now how regulations protected consumers from predatory corporate activities, workers from wage theft or unsafe working conditions, and the environment from exploitation and destruction.

Taxes

Before Reagan the tax rates at the top were very high. After you reached - and took home - a certain very high income you paid a high percentage of the rest in taxes. This had many beneficial results – even for the people who paid higher taxes. Government could afford to keep the physical, education and legal infrastructure in good condition without borrowing. Government could afford to invest in programs that improved our standard of living, health, knowledge and technology, which helped businesses grow. Businesses thrived in such well-watered soil.

The high tax rates also kept the bad side of human nature in check. When it took years to build up a fortune businesspeople had to rely on the health of the greater community to nurture their own wealth-building enterprises and keep them thriving over a long period. They had to think and act long-term. The roads needed to be kept in repair, the schools needed to provide excellent education to potential employees, the courts needed to be functional to enforce contracts, and they wanted the communities they were going to have to stay in to be pleasant places to live.

But once taxes were lowered vast windfalls could be realized from a single event and it made more sense to try to fleece the community with quick-buck schemes than to rely on it. We began to see corporate raiders break up solid, ongoing companies, steal pension funds, etc., while encouraging communities to cut spending on schools, roads, etc. It became more profitable sell off or outsource our manufacturing capacity. And then, as things fell apart, the few who benefited could just fly away in their private jets or sail away in their huge yachts. The greater community was no longer any use to them except as crops to be harvested. Vulnerable consumers are the only crop that is coming up in this economy.

Big Government

Government is We, the People making the decisions. "Big government" is simply another way of saying that more of the important decisions are made by the people. Shrinking government means handing the decisions over to big corporations. In the real world this is the choice. And in the real world big corporations make decisions that benefit them, and only them. Before you badmouth government think carefully about what the alternative is.

Old-Fashioned Government Planning

As I said in a post here a few months ago,

The phrase “industrial policy” sounds so Walter Mondale, 1970s, smokestacks and brick factory old-fashioned. I suspect the subject turns people off, eyes glaze over, hands reach under the table for iPhones and Blackberries…

But here we are without an industrial policy. How’s that working out for us? Every other country has one. China seriously has one. We instead have huge trade deficits. We don't make things here so we have to borrow money to buy things made elsewhere.

To add insult to injury, recently Deutsche Bank released a research note advising investors that the U.S. was not a good investment because of our lack of a government industrial policy. See Deutsche Bank: Absence of US Clean Energy Policy Will Send Global Capital Elsewhere.

While we envision a new direction for our economy, maybe we should also be looking at returning to a few old-fashioned ways of doing things, too.

Who Else is Against American Manufacturing? III

Dave Johnson — Tue, 08 Sep 2009 06:00:00 -0700

"A country’s economic power comes from manufacturing. But while other countries have industrial policies, America has a de-inustrialization policy. We have handed our country’s manufacturing capacity over to other countries, and as a result we have to borrow more and more to be able to buy the things that we used to make. How did this come to be? Who would be against American manufacturing?"

In Who Would Be Against American Manufacturing? I wrote about,

“representatives of foreign interests lobbying in the US for trade policies that benefit companies in other countries at the expense of America’s factories, workers, companies, communities and economic power. It is to be expected that a country will work to increase manufacturing within its borders – even if we don’t – and these firms helping the efforts of other countries are required to register with the Department of Justice as “foreign agents.” I traced an anonymous comment left at my own blog back to one of these ...”

Of course other countries have an interest in taking the business away from us to have for themselves.

In Part II, Who Opposes American Manufacturing? II I wrote about Cato Institute, a conservative “ideological” think tank that opposes manufacturing in America. But they receive funding from interests outside of America – the very interests who do the very kind of fighting for trade policies that the Cato Institute opposes for us.

"WHY would Cato Institute advocate this? Is it just weird libertarian cult ideology? Perhaps a look at who is paying for this advocacy will provide a clue. While mostly funded by individuals, Cato’s funders include many of the usual right-wing funding suspects: Koch, Scaife, tobacco companies, Exxon and other oil companies, Wall Street… But one sponsor jumped out at me: the Korea International Trade Association. (Honda, Mazda, Mitsubishi, Toyota and Volkswagon are sponsors as well.) Dots connected: Cato is receiving funding from the Korea International Trade Association, and then turning around and advocating that American hand over its manufacturing capacity to other countries!

So I checked, and did not find that Cato Institute registered as a “Registered Foreign Agent.” Why not?"

Beyond explicitly foreign interests and possible foreign-interest-funded lobbying, are there other reasons that Americans would advocate that we just hand over our manufacturing capacity and instead just borrow to get by? There are domestic interests that benefit from America giving up our manufacturing capacity because there are domestic interests that benefit when the rest of us borrow.

Part III – Americans Opposing American Manufacturing

Our beloved-and-bailed-out financial sector has done very well for itself in the decades since we embarked on the great “free market” and “free trade” experiment. Wall Street has greatly increased its share of our economy. While finance expanded the manufacturing sector shrank until just before the crash the financial sector had risen to 40% of all corporate profits.

Kevin Philips wrote in 2008’s post, The Destructive Rise of Big Finance,

Over the last five years, financial services has reached a swollen 20-21% of U.S. GDP -- the largest sector of the private economy.

Manufacturing led financial services by 2:1 back in the 1970s, but by 2006 beaten goods production had shrunk to just 12% of GDP.

As Wall Street doubled, manufacturing declined.

Profits incentivize corporate behavior and these giant Wall Street corporations profit from our ever-increasing levels of debt. They profit from the transactions that occur when companies move their operations out of the United States. They profit from convincing communities to privatize infrastructure. They profits when companies externalize costs onto the larger community. They profit from the transaction involved when the country borrows to fund our government and trade deficits.

Wall Street profits from debt. So they have an incentive to encourage debt. Who do you think it was that convinced Americans it is normal and even preferable to carry debt and to use credit cards? Marketing works, and the following is based on marketing we have all been exposed to:

Making minimum payments on credit card debt? $250 a month.

Making car payments for five or six years? $400 a month.

Priceless!

Phillips again,

During Greenspan's 1987-2005 tenure, the sum of public and private debt in the United States quadrupled from just over $10 trillion to $43 trillion. Finance became the industry that was not allowed to fail but was permitted to enlarge and metastasize its behavior almost at will.

In the movie Wall Street, based on actual events and people in the news at the time, the greedy corporate raider Gordon Gecko buys companies, chops them up, steals the workers’ pensions, destroys people’s lives and their communities, etc. and pockets the profits. Gecko claims that because he can profit from doing these things, “the market” wants it done, demands it in fact, and therefore he plays an important economic role of making things more “efficient.”

To Gordon Gecko and market fundamentalists the fact that they can profit from something is proof that it should be done. “The Market” is for them a God that takes responsibility and ethics and morality and humanity out of their hands. “The Market - God - says it must be this way and who are you to question?” (Convenient for them.)

Of course, a large part of why Gordon Gecko could pocket such a profit so fast was because un President Reagan the country had just changed the tax laws. Before Reagan there was a very high top tax rate that prevented people from amassing a vast fortune in a short time (usually at the expense of the rest of us). This tax policy encouraged long-term thinking and planning instead of short-term greed, and encouraged business to maintain interdependency with the larger community and its interests. If it takes ten or twenty years to amass a huge fortune you and your business rely on other businesses and on the community’s infrastructure to be maintained and modernized so it will support your business activities. And you want a thriving, educated community surrounding you

But in a quick-buck scenario you are incentivized to feed off of rather than rely on the greater community. If you can defer infrastructure maintenance and pocket the savings then that is what you will demand. If you can chop up the supply chain and pock the proceeds that is what you will demand. If you can profit from exploiting and abusing skilled workers who would otherwise be needed in coming years, that is what you will demand. and if the community around you deteriorates it doesn't matter because you'll be cashing in big soon, and flying away in your private jet to your tax-haven privatized island. It is no coincidence that pensions started being stolen, companies started outsourcing, communities started privatizing, etc. right after top tax rates and regulations were cut.

Wall Street has an interest in helping dismantle manufacturing in America. (pun intended)

Of Flat Tax, Fat Tax, and 'Fat Cats'

Sam Pizzigati — Sun, 09 Aug 2009 16:28:44 -0700

A health care reform surtax on the rich makes great budget sense — and even more sense, over the long haul, for our actual health.

Politicians and policy makers who adore the rich don’t adore the progressive income tax. They’re always looking for alternatives. Conservative fans of fortune, over recent years, have been gravitating to the “flat tax,” the notion that everybody ought to pay income taxes at the same exact rate, an act of “fairness” that would mean an instant — and whopping — windfall for America’s most financially favored.

The more moderate of fortune's friends have, of late, been talking up the idea of a “fat tax.” Instead of taxing the rich to pay for health care reform, via a progressive surtax on high incomes, these moderates want to tax the sugary foods and drinks that make people fat.

This “fat tax,” at the moment, hasn’t yet gained much legislative momentum. But the working assumption behind the fat tax — that America’s expenditures for health care wouldn’t be so horribly out of control if people just worked harder at watching their weight — is rapidly hardening into our conventional political wisdom.

In the last few weeks alone, two major studies have linked overweight and obese people to rising health care costs. Treating overweight patients, the federal Centers for Disease Control and Prevention reported late in July, adds as much as $147 billion annually to national health care spending.

Another new study, from the Urban Institute and the University of Virginia, puts the overall impact of obesity-related issues at closer to $200 billion a year.

Obesity, note the CDC researchers, “continues to impose an economic burden on both public and private payers.” The “connection between rising rates of obesity and rising medical spending,” they add, has become “undeniable.”

But why have obesity rates been rising?

“Something big must have changed in America to cause so many people to gain so much weight so quickly,” the New Yorker magazine’s Elizabeth Kolbert noted last month. “But what, exactly, is unclear — a mystery batter-dipped in an enigma.”

The mystery starts with the suddenness of America’s upsurge in obesity. The first reliable national data on overweight Americans comes from the early 1960s. Over the next 20 years, the share of Americans who registered in as overweight barely budged up at all.

But then, in the 1980s, American waistlines started expanding at a shockingly rapid pace. The nation’s adult obesity rate, according to the National Center for Health Statistics, jumped from a modest 15 percent in 1980 to 23 percent in 1994 to 35 percent in 2006.

Analysts have advanced, for this skyrocketing, various explanations. Fattening fast food has become cheaper, relative to other foods. Restaurants are super-sizing. Corporate food giants have re-engineered food products to maximize their almost addictive fat, sugar, and salt.

All these factors no doubt contribute to the growing incidence of obesity. But all these factors also operate on a national, even global, scale. They don’t explain why some states in the United States have more obesity than others or why many other developed nations show much less obesity than the United States.

So what’s going on here? We have some good clues. Those obesity differences between states and nations turn out to follow a consistent pattern: The more unequal the distribution of a society’s income and wealth, researchers have shown, the more obesity. Inequality, in effect, seems to be making people fat.

Obesity follows what epidemiologists — the scientists who study the health of populations — call a social gradient. Levels of obesity, in developed societies, rise as income and social status fall. On each rung of the economic ladder, people tend to be more overweight than the people on the rungs above them.

Do “lower status” people simply “choose” to be unhealthy? That’s a charge you can hear all the time on talk-radio. But researchers disagree. People typically practice unhealthy behaviors not because they want to be unhealthy, but because they need relief — from social stress.

People typically respond to stress, investigators note, by increasing their intake of our society’s readily available relaxants, disinhibitors, and stimulants. They smoke. They do drugs. Or they eat more “comfort foods,” digestibles usually packed with sugar and fat.

The more chronic the stress, the more likely a reliance on one or another of these comforting props. And that stress becomes more chronic as societies become more unequal.

The great irony in all this? Commentators today still regularly refer to the super rich as “fat cats.” Generations ago, that label made some sense. Back then, only the affluent could afford to be fat. A generous girth signified, in those circumstances, high social status.

In our contemporary developed societies, by contrast, calories abound, and high social status comes to those who can afford to stay fashionably slim. We have, essentially, no “fat cats” any more.

Would our modern societies be healthier places if more people became slimmer? They certainly would. The health professionals striving so hard to educate people about the risks that excess pounds create are performing a vitally important service.

But this focus on individual obesity treatment and prevention, as the British epidemiologists Richard Wilkinson and Kate Pickett point out, overlooks the reasons why people engage in unhealthy behaviors in the first place.

In the United States, levels of obesity and inequality both started soaring in the 1980s. If inequality continues to widen the gaps between us — and deepen the stress among us — our extra pounds don't figure to be fading away anytime soon.

And that brings us back to the progressive health care surtax on the rich that flat-taxers and fat-taxers would rather us avoid. Let’s not. If we really do want to be more healthy, we need to become more equal. Taxing the rich — to help bankroll health care reform — would move us ever so neatly in that direction.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Have Average Taxpayers Become Freeloaders?

Sam Pizzigati — Sun, 26 Jul 2009 17:56:15 -0700

Opponents of the proposal for a 5.4 percent health care reform surtax on America’s wealthy seem to be getting a bit desperate. They've even turned their fire onto middle-income Americans.

Friends and fans of privilege have been striking their indignant pose the last two weeks. They’re shocked, simply shocked, that House Democratic leaders would dare advance a health care reform plan that sets a 5.4 percent surtax on households making over $1 million a year.

Affluent Americans, flacks for grand fortune are fuming, already pay the bulk of the nation’s income taxes. They'll pay virtually all of it, these critics charge, if the surtax becomes law and Congress lets the George W. Bush tax cuts for the comfortable expire, as scheduled, after 2010.

Amid all this, the most indignant of fortune’s defenders now seem to believe, average Americans have become irresponsible freeloaders, ever eager, as conservative columnist Caroline Baum puts it, to “encourage their elected representatives to vote ‘yes’ on every new benefit that comes down the pike.”

Fulminates David Harsanyi, a Denver Post columnist outraged by the health surtax notion: “President Barack Obama once promised to spread the wealth. How about spreading the responsibility, as well? Let the everyday citizen feel the cost of these gazillion-dollar legislative miracles.”

In reality, of course, everyday American citizens are pulling their weight and then some. They actually pay a higher share of their incomes in taxes — total taxes, not just federal income tax — than super rich Americans.

Maverick billionaire investor Warren Buffett has been trying to make this point for some time now. He and his fellow billionaires, Buffett notes, pay taxes at a lower overall rate than their receptionists do.

Two years ago, Buffett bet a million dollars to back up that proposition. He challenged any billionaire in the Forbes 400 to prove him wrong. So far not one has.

Those Forbes 400 billionaires and their cheerleaders live in a fantasy land where average folk who work hard enough can always “succeed” and get rich. In our real world, here early in the 21st century, average people work hard and watch the rich get richer.

The latest evidence of this dynamic comes from an enterprising Wall Street Journal analyst who just completed some fascinating crunching of payroll data from Social Security.

“Executives and other highly compensated employees now receive more than one-third of all pay in the U.S.,” the Journal’s Ellen Schultz observed last week, and that’s without counting billions in executive pay “that remains off federal radar screens that measure wages and salaries.”

Schultz defines as “highly compensated” any employed American who this year will take home over $106,800. That income figure represents the 2009 Social Security payroll tax ceiling. Any wage or salary income under that figure faces Social Security payroll tax. Any income above doesn’t.

Back in 2007, the payroll tax ceiling stood at $97,500. In that year, only 6 percent of Americans collected paychecks over the ceiling. But this affluent 6 percent took in 33 percent of America’s total pay.

Five years earlier, in 2002, Americans making more than the federal payroll tax ceiling collected only 28 percent of the nation’s pay.

Over the five years than ended in 2007, the Journal’s Schultz goes on to add, earnings for the top 6 percent jumped up twice as fast as earnings for the bottom 94 percent.

This growing inequality in the rewards from work has no legitimate justification. Absolutely no evidence exists to indicate that gaps in skills or productivity between earners in the top 6 percent and the bottom 94 percent have widened over the past five years, or the past 50 years for that matter.

This growing inequality in the rewards from work, on the other hand, does have consequences. Here's one: In 2007, America’s top 6 percent collected a whopping $1.1 trillion in earnings not subject to payroll tax. The payroll tax break for high-income earners, the new Wall Street Journal analysis estimates, is now costing the federal Treasury $115 billion a year.

But the Journal’s focus on the top 6 percent doesn’t tell the full story. America’s most affluent 6 percent haven’t all been prospering at the same rate. In fact, most top 6 percent income-earners have more in common with those below them than those above.

Between 2000 and 2006, data from economists Emmanuel Saez and Thomas Piketty document, America’s top 1 percent saw their incomes increase eight times faster than the next most affluent 4 percent.

These particular Saez-Piketty figures don’t count income from capital gains, the profits from the buying and selling of stock and other assets. Capital gains income goes overwhelmingly to the richest Americans — and none of it faces Social Security payroll tax.

The federal government now collects nearly as much revenue from payroll tax as income tax. Payroll taxes, as University of Chicago economist Casey Mulligan pointed out last week, bring in “almost 90 percent of individual income tax collections,” and two-thirds of Americans pay more in payroll taxes than income taxes.

These average Americans aren’t freeloading. They’re working — and not getting rewarded enough for their labor. That remains our deeply unequal economy’s dirty little secret. If fans of fortune keep blaming average taxpayers for our nation's fiscal ills, maybe that secret will begin to get out.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

From Tax Breaks to Tax Hits

Sam Pizzigati — Fri, 17 Jul 2009 07:35:16 -0700

In the struggle for a less unequal America, could the House health care surtax on the wealthy turn out to be a game-changer?

The push to overhaul the system that takes care of America’s health may be on the verge of morphing into something even grander, a promising new offensive against the unhealthy concentration of America’s wealth.

The entire House Democratic leadership now stands united behind health care reform legislation that hikes taxes on America’s richest well beyond the levels that pundits, over recent years, have deemed “politically feasible.”

At the heart of that legislation: a 5.4 percent surtax on income over $1 million.

Taxpayers who make over $1 million, under the bill now moving through House committees, would pay $88,582 more to Uncle Sam in 2011, the year the bill would kick in. Taxpayers who make over $2.4 million — America’s most affluent 0.1 percent — would see their tax bills go up by an average $280,000.

Overall, if the House surtax ever became law, 2011 would likely see the largest single-year tax hike on America’s rich since 1935.

That’s because the George W. Bush tax cuts enacted in 2001 and 2003 — a bonanza for the awesomely affluent — all expire at the end of 2010. President Obama has pledged repeatedly that he won’t let any of these tax cuts for the rich be extended.

If the President sticks to that promise, the tax rate on income in the nation’s top income bracket — currently 35 percent — would revert back to 39.6 percent, the rate in effect when Bill Clinton left the White House. The House health care surtax would bring that top rate, on income over $1 million, to 45 percent.

The United States hasn’t seen a tax rate on the rich that high since 1986.

The health reform surtax would actually take a bigger bite out of rich people’s income than these numbers suggest, Citizens for Tax Justice points out, for two reasons. The first: The surtax would apply to “adjusted gross income,” the IRS label for income before taxpayers subtract deductions and exemptions.

Rich people do far more subtracting than average taxpayers. They’ve lobbied hard, over the years, to fill the tax code with loopholes, and they aggressively exploit these loopholes to lower their “taxable” income.

Rich people, under the House health care reform, wouldn’t be able to do this exploiting on the surtax. They would have to pay surtax on what they actually make.

And none of the income the rich make, in the House surtax plan, would get preferential tax treatment. Under current law, income from dividends and capital gains gets preference aplenty. The dollars the rich pocket buying and selling assets only face a 15 percent tax.

This preferential rate adds up to an enormous tax break for America’s wealthiest. Taxpayers making over $10 million, according to the most recent IRS stats, take in just under 60 percent of their income from tax-advantaged capital gains and dividends.

What’s this tax break mean for the richest of the rich? In 2006, the nation’s top 400 taxpayers averaged $263.3 million in income. They paid, thanks largely to preferential treatment for capital gains, only 17.2 percent of that income in federal tax.

These rich would get no such break on the surtax. The 5.4 percent surtax would apply equally to all income over $1 million, capital gains and dividends included.

Over a decade’s time, the congressional Joint Tax Committee estimates, the House health care reform surtax would raise $540 million from wealthy Americans, over half the cost of ensuring all Americans affordable health care insurance.

The surtax would start at $350,000 for couples filing jointly. Incomes between that level and $500,000 would be subject to a 1 percent tax. The charge would rise to 1.5 percent on incomes between $500,000 and $1 million.

In the end, a mere 1.2 percent of the nation’s households would pay any surtax whatsoever under the House Democratic plan. For many of these households, the surtax would be modest. Families making $500,000, for instance, would pay $1,500 in surtax, just 0.3 percent of their total annual income.

These families would, in fact, likely come out financially ahead if the House health care reform became law. They would pay modestly more in tax, but they would also probably pay less for health care insurance premiums — maybe much less — after the reforms in the House bill start impacting the health care system.

But even far wealthier families ought to count themselves fortunate. In 2011, if the House health care reform legislation became law, they’d face at most a 45 percent top federal income tax rate. Fifty years ago, under Republican President Dwight D. Eisenhower, America’s richest faced a top tax rate at 91 percent.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Don't Tax Benefits

Roger Hickey — Mon, 13 Jul 2009 06:17:29 -0700

Americans are demanding health care reform that guarantees them quality, affordable insurance, reduces the burden of health costs on employers and individuals and provides backup coverage through a public health insurance option.

But the suggestion that we pay for these needed reforms by taxing the health benefits that millions of us get through our employers is very unpopular — Americans fear that it could undo the one part of our health care system that now works (sort of). And we worry about new tax burdens on people who have worked hard to get and keep decent health coverage. If Democrats want to avoid a serious reaction against their important reform efforts, they should heed these concerns.

America’s health insurance system has evolved over the decades since World War II, when companies began offering health insurance — untaxed as income by government policy. Today, around 160 million of us get our health insurance from employers. And in these difficult times, millions of workers have repeatedly given up wage increases in order to keep their health benefits.

John McCain, when he was running for president last year, proposed taxing all employer-provided health benefits. Were we to do that, some 20 million Americans would lose employment-based health insurance, according to some estimates. And many employers would stop contributing to group health insurance — forcing their workers into the more expensive individual insurance market.

While many health experts acknowledge that taxing all benefits would cause chaos, some share the conservative view that a lot of people are getting “too much” insurance coverage from their employers and are pushing to get new revenues by taxing plans that are more expensive than average. But several recent studies find that it is almost impossible to design a tax that doesn’t overburden workers in firms with older or low-income employees or companies in regions with higher-than-average insurance premiums.

The Communications Workers of America looked at one proposal (to tax all employer-paid health benefits worth over $13,000 for a family) and found a typical member of its union in Pennsylvania with a working spouse and one child would pay $3,165 more in taxes in the first year, and $27,949 more over eight years. The issue is heating up. The Senate majority leader, Harry Reid, has told colleagues that they should not tax health benefits. But the debate continues.

It is dangerous for politicians to focus the government’s taxing power on the hard-won benefits of middle-class families. Fair and progressive income and wealth taxes are a better way to pay for health reform — and keep workers feeling as though they have a positive stake in achieving good health care for all.

This commentary originally appeared in the The New York Times.

Budget Cuts and IOUs: What's Squeezing the States?

Sam Pizzigati — Mon, 06 Jul 2009 08:04:41 -0700

The Great Recession has shoved state governments over the fiscal edge. But what brought states to that edge in the first place?

On July 1 last week, in state capitals across the United States, a new fiscal year began — amid nearly unprecedented fiscal chaos. In California, officials closed summer schools and made plans to pay bills with IOUs. In Arizona, state parks shut down for a day. In Illinois, drug treatment programs, facing a 72 percent funding cutback, were warning they may have to stop accepting new clients.

Overall, so far this year, 23 states have slashed programs for the elderly and disabled, 24 have axed aid to public schools, and 41 have sliced state worker jobs and benefits. And tens of billions in red ink still remain.

How could state budgets possibly spin so wildly out of kilter?

The current state budget crisis reflects, of course, the current recession. With economic activity down sharply, state tax revenues have fallen sharply, too. The already jobless aren’t paying state income tax. People worried about losing jobs are spending less. That’s lowering state sales tax collections.

But the back story to the current state budget crisis, the worst since the 1930s, goes deeper than the still deepening Great Recession. The recession has indeed shoved states over the fiscal edge. But the recession didn’t bring states to that edge. Inequality did. The states with the biggest budget gaps just happen to be, for the most part, the states with the widest gaps between the rich and everybody else.

Why should that be the case? Why should inequality inevitably end up generating chronic budget shortfalls that eventually devastate the programs that average families value?

To get at the answer, we need to go back to a time — the mid 20th century — when states were launching, not cutting, programs to help average families.

Back then, in the 1950s and 1960s, states from New York to California were energetically investing in the infrastructure of modern middle class life. They were building schools for baby boomers, opening brand-new campuses for public colleges and universities, expanding state park systems, widening old roads, and broadening library access.

The vast majority of Americans, back in the mid 20th century, relished these new and expanded public services. The United States, at mid century, had become a solidly middle class nation, and middle class people — and poor people who aspire to middle class status — need and value public services.

This dominating middle class presence in American life would, unfortunately, prove not particularly enduring. The United States would become, over the 20th century’s last quarter, increasingly unequal as Income and wealth began concentrating up ever higher on the economic ladder.

That would be bad news for public services. Rich people, generally speaking, don’t need — and don’t especially value — these services. The wealthy don’t send their kids to public schools. They don’t take books out of public libraries. They don’t use public transportation. They don’t spend time at public parks. Over time, not surprisingly, these wealthy tend to resent paying taxes to support the public services they don’t use.

Back in the mid 20th century, this resentment didn’t politically matter. In the considerably more equal United States that existed back then, the rich amounted to a marginal slice of the population pie, and the wealth at their disposal didn’t amount to all that much. The rich of the 1950s and 1960s simply didn’t have the resources necessary to dominate and distort the nation’s politics.

That would change. Over recent decades, with more and more income and wealth concentrating at the top, those uninterested in public services have had the resources to do more than grumble about taxes. They’ve been able to bankroll campaign after campaign, in state after state, to roll taxes back.

Growing inequality has helped these campaigns succeed. With the economy’s rewards flowing to the top, and essentially the top alone, Americans in the middle have found their wages and salaries stagnating, even sinking. Tax cuts, for many in the middle, have come to seem the only way to make ends meet.

These tax cuts, once in place, start states on a nasty downward cycle. Tax cuts mean less state revenue. The lower the revenue, the fewer the dollars available for maintaining quality public services. The lower the quality, the greater the number of people who find themselves actively considering private service alternatives.

Soon the modestly affluent, not just the rich, feel better off going life on their own nickel — better off joining a private country club, better off sending their kids to private school, better off living in a privately guarded gated development.

The greater the number of affluent people who forsake public services, the more inevitable still more service cutbacks become — even in “good” economic times, as the Center for Budget and Policy Priorities and the Economic Policy Institute noted last year in Pulling Apart, a detailed look at growing state-level inequality.

“Wealthy families that can afford private schools for their children can lose sight of the need to support public schools,” that study observed. “As a result, support for the taxes necessary to finance government programs declines, even as the nation’s overall ability to pay taxes rises.”

In not one state, the Pulling Apart study found, has inequality meaningfully declined since the 1980s. In 36 states, the study notes, “the income gap between the average middle-income family and the average family in the richest fifth has widened significantly.”

And the gains this top fifth has registered, the study stresses, have been “especially rapid at the very top of the income scale.”

Taxing this “very top,” the Center for Budget and Policy Priorities noted this past April in a follow-up report, could help states close their budget gaps. Even the tiniest of tax increases on the rich could have a sizeable impact.

“Nationwide,” the Center observes, “some $8 billion could be raised if every state with a personal income tax enacted a 1 percent rate increase on households making more than $500,000 a year.”

Some states have moved in that direction. Lawmakers in other states, incredibly enough, are still trying to go the opposite way. In Arizona, legislators last week pressed the governor to accept a “flat tax” that would actually lower the top state income tax rate on the wealthy, from 4.5 to 2.8 percent.

America’s states, in the weeks ahead, will all eventually “solve” their current fiscal shortfalls, mostly with still more cuts in public services. But the underlying state fiscal squeeze will remain. The end of the recession, whenever that comes, won’t end this squeeze. To become less unstable, states are going to have to first become less unequal.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Progressive Revenue Options to Fund Health Care Reform

OurFuture.org Staff — Wed, 24 Jun 2009 09:52:00 -0700

Jack Kemp and Taxes: The Final Irony

Sam Pizzigati — Sun, 10 May 2009 09:48:55 -0700

Tax-cutters inspired by Jack Kemp have always argued that high tax rates give the rich an incentive to cheat on their taxes. The reality: So do low tax rates.

Jack Kemp, the 1996 Republican vice-presidential nominee, died a week ago Saturday from cancer. Two days later, the Obama White House announced a crackdown on overseas tax evasion havens. These two events had absolutely nothing to do with each other. Their juxtaposition could hardly have been more random. Or ironic.

We ought to pause a moment over that irony. We can learn something from it.

To do that learning, to appreciate last week’s irony, we need to take a walk down memory lane, back to 1977, the year that a young congressman from Buffalo, former football star Jack Kemp, burst onto the national political scene with a daring proposal to slash federal income tax rates — across the board — by nearly 30 percent.

At the time, wealthy Americans faced a 70 percent tax rate on most of their income over $200,300, the equivalent of about $700,000 today. A tax rate this high, the Kemp camp argued, drove the wealthy to chase after tax loopholes. If that rate were significantly lower, the contention went, the rich would no longer have an incentive “to hide income.” Massive tax evasion would disappear.

Kemp wanted the nation’s top tax rate slashed from 70 to 50 percent. He would soon get what he wanted. In 1980, Ronald Reagan campaigned as an avid supporter of Kemp’s tax cut legislation. In 1981, the newly elected President Reagan would bluster the basic Kemp tax cut plan into law.

More tax cuts, over the next two decades, would follow. In 2001, a newly elected George W. Bush would take the top tax rate down at 35 percent, half the 70 percent top rate that Jack Kemp went after in 1977.

And how did the wealthy react to this incredible good fortune? Did they stop hiding income from the IRS and Uncle Sam?

Not exactly. In fact, not for a minute.

In 2001, according to an in-depth IRS study released in 2006, American taxpayers paid $345 billion less in taxes than they legally owed.

Just which Americans did all this tax evading? Last year, IRS economist Andrew Johns and the University of Michigan’s Joel Slemrod broke the IRS “tax gap” data down by income level and found that Americans making between $500,000 and $1 million a year were underreporting their incomes at triple the “misreport” rate of taxpayers making between $30,000 and $50,000.

This past January, after Barack Obama took office, the IRS director of inspections upped the tax evasion ante. The taxes Americans were evading via cross-border transactions, he suggested, could be adding as much as another $123 billion to the original IRS $345 billion “tax gap” total.

The tax haven crackdown President Obama announced last week directly targets these cross-border transactions.

“Currently,” the White House notes, “wealthy Americans can evade paying taxes by hiding their money in offshore accounts with little fear that either the financial institution or the country that houses their money will report them to the IRS.”

Among the steps the White House is proposing to end this evasion wave: the hiring of 800 new IRS agents “devoted to international enforcement.”

The overall “tax cheat” package that the White House is proposing, points out the Tax Justice Network, a global group of tax and finance experts, actually doesn’t go as far as the Stop Tax Haven Abuse Act that Barack Obama, as a senator, co-sponsored in 2007. But that hasn’t stopped business groups from attacking the administration crackdown in exceedingly strident terms.

The National Association of Manufacturers has dubbed the White House proposals “disastrous,” and the Business Roundtable, a group that represents top corporate CEOs, has charged that Obama’s moves would “ripple growth, reduce the competitiveness of U.S. companies overseas, and destroy jobs.”

Jack Kemp couldn’t have said it any more feverishly. Three decades ago, at the start of his drive to lower tax rates on America’s richest, he argued that the tax code then in effect “punishes savings, investment, work, and production.” Kemp has now left us. His spirit clearly lives on.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Daniel McLeod

Daniel McLeod — Wed, 15 Apr 2009 09:48:02 -0700

Daniel McLeod, Outreach Coordinator, has worked in the global justice movement, peace, and labor organizing. He is also a mental health counselor and a freelance writer with a bachelors degree from the University of Massachusetts, Amherst in Communication & Sociology.