A day after Rep. Chris Van Hollen (D-Md.) put forward a proposal that melds progressive tax reform ideas with a plan for a broad middle-class tax cut, Sen. Sheldon Whitehouse on Tuesday released a “tax fairness plan” that would ensure that people with multimillion-dollar incomes pay their fair share in taxes and that the government has the resources it needs for investments in education, infrastructure and human needs.
The Whitehouse plan includes the “Paying A Fair Share Act” that would require wealthy individuals to pay a minimum 30 percent effective federal tax rate, regardless of the credits and deductions they claim. That would make it less advantageous for the rich to take advantage of loopholes and exemptions that enable millionaires and billionaires to pay a lower percentage of their income in taxes than the people who work for them.
The bill has the support of a broad coalition of liberal and progressive senators, including Democratic Leader Harry Reid (D-Nev.), Tammy Baldwin (D-Wash.), Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).
Also part of the Whitehouse plan is the “Offshoring Prevention Act,” which would end the ability of corporations to defer taxes on profits earned or sent overseas, eliminating an incentive to take such actions as moving production out of the country. Another bill in the Whitehouse package revives a proposal championed by former Sen. Carl Levin that would end the ability of corporations to avoid taxes by funneling profits through overseas subsidiaries.
The three measures would mean an additional $370 billion in additional federal revenue over the next 10 years. “This revenue could provide substantial resources for investments in infrastructure and education, or could serve as a fairer way to fund new Republican initiatives than cuts to benefits that people rely on,” notes a fact sheet produced by Whitehouse’s office.
It comes at the same time that Rep. Paul Ryan (R-Wis.) led his first hearing as chairman of the tax-writing House Ways and Means Committee, where he wasted no time signaling his intention of pushing the conservative agenda of cutting corporate taxes and promoting spending cuts.
To help stack the deck in his favor, he invited to the hearing conservative economists Douglas Holtz-Eakin and Martin Feldstein. Holtz-Eakin said in his statement that “the corporate tax rate must be decreased” or else corporations will move an additional $988 billion out of the economy on top of the more than $2 trillion corporations are already sheltering overseas. Feldstein also called for reducing the corporate tax rate and shifting to a territorial tax system, in which income is only taxed where it is earned, regardless of where the corporation is based. A territorial tax system further encourages corporations to shift operations to low-tax countries and fans a global tax-rate race to the bottom.
Economist Simon Johnson offered a bit of corrective to all of this, reminding the committee that previous trickle-down economic schemes have only led to wider income inequality. “If anything, the tax system should lean towards becoming more progressive – and investing the proceeds in public goods that are not sufficiently provided by the private sector, like early childhood education and the kind of preventive healthcare that helps prevent disruption to education (e.g., due to asthma),” he said in his statement.
Johnson added that while it makes sense to look for ways to improve the U.S. business climate, the reality is that according to the Doing Business 2015 report by the World Bank, the United States ranks as the seventh best country in the world in “ease of doing business.” (By comparison, Germany ranks 14th, Canada 16th, Japan 29th and China 90th.) “It could make sense for the U.S. to benchmark itself more carefully against other countries – and to look at what drives differences in starting a business within the U.S.,” Johnson said. “It would make particular sense to consider what will help support the manufacturing sector and its relatively high productivity and high-paying jobs.”