Taxing Truth
Posted: Tuesday, June 02, 2009
by Joel Hirschhorn
http://www.delusionaldemocracy.com
Truth? Not usually heard about taxes. As certain as the law of gravity will be working years from now is that Americans will see higher taxes in the not too distant future. To believe otherwise is pure delusion. Of course the Obama administration will work hard to delay the inevitable until after the next presidential election so Obama can win a second term.
The only uncertainties about higher taxes are exactly who will pay and what type they will be.
If you want economic justice and fairness, then one route to increasing federal revenues you should strongly support is to greatly increase taxes on the richest Americans, the people who have benefitted for many years from the corrupt system that produced the current economic meltdown. These people have grabbed most of the nation's prosperity while the vast majority pursued credit-based consumption and delusional prosperity. We need to treat the rich the way they used be treated: The nation's top tax rate hovered around 90 percent, under Democratic and Republican presidents alike, from World War II until 1964. And virtually all Americans shared national prosperity. On average, the 1955 top 400 richest Americans paid 51.2 percent of their total incomes in federal income tax. That dropped to just 17.2 percent of total incomes for that group in 2006, the most recent year with such IRS data.
Here are good options for today: A 50 percent tax on all income over $2 million a year and a 0.25 percent tax on the buying and selling of stocks, bonds, and other securities would raise over $450 billion a year. Other worthy options are: extend the employee half of the Medicare tax (the 1.45 percent tax that currently applies only to wages) to all adjusted gross income (AGI) which will mostly hit higher income people with investment income; use the 1.45 percent rate for AGI up to $200,000/$250,000 and 2.5 percent for AGI beyond that; tax capital gains and dividend income just like any other income with the top rates reaching 36 percent and 39.6 percent.
What ordinary people should fear are other approaches. One that is being seriously considered in Congress is to tax the health insurance benefits employers give their workers. This, of course, is like getting an increase in income taxes.
As the tsunami of baby boomers hit the system, a major cut in social security benefits or increases in premiums to Medicare users would also harm many Americans. Only by taxing the rich can the vast majority of Americans be protected.
Another intriguing tax strategy is to use what over 130 countries now use: the value-added tax or VAT. For example, in industrialized countries VAT rates from a low of 5 percent in to 25 percent in parts of Scandinavia. When VATs are sufficient to raise substantial government revenues it is common to decrease or drop altogether other types of taxes, like income and corporate, and to provide great social benefits to citizens.
VAT is a kind of consumption or spending tax. At every stage of commerce entities pay the tax, from manufacturers to wholesalers and distributors, to retailers and service providers. In other words, whenever money is spent there is a tax paid. It is very difficult for any part of the economic system to escape paying the tax. Naturally, consumers pay higher prices for products and services. At first this sounds awful. But it is not necessarily onerous if the government does not use other types of taxes or if the government provides something free that would otherwise be expensive, such as universal health care. Most importantly, VAT encourages savings rather than spending, which this recession has made popular once again.
Yale University law professor Michael J. Graetz has calculated that a US VAT of 10 to 14 percent would raise enough money to eliminate income taxes for families earning less than $100,000 annually, which is about 90 percent of households, and could even lower income taxes for the rich. Similarly, Leonard Burman of the Tax Policy Center figured that a VAT of 25 percent could not only provide the income tax benefit, but also would balance the federal budget and pay for real health care reform. That is a high VAT, meaning, for example, that the price of a gallon of milk would increase from $3.69 to $4.61 and a $5,000 bathroom renovation would cost $6,250. The larger point is that such a VAT, however, would put the nation's fiscal condition in terrific shape, which should benefit everyone.
The case against VAT is that it is regressive because it hits low income people hardiest; they spend a high fraction of their income on necessities and may not pay income taxes now. But this could be addressed through some type of refundable tax credit for truly low income households.
Unstated truth trumps lies by politicians. We know what the future holds. This is a classic not if but when situation. Higher taxes must rescue the fiscally, fund health care reforms, and prevent draconian cuts in government services that a huge fraction of Americans depend on. Most Americans have suffered enough. Let's hope that new taxes don't make the wrong people suffer more.
Come to think of it, perhaps we should heavily tax lies by politicians and raise billions.
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Top-level comments on this article: (2 total)Great article Joel,Very well done. It's just a matter of time before taxes, weather they be through income or products, become reality. It is really the only way to keep the spending train running. Again, great article.Ira
It's a good article, Joel. Especially since I am reading Henry George at the moment.
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