Online at: http://politicalaffairs.net/article/articleview/8394/

Restore Tax Fairness: Tax the Rich

By Joel Wendland
Archives - Dates and Topics 2009 online April 1 – 30, 2009 click here for related stories: economy

4-14-09, 1:28 pm

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President Barack Obama campaigned on and has already implemented the largest tax cut for working families in US history. As part of the president's economic stimulus package, beginning on April 1st, the Treasury Department revised its rules to make sure that 95 percent of workers will keep an extra $400 and working-class households will keep $800 per year.

In addition, the president has proposed shifting more of the tax burden to the very richest Americans and corporations by eliminating the Bush tax cuts for the upper bracket and by ending loopholes that allow corporations to gain at the expense of middle-income taxpayers.

A growing movement of activists at the state and national level believe, however, that more must be done to restore or create a progressive system of taxation. According to a new report published by the Institute for Policy Studies this month titled, "Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly," a more progressive system could raise almost a half a trillion dollars per year.

"By seriously taxing the top, as we did in the 1950s, we could raise the revenues we need to better invest in infrastructure, education, and retrofitting our energy system," says Chuck Collins, an IPS senior scholar and co-author of the new IPS brief. "Appropriately targeted, higher taxes on the top would also serve to dampen the speculative frenzy that has cratered our economy."

"As Congress decides the specifics of tax plans that will impact whether and how we fund bold new initiatives for the country, taxpayers need to advocate for what they want," said Lee Farris, federal tax policy coordinator at United for a Fair Economy and co-author of a similar report titled "Safe, Fair and Sustainable" "The economic hardship facing ordinary Americans right now makes evaluating the impact of important tax policy choices all the more vital."

The authors of the IPS report propose eliminating the 2001 Bush tax cuts for the wealthiest income earners. According to the analysis in the report, such a move alone would restore more than $43 billion in revenue annually. The wealthiest one percent of Americans, who average $1.3 million in income each year and take in more than 22 percent of the national income, have seen their share of the tax burden shrink by one-third since 1986 and pay an average of about 22 percent of their incomes in taxes.

Indeed, the report found that the 139,000 US taxpayers who made over $2 million in 2006 averaged $5.9 million in income. If these individuals had paid taxes at the same rate as their 1955 counterparts, the federal treasury would have collected, in 2006 alone, an additional $202 billion.

Higher taxes on high-end financial transactions, revising the estate tax for the wealthiest families, eliminating tax preferences for capital income, ending tax-payer subsidies for CEO compensation and closing tax havens would generate an additional $400 billion-plus per year.

In addition to restoring fairness to the tax code, the tax hikes on speculative financial transactions and tax havens would discourage the kind of dangerous activities that prompted the financial meltdown in 2008 that sunk the US economy.

State-level tax fairness movement

Other activists are promoting a fair tax code on the state level. Nathan Newman of the Progressive States Network, told reporters on a recent press teleconference call that the economic and fiscal benefits from higher taxes on the wealthiest income earners have been proven across the board. "The anti-tax movement has become a bit of a paper tiger of late," he said. A national movement for restoring fairness to the tax code by raising or creating new tax brackets for the wealthiest people is gaining momentum.

For example, as one measure to help close its massive $13 billion deficit this year, New York just passed a bill creating a new tax bracket for people in the state earning over $500,000 per year.

New York State Senator Eric Schneiderman, one of the authors of the bill, argued that cutting necessary social programs like transportation, health care and education should not be the only option available for balancing the budget. A progressive tax system is the best way to close his state's massive budget deficits and to restore a measure of fairness to the tax code.

"The richest New Yorkers, because of 30 years of tax cuts for the wealthy," Schneiderman noted, "were paying just 6.5 percent of their incomes in state and local taxes, whereas the poorest, the lowest 20 percent of income earners in New York were paying 12.6 percent of their income."

This injustice dovetailed with growing anger at wealthy Wall Street players who seemed to have benefited from taxpayer-financed bailouts, Schneiderman added, making passage of the new tax code possible.

The compromise bill passed by the New York state legislature will raise about $4 billion in its first year.

Ron Deutsch, executive director of New Yorkers for Fiscal Fairness, stated that budget cuts take dollars out of the economy, a proposition that is disastrous during an economic downturn. "The tax system, as you look at who pays taxes as a percentage of their income in New York, is greatly skewed toward the wealthiest one percent of taxpayers," he said. While the richest of New Yorkers increased their share of income over the past decade, their share of the tax burden declined.

Deutsch added that this tax inequality also accounted for much slower growth in disposable income for middle-income families. Restoring fairness to the tax code by creating a new bracket for the richest New Yorkers will serve to halt growing income inequality as well as restore fiscal soundness to the state's budget, he said.

Jon Shure, deputy director state fiscal project at the Center on Budget & Policy Priorities, noted that successful efforts to create tax fairness started with the argument that "we wanted to work together to make the pie bigger instead of continuing to fight among ourselves for the crumbs of a pie that is shrinking."

Shure pointed out that in New Jersey, where a similar tax fairness measure passed, popular sentiment in its favor was so strong that politicians came to understand that they would face difficulties at election time if they voted against it. Polling conducted by his group showed that very few people believe that budget deficits should be resolved by cuts alone, and public support for a tax increase on incomes of $250,000 or higher is usually very strong across the country.

In addition to New York and New Jersey, California and Maryland have passed similar measures in recent years. Wisconsin and Connecticut are also considering similar plans to create a new tax bracket for the highest incomes.


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