Four Ways to Solve the Deficit Crisis: Tax the Rich!
Since President Obama signed the tax compromise law on Dec. 17, Republicans—and many Democrats—have been calling for massive government spending cuts to reign in the federal budget. Sen. Rand Paul (R-Ky.) has suggested slashing $500 billion this year, including $42 billionin spending on food stamps—a program over 43 million Americansnow rely on for sustenance. Rep. Mike Coffman (R-Colo.) has suggested that federal employees should take two-week furloughs in 2012. Golden boy Rep. Paul Ryan (R-Wis.) laid out a roadmap [PDF] to America’s future that leaves America without Medicare and Medicaid, a privatized Social Security, and a tax code where the poor will pay a larger percent of their earnings than the rich [PDF].
The irony is, when it comes to specific spending cuts, the majority of Americans could agree on cuts to exactly one area: foreign aid, programs that accounts for a measly 1 percent of the federal budget. As it turns out, Americans by and large find what government does to be purposeful, not wasteful.
The one thing that has remained off the table (or at least on the margins of debate) for now is new taxes—even though the tax compromise, in which Obama agreed to extend tax cuts for the richest Americans if the package also included tax cuts for the middle class, is the reason why we are projected to have a record budget deficit in 2011in the first place. To be sure, spending can and should be reined in, especially when it comes to the Defense Department’s gargantuan spending [PDF]—the Pentagon spends more than it ever did during the cold war, even adjusted for inflation. But taxes—new taxes, old taxes, better taxes, and taxes that will not do further damage to America’s middle and working classes—also need to be on the table.
Check out some progressive options below:
1. Financial Speculation Tax
Nothing sells increased taxes on the financial sector like Goldman Sachs CEO Lloyd Blankfein’s recent pay raise and eye-popping stock option bonus. High-risk short-term trades do little to make markets or the economy function better, but make profits for the bloated financial sector. As Dean Baker at the Center for Economic and Policy Research points out [PDF], taxing 0.5 percent of each stock trade could make $110 billion dollars a year, without crippling the financial services industry. Those who say the tax would cripple the financial services sector should note that the United Kingdom already taxes stock trades and remains a center of finance [PDF].
2. Millionaire’s Tax
The White House has shown some interest in repealing the $700 billion dollar tax cut for the top 2 percent of Americans, most recently when Vice President Joe Biden talked to Yahoo! News last Thursday.
But, saying somebody making $200,000 a year should pay the same rate as somebody making $1 million—or $10 million—a year is silly. In the 1940s the top tax bracket started at $5 million ($75 million in today’s dollars). Why not add more brackets on the top so the super-rich get taxed as though they were … super rich.
For those who think (or have friends’ who think) the rich pay too much already, it is important to keep current tax rates in historical context. Currently, the top 2 percent pay 35 percent in taxes; the 13,374 Americans making over $10 million total paid an average of 24.1 percent in taxes in 2008. In the 1950s, people in the top tax bracket paid over 90 percent of their incomes in taxes. Back then, a CEO could expect to pay 73 percent in taxes on his total income.
3. Estate Tax
Warren Buffett said in 2007, “A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy,” because it prevents unfettered transfers of wealth from generation to generation. The rich paid no estate tax in 2010, but it is not like the new 2011 rate, 35 percent after the first $5 million, is a burden on the rich. Let’s trust the National Association of Estate Planners & Councils (NAEPC) on what’s good for their clients. NAEPC board member Charlie Douglas says: “Ultimately, with [the 2010 tax compromise] came the most favorable wealth transfer planning provisions in modern time."
4. Property Tax
Of course, it is not just the federal government battling a budget crisis. Forty-four states and the District of Columbia are predicted to have budget shortfallsin fiscal year 2012, which starts in July 2011 for most states. In total, these states have a $126 billion shortfall, which accounts for 20 percent of their overall budget. In most cases, the shortfalls are worse than the past two years because there is no longer any assistance from the stimulus package.
One way to help solve the problem that does not involve cutting social services or education budgets would be to raise property taxes. Polly Cleveland at Dollars & Sense explains:
Even at a uniform rate, a property tax is intrinsically more progressive than an income tax! How so? Simply because property ownership is far more unequal than income. Most of us receive some income, yet the bottom 60 percent of Americans owns no significant wealth. Recent data from Edward Wolff of NYU shows the top 1 percent of Americans receiving 17 percent of income, but holding 34 percent of net worth, and 42 percent of non-home wealth—i.e. corporate securities and other assets.
In the age of loopholes, the property tax remains the only tax many rich people and corporations pay. Yet a triumph of confused statistics and cunning rhetoric has led most of us to perceive it as a burden on the poor and middle class, obsolete and unfair.
George Warner is a staff writer with Campus Progress.
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