OurFuture.org Blogs: ccollins

Taxes, Wealth Inequality and the Obama Budget

ccollins — Thu, 26 Feb 2009 10:08:20 -0800

Here is further evidence that the world is rapidly changing –or at least the national conversation about taxation. Released this morning, along with the Obama Administration’s first budget, is an extraordinary preamble called “Inheriting A Legacy of Misplaced Priorities”

In a section entitled “Growing Imbalance: Accumulating Wealth and Closing Doors to the Middle Class,” the administration recounts dizzying statistics about wage and wealth inequality, observing “instead of using the tax code to lessen these increasing wage disparities, changes in the tax code over the past eight years exacerbated them.”

Sam Pizzigati and I argue this point in Tuesday’s Christian Science Monitor (see: www.ips-dc.org/articles/1107), that several decades of shifting tax obligations off the wealthy requires the Obama Administration to tap new progressive taxes.

We have some ideas where the money should come from! Our Institute for Policy Studies Extreme Inequality team identified $500 billion in potential revenue from targeted tax hikes on the wealthy, closing overseas tax havens and levies on speculative investment. Our Policy Brief “Paying for a Strong Economy: Seven New Revenue Sources to Revitalize America and Reduce Financial Speculation,” (see: www.ips-dc.org/reports/#1112) argues that taxes on the wealthy don’t hurt consumption and discourage the type of speculation that fueled the high-tech and housing bubbles.

How do we tell the story of what has happened over these decades? Over coffee, my friend David Gleason said the rhetoric around dampening speculation doesn’t connect broadly. His version of the story:

“We were told that money would trickle down from those who had the most, but actually many of the richest people speculated with it in risky investments like “hedge funds”, “derivatives” and …. They did not share their wealth. Instead, they used it just to try and make more. Enough was never enough. In the end, the little guy got…” You get the idea.

It’s a whole new conversation.

Tax the Speculators: A Fair Plan to Fund Recovery

ccollins — Fri, 19 Sep 2008 04:56:38 -0700

Published in The Nation, September 19, 2008
http://www.thenation.com/doc/20081006/collins

With the specter of financial Armageddon raised in headlines everywhere, two questions keep occurring to me. Where will the government find the $85 billon to bail out AIG and other Wall Street giants? And how will we pay for the proposed Main Street recovery, including federal aid to states, relief to homeowners, and public works projects for the unemployed?

The Bush administration plans to add to the $400 billion projected deficit and our $9 trillion national debt. But it's irresponsible to shift the bill entirely to the next generation. The corporations that rigged the casino economy and the wealthy CEOs and investors that profited at everyone else's expense should bear the recovery costs, not our kids and grandchildren.

We can't recover the money from the companies now. They have extracted the profits and their CEOs have cashed their gilded paychecks. The speculators bought mansions, private jets, and small islands. Lehman Brothers declared bankruptcy on Monday and 25,000 workers are on the brink of unemployment. But Lehman CEO Richard Fuld is sitting pretty, with his $354 million compensation from the last five years and a mega-mansion in Greenwich, Connecticut.

When a CEO or employee improperly takes money from a company and is forced to pay it back, it is colorfully referred to as "disgorgement." In 1999, managers of Compaq Computer cooked the books and gorged on bonuses based on misrepresented profits. The government forced them to pay it back.

But what happens when a whole sector of the economy has been cooked and billions of dollars have already been stashed in offshore bank accounts? How are the crooks held accountable for robbing our entire economy?
Here are six actions that will fairly generate over $400 billion a year to pay for a broad-based economic recovery and reduce the extreme inequalities that fueled speculation at the outset.

Institute a Financial Transactions Tax. Congress should levy a tax on financial transactions such as sale and purchase of stock and more exotic transactions such as credit default swaps, options, and futures. The UK has a modest financial transaction tax of 0.25 percent, a penny on every $4 invested. This is negligible for a long-term investor, but imposes a cost on the fast-buck flippers. Estimated annual revenue: $100 billion.

Impose an Income Tax Surcharge Rate on Incomes Over $5 Million. The 50,000 households with annual incomes over $5 million are the bigger winners from twenty-five years of Wall Street deregulation. They've also seen their effective tax rates decline under President George W. Bush. Instituting a 50 percent tax rate surcharge on incomes over $5 million and a 70 percent rate on incomes over $10 million would generate $105 billion a year.

Eliminate the Tax Preference for Capital Gains. Wealth extracted from Wall Street windfalls will pay out income for years to come. There's no economic reason for taxing income from corporate dividends and capital gains at 15% while taxing income from actual work at 35%. Taxing wealth and work at the same rates would generate $95 billion a year in revenue.

Progressive Inheritance Taxes. When great amounts of wealth pass to the next generation a portion of the wealth should be taxed. A progressive estate tax could generate $50 billion a year in the short term, but much more in outlying decades.

Eliminate Taxpayer Subsidies for Excessive CEO Pay. Five loopholes that benefit top executives should be abolished. These include eliminating offshore deferred compensation, capping the tax deductibility of excessive pay, and eliminating double standards for stock option accounting. Closing these tax loopholes would generate $20 billion a year. (Read more about this in this recent report from the Institute for Policy Studies and United for a Fair Economy.)

Close Offshore Corporate Tax Havens. Congress should prevent corporations from playing games by claiming expenses in the United States and profits in countries that don't collect taxes. According to the Government Accountability Office, two-thirds of US corporations paid no corporate income tax between 1998 and 2005. Closing this loophole would generate over $100 billion.

Government action should prioritize protecting ordinary people and the real productive economy, not further reward the superrich and the speculative sectors of the economy. A fair plan to the pay for the recovery is a good start.

The Fortunate 400 and Challenging the Second Gilded Age

ccollins — Fri, 14 Mar 2008 08:30:45 -0700

The Fortunate 400 and the Second Gilded Age

A century ago, we were living in period of extreme inequality. They called it the Gilded Age as gold-leaf trimmed mansions rose over Newport, Rhode Island.

Newport’s premier annual social event of the period was a gala party thrown by patrician Caroline Astor known as “the 400” for its exclusive guest list. Wealthy families clamored to be invited to the Astor estate –and falling off the invitation list was tantamount to exile.

We are now deeply into our Second Gilded Age with our own exclusive 400 lists. There is the annual fall release of the Forbes 400, a ranking of individual wealth. The list is now exclusively billionaires with a combined net worth of $1.54 trillion.

Now we have the “Fortunate 400,” a U.S. Treasury department analysis of the country’s top 400 income earners. This report –which doesn’t name names –reveals that these 400 households together earned $85.6 billion in 2005, an average income of $213.9 million each. See www.inequality.org.

For perspective, in 1982 when Forbes first published its 400 list, it only took $91 million in wealth, not income, to be included. The Fortunate 400 took home a stunning 1.15 percent of all the income earned in the U.S. in 2005.

All this has inspired the formation of the Working Group on Extreme Inequality, a network of labor, business, religious and civic organizations that is focusing attention at the corrosive effects of such levels of concentrated wealth and power.

Our program includes proposals to institute a progressive estate tax reform, level the playing field in terms of income taxation, and remove incentives for excessive compensation of corporate CEOS.

For starters, we could tax income from wealth at the same rate as work. The average federal income tax rate for the Fortunate 400 was 18.23 percent, low because 86 percent of their income was capital gains and taxed at a 15 percent rate. If their earners had been from wages, they would have paid income taxes closer to the top rate of 35 percent.

Come to our session at Take Back America to learn more
http://tba2008.confabb.com/conferences/tba2008/sessions/12385/details