Progressive Approaches To Taxes And Deficits

Federal tax rates for everyone are at or near record lows, but that’s especially true for the wealthiest Americans and for corporations. The average tax rate paid by the 400 richest Americans has fallen 53 percent since 1992, far more than the average decline in the tax rate for all taxpayers of 6 percent. It is true that the wealthy Americans do pay a significant share of the nation’s total tax bill, but the share they pay has not kept pace with the rise in their wealth—a 281 percent increase in income for the top 1 percent between 1997 and 2009, compared to a 16 percent increase for the bottom 20 percent. (These charts [1] from the Center for Budget and Policy Priorities help illuminate this issue.)

In April, The Congressional Progressive Caucus released “The People’s Budget” [2] for fiscal year 2012, and a key distinction between that budget and other proposals is its proposals to raise revenues as well as eliminate unnecessary spending in order to reduce the deficit. While the “People’s Budget” was voted down by the Republican-dominated House of Representatives, it contains ideas that should remain a part of the discussion of how the government addresses the budget deficit.

The budget, if enacted, would:

• Allow the Bush-era tax cuts to expire at the end of 2012, but extend marriage relief, credits, and incentives for children, families, and education.
• Immediately rescind the "Bush tax cuts" in December’s tax deal for those earning more than $250,000 a year.
• Index the Alternative Minimum Tax [3], the minimum upper-income earners have to pay after all deductions are taken, for inflation for the next decade.
• Implement the millionaire tax rates proposal from Rep. Jan Shakowsky [4], adding a 45% tax rate for persons earning more than $1 million on up to 49% for persons earning more than $1 billion.
• Tax all capital gains and qualified dividends as ordinary income.
• Enact a progressive estate tax [5]. (Sen. Bernie Sanders’ estate tax plan would repeal the current law that raised the estate tax exemption from $7 million to $10 million per-couple and lower the top rate from 45% to 35%.)
• Limit the rate at which itemized deductions can reduce tax liability to 28% for high earners.
• Replace the tax exclusion for interest on state and local bonds with a subsidy for the issuer.
• Tax U.S. corporate foreign income as it is earned, eliminating a common tax avoidance scheme.
• Eliminate corporate welfare for oil, gas and coal companies.
• Enact a financial responsibility processing fee.
• Financial speculation tax (derivatives, foreign exchange).
• Reinstate Superfund taxes.
• Raise the Social Security payroll tax cap on employees so that it applies to 90 percent of total employee earnings, and eliminate the taxable maximum that employers would have to pay.

The Institute for Policy Studies in April highlighted several proposals for raising needed revenue, some in this report on "unnecessary austerity" and others [6]in this fact sheet on innovative ideas [7] for global corporate tax reform. Among them:

• A small financial transactions tax on each trade of stocks, derivatives, currency and other financial instruments that could raise $150 billion a year.
• A currency transactions tax, a form of financial transactions tax, on foreign exchange transactions and their derivatives.
• Taxing income from dividends and capital gains at the same rate as regular income.
• Eliminating fossil fuel subsidies. Ending tax breaks, subsidies and other supports to the fossil fuel industry would free up funds for incentives for green energy sources.
• A  carbon tax on every ton of carbon dioxide emitted.
• Curtailing illicit money flows out of developing countries, increasing transparency rules for flows of capital that is illegally earned, transferred, or utilized.