A Tax Plan to Rally Around: The Buffett Rule
September 20, 2011 · By Chuck Collins
If you care about the future of the republic the fight over taxation and concentrated wealth is your fight.
If you care about the future of the republic, the health of our communities, and the prospects for a transition to a new green economy – the fight over taxation and concentrated wealth is your fight.
If you care about children – and the kind of society we are going to leave for the next generation – in terms of ecological health, infrastructure, functioning government –the fight to tax the wealthy and close corporate tax abuses is your fight.
President Obama has put forward a revenue proposal worthy of vocal support and organizing. Progressives need to engage the media and our neighbors – and dramatize the reality that a majority of people support increasing taxes on millionaires and corporate tax dodgers.
Why We Should Increase Taxes on the Wealthy
There will be a vigorous debate over this proposal that will flow all the way into the 2012 election. There are four reasons for taxing the wealthy that we should repeat in any conversation we have:
1. Taxes on the Wealthy Have Declined Steadily for Decades. Over the last decade – and really over the last fifty years – the portion of income paid in taxes by our wealthiest citizens has steadily declined. In 1961, when Barack Obama was born, the effective rate paid by households with income over $1 million was 43 percent. Today it is 23 percent. The richer you are, as Warren Buffett has illustrated, the smaller the percentage of your income you pay.
2. The Wealthy Benefit Enormously from U.S. Society. The U.S. wealthy have disproportionately benefited from the public investments we have all made together over the last several generations in technology, scientific research, infrastructure and the system of property rights protections, education and stable market regulations that enable wealth creation to happen. If they have any doubts about the centrality of the U.S. system to their good fortunes, they should try somewhere else.
3. We All Have A Moral Obligation to Future Generations. Those with significant wealth at this time have a moral obligation to pay back the society that made their wealth possible. Progressive taxation is an “economic opportunity recycling” program, enabling present generations to ensure that future generations have the same opportunities they had. We all have a responsibility to future generations – and the wealthy have an obligation to pay their fair share of taxes as their parents and grandparents did.
4. Progressive Taxation will Reduce Extreme Inequalities of Wealth and Power. Over the last thirty years, we’ve seen a dramatic increase in inequalities of income, wealth and opportunity. The wealthiest one percent of households own 35.6 percent of all private wealth, more than the bottom 95 percent of households combined. These extreme inequalities have undermined all that we care about –our democracy, education, mobility, economic stability. This concentrated wealth and power is threatening the fundamental tenets of our democracy –and progressive taxation is one of the few ways to reduce inequality.
President Obama’s Tax Plan
The President’s Tax Reform Plan has many components and covers eight pages of provisions in the summary released, “Living within Our Means and Investing in the Future.” But they fall into three areas:
1. Allowing Bush Tax Cuts Expire and Reform the Estate Tax. President Obama has renewed his campaign pledge to allow the 2001 and 2003 Bush tax cuts for the wealthy expire on households with incomes over $250,000. Since 2001, we’ve effectively borrowed almost $1 trillion to give the highest income households in our nation these tax breaks. Reversing them is part of how we’ll get our fiscal house in order.
The President also proposes restoring the estate tax to 2009 levels when the tax applied to individuals with wealth over $3.5 million and couples with wealth over $7 million. The estate tax is our nation’s only levy on substantial inherited wealth. The combined revenue of these provisions would generate over $866 billion over 10 years, according to the Office of Budget and Management.
2. Millionaire Tax Rates and the Buffett Rule. The Obama proposal includes the “Buffett Rule” that no millionaire should pay an effective rate lower than a middle class taxpayer. It was inspired by the billionaire investor’s disclosure of the ways our tax code gives preferential treatment to higher income taxpayers. Buffett revealed that in 2010 that he paid an effective tax rate of 17.4 percent while many middle class and higher income taxpayers pay over 25 percent of their income.
High wage earners pay at 35 percent rate while income from wealth – capital gains and dividend tax rates – are 15 percent. This preference creates all kinds of distortions, including hedge fund managers who claim their income should be taxed at the lower 15 rate. The President’s tax proposal would eliminate this so called “Carried Interest” loophole and require hedge fund managers to pay at higher rates.
3. Corporate Tax Reform. The Obama proposal includes a number of important tax reforms, including elimination of subsidies for the oil and gas industry and reform of huge loopholes the insurance industry uses. It closes down some of the accounting games that corporations play that contribute little to jobs or economic health.
A Few Missing Pieces
There are few major missing pieces in the President’s revenue plan. There is no proposal for a financial transition tax, a modest levy on transfers of stocks, bonds and other financial instruments. European countries have been pressing the U.S. to join a global move to institute such taxes to slow unproductive currency and financial speculation. A penny tax on every four dollars of transactions could generate over $150 billion a year in revenue.
The president’s proposal unfortunately does not fully address the huge corporate loopholes that encourage offshore tax havens and aggressive corporate tax avoidance by U.S. companies. He should fully embrace Sen. Carl Levin and Rep. Lloyd Doggett’s “Stop Tax Haven Abuse Act,” which would raise an estimated $100 billion a year.
The president’s proposal still gives preferential tax treatment to income from capital over income from work. The tax rate gap between earned wage income and investment income is a glaring problem that creates huge abuses and distortions. We should tax all income under the same rate structure system, whether it comes from dividends or paychecks.
Organizing Time: Celebrate and Get to Work
The principles and policies behind President Obama’s revenue proposals are worth lifting up and defending. They would restore progressivity and fairness to the tax code. They would raise $1.5 trillion over the next decade from those with the greatest capacity to pay.
The push back will be enormous. Hedge fund managers, corporate CEOs, the offshore tax dodgers – together will spend hundreds of millions if not billions to attack these proposals. They believe income from their investments is more virtuous that income from wages. They believe they should get special treatment for everything they do. They would be comfortable living in an American with great disparities of income, wealth and opportunity.
They’ll accuse Obama of class warfare. But as Warren Buffett himself observed, “There is a class war in a America, and my class is winning.” Obama noted that his proposal is not based on class war, but math.
We must talk to our friends, families and neighbors – post articles on social media and send around information. Tell people you know why the fight for fair taxes matters to everything they care about.
If you know a wealthy person who believes their taxes should be raised, tell them to join Wealth for the Common Good and speak out for the tax fairness. It does no good if they keep their position private. Warren Buffett made a difference by telling his story and exposing that there is one tax system for the wealthy and one for the other 98 percent.
If you are a small business owner, don’t let the right wing perpetuate the myth that tax increases on the wealthy and closing corporate tax loopholes are bad for small business and destroy jobs. You have a unique voice in this debate. Join Business for Shared Prosperity along with thousands of other small business people who believe that taxes are the price we pay for an unparalleled business environment and infrastructure.
We should remember to celebrate. The fact that these tax proposals are on the agenda is testament to a decade of work by organizers, netroots activists, workers, researchers, and policy advocates who have made the case for progressive taxation.
It is the result of groups like Patriotic Millionaires and Wealth for the Common Good – that lift up the Warren Buffetts of the world, the thousands of other business leaders and wealthy individuals who believe they should pay more and are willing to face the cameras and say so.
It is a celebration of legislative champions like Sen. Bernie Sanders, Rep. Jan Schakowsky, Rep. Barbara Lee, Sen. Carl Levin, and Rep. Lloyd Doggett who introduced and incubated many of the policies that are in the President’s proposal when they were considered “off the table.”
This fall will be decisive – and the debate over taxes will go to heart of what kind of country we become. All hands on deck!
Chuck Collins is a senior scholar at the Institute for Policy Studies and co-editor of www.inequality.org, a source of data, analysis and commentary on U.S. and global economic inequality.
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