U.S. tax system targets workers

Everybody in America -- but especially anti-tax conservatives -- needs to read and understand this:

To sum up: The overall rate for wealth-based taxes has been decreasing while the overall rate for labor-based taxes has been increasing. At the same time, the potential base for labor-based taxes is migrating to the wealth-based tax side. And an ever-increasing portion of that potential base for wealth-based taxes faces no tax at all.

Lord and Pizzigati also note what I've been saying for a while now, that redistribution of wealth is alive and well in America -- but from the bottom-up, from workers to shareholders and managers -- not from the rich down to lazy welfare moochers:

Here's how. Until around 1980, wages kept pace with gains in productivity. Since then, productivity has continued to increase while wages have stagnated. The result? The allocation of income between labor and wealth has shifted, with more dollars going toward higher corporate profits, dividends and capital gains than toward wages. Tax rates are shrinking for booming profits, while rising for shrinking wages.

A tax system that targets workers

By Bob Lord and Sam Pizzigati

June 20, 2013 | Los Angeles Times

Imagine a society with two tax systems. One taxes the wealth people have accumulated. The other taxes the labor people perform. This society seems to be getting along well enough, raising enough tax revenue to finance the public goods and services that voters have told lawmakers they want to see supported.

Now imagine that lawmakers have decided to cut the tax rates on wealth and raise them on labor. At the same time, the amount of wealth subject to the lower tax rates is rising as income from labor is shrinking.

That society, we would agree, is asking for trouble. In real life, would any society choose to take such an unsustainable course? One already has — the United States since 1980.

In America today, virtually all the taxes that local, state and federal governments levy can be classified as either wealth-based or labor-based.

The wealth-based taxes include the state and local property taxes we pay on an annual basis and the one-time taxes on large inheritances and estates. Wealth-based taxes also include taxes on the income people get from holding wealth — dividends and interest, for instance — and the capital gains income from buying and selling assets. Throw in the corporate income tax here, too.

Labor-based taxes obviously cover the levies paid on the income we earn from the work we do. These include personal income taxes and the payroll taxes that fund Social Security and Medicare.

These labor-based taxes also include the more difficult to categorize sales and sin taxes. The lion's share of the revenue raised from these taxes, we would argue, comes from people spending their labor-based income on basic living expenses or, in the case of sin taxes, on cigarettes and alcohol.

What has happened to the rates in these two tax systems?

Over the last three decades, the rates for wealth-based taxes have been plummeting.  In 2011, the effective corporate income tax rate dropped to a 40-year low of 12.1%. The top federal estate tax rate has sunk from 70% to 40% since 1981. Estate-tax avoidance strategies have brought the actual rate paid on large estates down to less than half that. Many states have abandoned the state inheritance tax altogether.

The tax rate on capital gains did recently increase at the federal level, but the long-term trend has been downward, and the rate of tax on dividends has fallen dramatically, from 70% in 1980 to 20% today. Finally, beginning with the passage of California's Proposition 13 in 1978, average property tax rates nationwide have declined sharply.

Meanwhile, the rates for labor-based taxes, taken together, have increased.  Average Americans do pay federal income taxes at a slightly lower rate than 30 years ago. But the effective payroll tax rate has increased sharply, as the ceiling on wages subject to Social Security taxes has risen and the ceiling on wages subject to Medicare taxes has been removed entirely.

On top of that, sales taxes have also increased steadily, as have sin taxes.

The two tax systems, however, don't operate on a totally separate basis. The money that makes up the base in one system can migrate to the other. Over the last three decades or so, the available tax base from our labor-based tax system has been migrating to the wealth-based tax system.

Here's how. Until around 1980, wages kept pace with gains in productivity. Since then, productivity has continued to increase while wages have stagnated. The result? The allocation of income between labor and wealth has shifted, with more dollars going toward higher corporate profits, dividends and capital gains than toward wages. Tax rates are shrinking for booming profits, while rising for shrinking wages.

But that's not the worst of it. Tax rates in the wealth-based tax system aren't just decreasing. An increasingly higher share of the dollars in that system escape taxation entirely.

This growing exempt pool of wealth includes pension plans, IRAs, 401(k) plans, life insurance and annuity policies, municipal bond portfolios and funds held offshore. Most of this wealth sits in the portfolios of the richest families. Over recent decades, this tax-exempt chunk of American wealth has grown faster than our aggregate wealth — about $20 trillion, not including what may be as much as $10 trillion in wealth parked in offshore tax havens.

In the estate tax arena, it's the same dynamic. The exemption from estate tax has swelled. In 1981, the first $175,625 of the estate an affluent American left behind faced no estate tax. Today, the first $5,250,000 is exempt. And with the help of a decent estate planner, that exemption can be leveraged into a much higher number.

To sum up: The overall rate for wealth-based taxes has been decreasing while the overall rate for labor-based taxes has been increasing.  At the same time, the potential base for labor-based taxes is migrating to the wealth-based tax side.  And an ever-increasing portion of that potential base for wealth-based taxes faces no tax at all.

This is unsustainable.

U.S. taxes & spending: Key facts

Here are somewhat random but indisputable facts on U.S. federal taxes and spending, all of it hyperlinked:

Corporate tax:

·        The U.S. collects less corporate tax relative to the overall economy than almost any other country in the world:  about 1.3 % of GDP in 2010, compared to 5 % in the 1950s.

·        WSJ citing the CBO: Corporate federal taxes paid fell to 12.1 % of profits earned from activities within the U.S. in fiscal 2011, the lowest % since 1972.

·        26 Fortune 500 companies paid no net federal income tax from 2008-2011.

·        WSJ:  More than 60 % of U.S. businesses with profits over $1 million pay zero corporate tax, since they are structured as pass-throughs.

·        Citizens for Tax Justice: From 2008-2010, 280 profitable Fortune 500 companies collectively paid an income tax rate of 18.5 % vs. the statutory 35 % rate, while receiving $223 billion in tax subsidies.  And at least 22 companies used offshore tax havens like the Cayman Islands (like Mitt Romney does).

Individual taxes:

·        CBO:  In 2009, the same year the Tea (Taxed Enough Already) Party was born, Americans paid the lowest average federal tax rate (17.4 %) in 30 years.

·        Bush tax cuts will cost $5.4 trillion if extended in full from 2013-2022. Romney-Ryan claim they will close tax loopholes and broaden the tax base, but repeatedly refuse to give specifics, most recently on FoxNews.

·        DC Johnston/Reuters: Per capita federal tax revenue was 31.5 % less in real terms in 2011 than in 2001, because of the recession but also Bush’s tax cuts.

·        On the “47 % who pay no income tax:”

o   Only about 17 % of households did not pay any federal income tax or payroll tax in 2009, despite the high unemployment and temporary tax cuts; in 2007, it was 14 %.

o   CBO: the poorest fifth of households paid an average of 4 % of income in federal taxes in 2007, the latest year for which these data are available.

·        Institute on Taxation and Economic Policy:  The bottom 20 % of U.S. households pay more of their income in state and local taxes than does the top 1 %.

·        Tax Policy Center: Romney’s tax plan would result in "large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers."

·        The Estate (“Death”) Tax affects only 0.6 % of Americans whose death would lead to the payment of any estate taxes.  Only 2.7 % of Americans receive an inheritance over $50,000.  However, elimination of the Estate Tax would cost $253 billion from 2012-2022. 

·        David Stockman, Reagan’s director of the OMB, told CNBC: "We couldn't afford those tax cuts back when they were implemented by Bush. We can't afford them now."

  

Spending and deficits:

·        NYT:  Before President Obama even took office, the CBO projected a $1.2 trillion deficit for 2009 and deficits in subsequent years, based on continuing Bush’s spending and tax policies. (The actual deficit in FY 2009 was $1.4 trillion.)

·        NYT: Only 17 percent of the increase in government debt in 2009 and 2010 was because of discretionary spending of any kind, including the stimulus bill.

·        More than 1/3 of the Recovery Act’s (stimulus bill) cost to-date has been for tax credits: $298 billion.

·        PolitiFact:  Growth in government spending under Obama is lower than at any time since President Eisenhower (adjusted for inflation).  Deficits have increased, nevertheless, because of a down economy and resulting lower tax receipts – and the Bush tax cuts.

·        OMB: Contrary to Romney’s claims, defense spending increased under President Obama, from $661 billion in 2009 to $693 billion in 2010 to $705 billion in 2011.

·        GAO:  Interest paid on the federal debt as a percentage of annual federal spending is lower under Obama – 6.4 % in 2011 – that at any time since the 1970s.  And the interest paid on federal debt as a percentage of GDP is at its lowest since WWII.

·        OMB:  As a result of recessionary unemployment, "income security" payments built into our system before Obama took office, such as unemployment insurance, disability pay, food stamps and housing assistance, increased from $431 billion in 2008 to $533 billion in 2009 to $622 billion in 2010 and slightly decreased to $597 billion in 2011. 

·        OMB federal debt figures (p. 140):  2009: $ 11.88 trillion; 2010:  $ 13.53 trillion; 2011: $14.76 trillion. That was a $2.88 trillion increase, or 24 %, over 3 years for President Obama.  Meanwhile, from 2002 to 2009, the federal debt increased from $6.2 trillion to $11.88 trillion.  That was a $5.88 trillion increase, or 91 %, over 8 years for President Bush.

·        Taken together, tax credits in the Recovery Act (stimulus bill) , and the payroll tax reduction for 160 million Americans in 2011 and 2012, both passed by President Obama, gave Americans $298 + $240 billion = $538 billion in tax relief.    

·        The non-partisan Committee For a Responsible Federal Budget projects that, without offsets that Romney’s campaign refuses to explain, his tax plan would increase the federal debt by $2.6 trillion.
·        Non-defense discretionary spending totaled 18 % of the federal budget in 2012. It includes: border control, education, environment, food safety, infrastructure, housing, veterans' healthcare, disaster relief, public safety, scientific research, etc.  

Obama's 'great deal' with Republicans

Sanders: Estate tax on super-rich lowers deficit, prevents hereditary oligarchy

No To Oligarchy

By Bernie Sanders

July 22, 2010 | The Nation

The American people are hurting. As a result of the greed, recklessness and illegal behavior on Wall Street, millions of Americans have lost their jobs, homes, life savings and their ability to get a higher education. Today, some 22 percent of our children live in poverty, and millions more have become dependent on food stamps for their food.

And while the Great Wall Street Recession has devastated the middle class, the truth is that working families have been experiencing a decline for decades. During the Bush years alone, from 2000-2008, median family income dropped by nearly $2,200 and millions lost their health insurance. Today, because of stagnating wages and higher costs for basic necessities, the average two-wage-earner family has less disposable income than a one-wage-earner family did a generation ago. The average American today is underpaid, overworked and stressed out as to what the future will bring for his or her children. For many, the American dream has become a nightmare.

But, not everybody is hurting. While the middle class disappears and poverty increases the wealthiest people in our country are not only doing extremely well, they are using their wealth and political power to protect and expand their very privileged status at the expense of everyone else. This upper-crust of extremely wealthy families are hell-bent on destroying the democratic vision of a strong middle-class which has made the United States the envy of the world. In its place they are determined to create an oligarchy in which a small number of families control the economic and political life of our country.

The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last fifteen years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest-paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record.

Last year, the top twenty-five hedge fund managers made a combined $25 billion but because of tax policy their lobbyists helped write, they pay a lower effective tax rate than many teachers, nurses and police officers. As a result of tax havens in the Cayman Islands, Bermuda and elsewhere, the wealthy and large corporations are evading some $100 billion a year in U.S. taxes. Warren Buffett, one of the richest people on earth, has often commented that he pays a lower effective tax rate than his secretary.

But it's not just wealthy individuals who grotesquely manipulate the system for their benefit. It's the multinational corporations they own and control. In 2009, Exxon Mobil, the most profitable corporation in history made $19 billion in profits and not only paid no federal income tax—they actually received a $156 million refund from the government. In 2005, one out of every four large corporations in the United States paid no federal income taxes while earning $1.1 trillion in revenue.

But, perhaps the most outrageous tax break given to multi-millionaires and billionaires happened this January when the estate tax, established in 1916, was repealed for one year as a result of President Bush's 2001 tax legislation. This tax applies only to the wealthiest three-tenths of 1 percent of our population.

This is what Teddy Roosevelt, a leading proponent of the estate tax, said in 1910. "The absence of effective state, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need is to change the conditions which enable these men to accumulate power which is not for the general welfare that they should hold or exercise.… Therefore, I believe in a…graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate." And that's what we've had for the last ninety-five years—until 2010.

Today, not content with huge tax breaks on their income; not content with massive corporate tax loopholes; not content with trade laws enabling them to outsource the jobs of millions of American workers to low-wage countries and not content with tax havens around the world, the ruling elite and their lobbyists are working feverishly to either eliminate the estate tax or substantially lower it. If they are successful at wiping out the estate tax, as they came close to doing in 2006 with every Republican but two voting to do, it would increase the national debt by over $1 trillion during a ten-year period. At a time when we already have a $13 trillion debt, enormous unmet needs and the highest level of wealth inequality in the industrialized world, it is simply obscene to provide more tax breaks to multi-millionaires and billionaires.

That is why I have introduced the Responsible Estate Tax Act (S.3533). This legislation would raise $318 billion over the next decade by establishing a graduated inheritance tax on estates over $3.5 million retroactive to this year. This bill ensures that the wealthiest 0.3 percent of Americans pays their fair share of estate taxes, while making sure that 99.7 percent of Americans never have to pay a dime when they lose a loved one. It also makes certain that the overwhelming majority of family farmers and small businesses never have to pay an estate tax.

This legislation must be passed because, with a $13 trillion national debt and huge unmet needs, we cannot afford more tax breaks for millionaire and billionaire families. But even more importantly, it must be passed because the United States must not become an oligarchy in which a handful of wealthy and powerful families control the destiny of our nation. Too many people, from the inception of this country, have struggled and died to maintain our democratic vision. We owe it to them and to our children to maintain it.