On April 14, 2013, Joseph E. Stiglitz writes in The New York Times:
Today, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.
Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.
What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s.
Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 — about the same as the share of income they took home, an outcome that is not progressive at all.
With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.
Tax policies today encourage concentration of capital wealth and property, generating on one hand a huge governmental bureaucracy to regulate centralized economic activity, and on the other hand, an ever-expanding number of economically dependent people requiring another huge government bureaucracy to administer to their needs.
The economic, social, and legal injustices of our society are fostered by tax policies which enable the rich to become richer, while the majority of the working people, the elderly, small businessmen, family farmers, and poor pay the taxes.
As a nation, we must adopt an economic policy designed to broaden private individual ownership of all forms of property––particularly property ownership rights which yield viable incomes to people. The function of Federal tax policy then should be to encourage broadened ownership, and discourage private concentrations of capital wealth and excessive personal incomes from property holdings.
For genuine tax reform, positive, constructive, and just reforms in tax law, with review every 5 years or less, are needed.
Recommended Tax Reforms
1. Personal earned incomes and property-derived incomes
The tax rate would be a single rate for all incomes of natural persons from all sources above a personal exemption level so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term debt, but the poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes which under some tax proposals would be exempted from any taxes. Provide an exemption of $100,000 for a family of four to meet their ordinary living needs.
Eliminate the payroll tax on workers and their employers, but pay out of general revenues for all promises for Social Security, Medicare, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.
2. Inheritance and estate taxes
As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
Each year tens of billions of dollars in capital wealth assets is passed along to heirs under current tax laws. The revenues generated from inheritance taxes should be pledged to support the Social Security program, thus achieving a reduction in Social Security taxes, which are becoming a tax burden.
3. Corporations and business taxes for non-small business enterprises
A. Investment credit tax incentives––The net result of new capital wealth formation is to create more productive land, industrial plant and equipment, machinery, tools, et cetera. In a highly technological economy the purpose of scientific advancement is not to create jobs (labor intensive production), but to substitute more efficient machines, buildings, tools, and productive land for labor; that is, human work effort. This is the basis of increasing productivity, and has been since the invention of the wheel to today’s age of cybernetics. Invention and innovation are supposed to save labor and free people for the enjoyment of the good life, the pursuant of happiness, and the improvement of their minds and bodies––to enable the fulfillment of the needs of the flesh (man’s material needs and well-being), so that the works of the soul may flow.
With an economic policy designed to foster widespread private equity ownership participation in the capital wealth assets of our economy, the use and purpose of the investment tax credit device as a special governmental subsidy to private corporations has a significant potential for encouraging broader ownership of income-producing productive property rights among all people.
If an investment tax credit is given to a business organization, it should be limited to finance real new capital wealth expansion for widespread private ownership participation by individuals and families.
The Federal Reserve should stop monetizing unproductive debt and begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.
B. Nonpublic close corporations––All non-publicly registered and traded corporations, that is, those that are close corporations owned by a few people, and not classified un definitions set by the Small Business Administration, Department of Commerce, as a “small business,” or whose stock is not traded on the open markets and broadly owned, should be taxed as personal holding companies. The tax policy for close corporations, which by their nature concentrate wealth and limit free enterprise, should result in expanded ownership of capital wealth and discourage such organizations.
The income of such corporations should be treated as the personal incomes of their owners and taxed at personal income tax rates as herein recommended.
This tax policy will discourage private concentrations of capital wealth, and encourage viable small businesses and widespread private popular ownership shares in the small and large business corporations of America.
C. Public corporations––Tax policy of the Federal Government should encourage broad private ownership of public corporations, Publicly registered business corporations should be taxed on a basis which encourages broad ownership and the fullest distribution of earnings to their owners.
The following tax policies for all publicly owned private corporations should be applied, based upon the philosophy that a corporation is a creature of the State, created by law, recognized as an “artificial person,” able to amass vast amounts of capital wealth with limited liability, and can have a life in perpetuity. Since a corporation is a legally created entity, and not a human being, its function, powers responsibilities, and ownership are a matter of significant social, political, and economic policy.
Public corporations should be taxed as follows:
If profits are retained, that is, reinvested and not paid to the stockholder-owners, the corporation will pay a 90 percent tax on retained earnings.
Dividends paid out to stockholders-owners would be deductible from corporate earnings thus making these earnings subject to personal income tax rates.
All subsidiary corporations and partially or wholly owned enterprises of a parent or holding corporation will be taxed as a separate enterprise entity, as under the above recommended policy.
4. Business sole proprietorships and partnerships, and close corporations classified as small business
No change in existing tax procedure are necessary, except that the tax rate on such business incomes would be the same for individuals.
5. Capital gains tax–non-public corporations and close corporations
For individuals, capital gains realized on the sale of a personal residence, owned and occupied by a natural person or persons and/or a family would be taxed at the personal income tax rate.
All other capital gains in property interests (real or personal, securities et cetera) unless exchanged within 1 year for property of equivalent value, would be taxed at the personal income tax rate.
6. Capital property holdings tax: Limits on ownership
All individuals, whether their property is combined with others in joint tenancies, co-tenancies, or community property holdings of natural persons should be subject to a capital property holdings tax if the certified net worth or equity value of the property holding of the taxpayer exceeds $1 million.
7. Tax loopholes and subsidies
Eliminate all.
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm
http://opinionator.blogs.nytimes.com/2013/04/14/a-tax-system-stacked-against-the-99-percent/
