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As tax time approaches, it is time to take a progressive whack at the tax code. It seems like us liberals and progressives treat taxes like some sort of third rail, ceding debate to the cheap labor conservative greed heads. There is no reason do this when progressive tax reform can level the playing field, balance the budget, provide economic disincentives for unsustainable activities, and help Middle America. In short, government expenditures that enhance and protect our natural and man-made infrastructure, provide social services such as retirement, disability protection and health care, and build the economy, benefit everyone. It is only fitting that we paraphrase one of our favorite cheap labor conservatives that we love to hate, Phil Gramm, that there are those who are pulling the wagon, and those riding in it. Of late, it appears that the wealthy, by benefit of the regressive tax code, are the ones riding in the wagon by not paying their fair share. It is way past time to change this situation, and we will look at an alternative tax code below the fold:

As part of breaking the stranglehold the Bush Regime and their pro-corporate Greedy Oil Party and reactionary YOYO (you are on your own) cronies have on tax policy, it is time for us progressives to suggest an alternative tax code for the people. In a nutshell, a tax system must be fair, simple, and reward good behavior and punish bad behavior. It should also be simpler than the current loophole ridden, regressive tax code that favors wealth over work. Tax reform is another bold initiative on my five point proposal to break the box of the Bush budget. Along with deep cuts to the military/war budget, this reform provides the cash to financially support environmental, renewable energy, and the sustainable infrastructure and transportation initiative and to shore up social programs without increasing the tax burden on over 90 percent of Americans.

In my last post on breaking the Bush budget box with alternatives for the people, the focus was on the sustainable infrastructure initiative, which proposes a sustainable transportation, ecological and structural infrastructure that both helps the environment, is carbon neutral, and will help restore good paying, domestic jobs. This was the first of the five initiatives that I proposed in my original post.

The second two initiatives, a new energy paradigm, and a single-payer health care system have been covered well in other articles, diaries and sites, including Energize America a work in progress by our own Kossacks, and the Apollo Alliance  program for renewable, sustainable energy; and our own nyceve’s health care diaries and Physicians for National Healthcare that detail health care reform, including Medicare for All, that will decrease our dependency on foreign oil and an out-of control health care system that costs more and delivers less than any other advanced nation.

Since I am fundamentally in agreement with the above, with some tweaks, will not spend time rehashing the energy and health care reform proposals, rather, follow the links to look at the healthcare alternatives to Bush’s silly tax incentives to purchase worthless health insurance, and  real alternatives to Bush’s paltry energy initiatives. Tax reform, tax fairness, and cuts to a bloated military will provide the funding for these bold new programs.

Lets cut to the chase. Here are some proposals to reform the tax code. These are up for discussion, and analysis, and further suggestions, but from my WAG (wild ass guesses) these will end up being revenue-neutral, or even revenue enhancing, if enacted in total, and will achieve the following objectives:  ensure the viability of Social Security, provide funding for single payer (Medicare for All) health care and reduce Federal taxes on the lower 90 percent of Americans, as well as fund vital infrastructure and environmental programs.

  1. Tax all forms of income at the same rate. No more preferential treatment of non-wage income. Non wage income can be tied to inflation and the income can be considered to be the amount of the income minus the inflation over the life of the investment. For example, 100 dollars is invested in stock x, and 5 years later, stock x has increased in value to 150 dollars. The inflation over that time period was 25 percent. Therefore the income gain was 25 dollars. Tax rate would be the percentage tax for the same amount of wage income, personal business profits, or other compensation over the same time period. I would argue for a slight reduction in the tax rates to compensate for new waste and carbon taxes (see below), but a progressive structure must be retained, with the highest 39 percent rate restored, which of course would apply to all forms of personal income.
  1. Social security tax reform. Junk the current employer-employee match system and the highly regressive tax structure and replace it with a 3% flat tax on all types of income and corporate gross receipts. That relieves companies of having to pay the 7.5 percent match, and eliminates the 15% self-employment tax that is a barrier to startup businesses. It also taps into the substantial amount of nonwage income that is enjoyed mainly by the wealthy, and equalizes the payments. It also puts more money into the pockets of the vast majority of wage earners that earn less than $100,000.
  1. Medicare reform: Single payer for all. Similar tax on all forms of income. I could see an approximate 5% universal flat income tax on individuals and company profits or a alternatively, a somewhat lower tax on company gross receipts to cover this. Eliminating the current system of health insurance and savings will more than wipe out the out-of pocket added costs of the additional tax. For example, it is not unusual for a family of four under the current system to pay $15,000 for one years worth of health insurance, which is nearly 25 percent of median family income. Remember, its not about the taxes, its about the balance of payments, stupid. Freeing employers from having to fund health insurance except on net corporate profits will free more money up to pay their employees or re-invest in the company.
  1. If we are keeping the current deduction/exemption based tax system, fix the alternative minimum tax (AMT). Reset the income level to $250,000 per year (combined, all forms of income) to make that the threshold, and index to inflation after that.
  1. Better still, set the standard deduction to $5,000 per family member (indexed for inflation), with a 1% income tax effective on incomes above this up to $15,000 per family member. For example, a family of four grossing $60,000 would pay $600.00 in federal income tax. In exchange for this, eliminate itemized deductions altogether. Lower tax rates for adjusted gross incomes under $100,000 will compensate for the loss of the itemized deductions. Large cost savings will be derived through the simplification.
  1. As Bill Clinton proposed, only allow the first 1 million of wage or non-wage payments (stock options) to each employee, per year, be tax deductible or to be applied against corporate profits.
  1. Reduce income taxes to those earning less than $100,000 per year adjusted gross. Replace with a fossil fuel/carbon tax that taxes fuel at the equivalent of $1.50 per gallon of conventional gasoline.
  1. Institute a waste tax on items that are not reusable, recyclable or are purposely designed to have a short product life by not feasibly being repairable. Institute a heavy Federal and/or state/local tipping fee for landfilling. Force companies to take responsibility by taking back products for reuse as has been done in Germany.
  1. Limit tax deductibility against profits for advertising to 10 million dollars per company. Basically this item in the tax code currently subsidizes large scale propaganda and unsustainability in large business.

I do not necessarily say that tax reforms be limited to the above. As Energize America is a work in progress, these proposed tax reforms are also. Flame away with suggestions, comments and criticisms, as it is way past time us progressives treat taxes as a GOP tar baby. Its time for us to drown Norquist's outmoded supply side tax policies in the bathtub, not good government.

Originally posted to NoMoreLies on Mon Apr 02, 2007 at 09:13 AM PDT.

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Comment Preferences

  •  Doin't forget the Estate Tax (0+ / 0-)

    Multi-millionaires should no longer be allowed to pass millions, tax-free, to heirs.

    There should be a modest exemption, say a half-million dollars.  Further, over, say, 10 million dollars, the marginal rate should be 100%.

  •  Start here! (5+ / 0-)

    Stop asking how much you pay and ask what you get in return.  The conservatives nutbags love to focus on how much people are paying and they also like to talk about how they represent the business people.

    Well...

    A real businessman will always use cost-benefit analysis which seems to escape the Club for Growth ninnies' calls for lower taxes based only absolute data of outflows.

    A real businessman knows what GIGO means and the CfG economic models based on forward-looking data and built around their normatives with no reference or input from past executions of those models is the Garbage In.

    A real businessman knows that budgeting means looking at FCFs and not assuming that a real-world cost of doing business is someone else taking 'your' money.

    A real businessman knows that there are costs involved in every activity (more directed at conservatives overall than specifically at CfG).

    A real businessman understands compound interest and knows that if credit is added on top of credit without any payment on the principal that the whole house of cards will crash down eventually.

    A real businessman knows that stability is more important than ST spikes in terms of business continuity and sustainability.

    A real businessman knows that if customers don't have coin there is no point in being in business.

    All CfG is, is a group of dunderheads who have been told how to build models and have been taught that the models have to work and in every instance where they don't work they are told to find out where execution went wrong.

    I work next door to these dweebs and let me tell you, they are the biggest (in more than one sense), pastiest, preppiest group of coddled morons to ever be allowed near a spreadsheet that is meant for real-world use.  In short, they, like almost anyone who will call themselves conservative these days, are incompetent to function outside of the sphere of their theories (much like the economists in the former Soviet Union, for that matter).

    Sorry, Skippy (and I am sure one of them is actually called that), but no matter how many times you bang your head on that reinforced concrete wall, you will always be the one with the concussion.

    Give me ten lines from a good man and I'll find something in there to hang him. - Cardinal Richelieu

    by lgrooney on Mon Apr 02, 2007 at 09:32:13 AM PDT

  •  Tip Jar for Fair and Simple Taxes (7+ / 0-)

    Should have put this in to begin with. Taxation should be fair and value-focused (i.e. get something back). Wars, oil industry subsidies, and breaks for non-wage income to the very wealthy are not of broad-based benefit to most Americans.

    FDR gave us the new deal. GWB and GOP gave us the screw deal.

    by NoMoreLies on Mon Apr 02, 2007 at 09:35:32 AM PDT

  •  I suggested this (2+ / 0-)
    Recommended by:
    cherryXXX69, phonegery

    Christmas in July

    If we want to Stop the War, and progress has been made with the Senate’s Supplemental Spending bill with benchmarks and a deadline.  President Bush promises a veto citing too much pork, and the line that the Surge is working and then it supposedly has too many restrictions on Commander’s and an arbitrary deadline.

    Pass a clean simple Binding Resolution setting the deadline only and let Bush and the Republicans Veto it.  They own the War.

    Pass a Christmas Tree Bill tying National Health Insurance to a short duration supplemental funding bill containing the same but this time Advisory deadlines.  I think that would pass in this climate pulling in large numbers of Republicans.  Every time he comes back add something important like privacy protection.

    Let the Republicans Choke on the War rather than Drowning the Poor in a Bathtub.

  •  Excellent diary. (1+ / 0-)
    Recommended by:
    NoMoreLies

    Americans understand the basics of budgeting, spending wisely for good value, and both investing and saving for future security and profit.

    These simple principles are not rocket science. They should be part of our national discussion: It's our money, and it's our country.

  •  Indexing capital gains for inflation (1+ / 0-)
    Recommended by:
    phonegery

    In general, I don't think that this is a progressive solution.  One of the issues is that capital gains taxes are susceptible to long-term deferral--avoid a realization event, and no taxes are due.  However, the holder of capital gains property has a real increase in their net worth--real income, but not taxable income.  Permitting this to be inflation adjusted (downward) and applying current tax rates does not restore tax equity as it does not account for the deferral of taxes

    A more correct solution would be to tax each year based on appreciation--i.e, a mark-to-market approach.  This is simple to do for assets that can be readily valued, such as marketable stock.  However, the approach is not feasible for other kinds of assets as it would require annual valuations.  The costs might outweigh the benefits.

    An alternative is to pro-rate gain over the holding period, tax at the rate prevailing then, and add interest for the tax deferral.  Thus, a $100 profit on an asset held for four years would first be split into four annual gains of $25 each.  Compute the tax on each, then add interest to the taxes:  3 years of interest on the tax on $25, 2 years of interest on the tax on $25, and one year of interest on the tax on $25.  The last chunk of tax carries no interest, since it is being currently taxed.

    If this seems odd to you, consider that it's already in the tax code with regard to taxation of so-called "passive foreign investment companies".  Under those provisions, taxpayers can elect various forms of mark-to-market inclusion, so a taxpayer who objects to the retroactive taxation can elect to recognize income currently.

    One question is what tax rate to apply.  It is not feasible to go back and have every taxpayer recalculate their taxes for each year the gains are carried back in case they had unused deductions or exemptions, or qualified for a lower (or higher) tax bracket.  However, there are not usually any deductions attributable to most capital gains so a tax on the gross gain at the hightest marginal rate (assuming, as is the case, that almost all cap gains are earned by taxpayers in the highest bracket) is equitable.

    If, as a policy matter, we want a lower rate on capital gains because some of the gain is inflation linked, that's fine--just make sure you add interest on the deferral.

    "This machine kills fascists"--words on Woody Guthrie's guitar

    by Old Left Good Left on Mon Apr 02, 2007 at 11:17:23 AM PDT

  •  May want to consider income averaging (1+ / 0-)
    Recommended by:
    phonegery

    for small business owners / entrepreneurs that typically starve for 5-10 years and then (hopefully) get a lump-sum payout. Someone that gets a $500k payout after 5 years of no wages is a heck of a lot different than the guy making $500k/year.

  •  A few suggestions. (0+ / 0-)

    Make career education depreciable and interest payments on debt for such education also deductible.  After all, it does have a useful life.

    Since corporations are considered "people", make any tax law applicable to corporations available to individuals too.

    Set one  depreciation code for assets and require a 75% vote in both houses of congress to change it.   This one because we sold a rental last year,  I'm stuck doing the taxes, and my eyes glaze over whenever I read the word Basis.

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