We need to pay for:
- Expanding Social Security and Medicare
- Tuition free education
- Rebuilding and recreating our infrastructure
- Renewable Energy
- etc.
Wealthy people are going to have to pay more taxes, but taxes should be fair without being punitive. There was a recent discussion about 90% marginal tax rates during the Eisenhower administration, but 90% is way too high.
We do have to consider:
- Federal income taxes,
- Social Security and Medicare taxes,
- Gas taxes, Carbon and other Pollution taxes, and natural resource usage fees.
It would be nice to have a model where folks can consider trade-offs and see what happens to the numbers. (it would be nice if the model also considered public health and military spending). Does this model already exist? If not, what are some good sources for the data needed to build the model?
One very attractive option is to tax all income with the same progressive rates. It is really absurd for someone with "earned income" to pay a higher rate than someone who is collecting dividends and capital gains.
When looking at options we should keep in mind that a lot of our current taxation is regressive, including state and local taxes. Households with the lowest 20% of income pay 10.9% of income for state and local taxes while the top 1% only pay 5.4%. Washington State is the most regressive with the lowest 20% paying 16.8% while the top 1% pay 2.4%. Reference: http://www.itep.org/...
And Social Security and Medicare taxes are regressive, with everyone paying 15.3% of the first $118,500 of earned income, and 0% for other types of income and amounts greater than $118.5k. (15.3% includes both employee and employer payments).
On possible approach is below:
What if we did the following:
1. Have everyone pay 15.3% of all income towards social security and health care.
2. Keep the individual federal income marginal tax brackets as they are now, from 10% of adjusted gross income below $9,225 to 39.6% of income above $413,200 (for single filers). But we count all income the same way as earned income, and eliminate the most egregious loopholes currently available to the wealthy.
3. Eliminate the corporate income tax, but make sure that the value of stock options are counted as income for the individuals that get them, and generally make it harder for corporations to accumulate large amounts of cash. This will eliminate the complaint that taxing dividends is double taxation where the same money is taxed at both the corporate and individual level.
4. Keep a reasonable estate tax exemption, and then treat the rest of an estate as regular income (subject to income and social security and health care taxes). Also, limit the tax benefits associated with trusts.
5. Add a significant and increasing carbon tax, with a portion rebated to individuals (to soften the blow for those of us who have to drive to work).
6. Add pollution taxes that reflect the true cost associated with the diminished value of our air and water resources.
7. Charge appropriate usage fees for extracting oil and natural gas (and for logging public land, fishing in public waters, etc.)
Note that this is just one approach, and it's possible other options will be more attractive after looking at real numbers. For example, there are real benefits to getting rid of the corporate income tax, as it would make the US more attractive for business and eliminate the current unfair situation where the largest corporations with the "best" tax attorneys pay the least. The corporate income tax however did account for 9% of federal revenue in 2010. I'm guessing that the changes suggested for individual taxes will much more than make up for this 9%, but I don't have the numbers to back that up.
State and local taxes should also be less regressive, but that should be addressed on the state and local level.
With the option above, we'd be adding pollution taxes, eliminating corporate taxes, and keeping income, social security, and medicare tax rates the same. That sure sounds a lot better than a 90% marginal tax rate.