Cross-posted at Winning Progressive
Our country is faced with critical needs to restore basic government services, repair our infrastructure, reduce our long term deficit, and further boost our economy. Each of these requires that government has adequate revenue to do its job well. At the same time, working and middle class families are struggling economically, while the wealthy elite continue to make out like bandits. For example, the wealthiest 1% of Americans now have 24% of the nation’s income and more than 80% of the benefits of economic growth from 1980 to 2005 went to the wealthiest 1%.
One of the most effective tools for addressing these issues is tax policy. In short, we need to reform our tax policies to:
* bring in sufficient revenue to help jumpstart our economy and provide core government services
* ensure that we will be able to reduce the deficit over the long term
* reduce inequality by shifting the tax burden away from the working and middle classes, and toward the wealthy elite
While it is highly unlikely that Republicans would enact such tax policies after they take control of the House next year, the current Congress with its large Democratic majorities in both houses can determine a large part of the future direction of our tax system by addressing a number of significant tax policies that are set to expire at the end of this year.
There are three primary categories of taxes at issue before the end of the year:
<span style="text-decoration: underline;">* Income Tax Rates:</span> Congress is faced with addressing the planned Bush tax increases (h/t for that phrase to Professor Richard Thaler at the University of Chicago) , which would raise the 10, 25, 28, 33, and 35 percent tax rates to 15, 28, 31, 36, and 39.6 percent, respectively. President Obama wants to extend the tax relief for the bottom three tax brackets, which apply to annual income below $250,000. The Republicans’ priority is extending the tax cuts for the top two brackets, which apply to annual income above $250,000 per year. The Republican plan would provide millionaires with an average of $103,000 per year, with the wealthiest 0.1% of Americans getting an extra $310,000 per year on average.
The Republican effort to provide even more money to the wealthy elite would cost approximately $700 billion over the next decade while having very little stimulative effect for our economy. Their proposal should be rejected out of hand. Meanwhile, halting the planned Bush tax increases for the middle and working classes would cost approximately $3 trillion over the next decade, but would have a stimulative benefit for the economy right now.
So, the most sensible approach both as a matter of policy and politics is for Democrats to hold a vote now on providing tax relief on incomes under $250,000 for three years, while allowing the tax cuts for the wealthy elite expire. This puts the Republicans in the position of either holding middle class tax relief hostage in an effort to provide an extra $103,000 per year to millionaires, or pushing a tax cut only for the rich next year.
<span style="text-decoration: underline;">* The Estate Tax:</span> As we’ve explained previously, the estate tax, which is a tax on the transfer of wealth at one’s death, is the fairest and most progressive and meritocratic tax there is. The tax was phased out between 2001 and 2009, disappearing entirely in 2010. It is scheduled to return to a 55% rate on any estate value over $1 million in 2011.
The most sensible approach would be to allow the 2001 standards to return with an adjustment for inflation, which would affect only the top approximately 2% of estates and bring in more than $1 trillion in revenue over the next decade. However, such an approach may not be politically feasible, and the Democrats have proposed to make the 2009 estate tax standards, which had a 45% rate on estate values over $3.5 million, permanent. This approach would bring in $515 billion in revenue over the next decade in comparison to full repeal. Republicans want to make the 2010 elimination of the estate tax permanent, which would cost an additional $667 billion in revenue and increased debt interest payments over the next decade in comparison to the Democratic plan.
<span style="text-decoration: underline;">* Stimulus Package Tax Relief:</span> Unbeknownst to most Americans, the 2009 stimulus bill provided a number of tax breaks focused almost exclusively on the middle and working classes. These included the Making Work Pay credit, which provides a 6.2% tax credit up to $800 for people making below $190,000 per year, and expansions to the child tax credit, earned income tax credit, and education credits. In total, these provisions represented approximately $80 billion in tax relief per year. These tax provisions expire at the end of the year unless Congress extends them. Given the continued economic malaise and the need to continue stimulating the economy, a three year extension of these tax provisions makes sense.
A strategy of proposing temporary extensions of tax relief for the middle class while not providing further tax cuts to the wealthy elite is not only good policy, but can also be a political winner for the Democrats. The majority of Americans oppose extension of tax cuts at least to incomes over $250,000 per year and think that upper income people and corporations pay too little in taxes.
It is up to us, however, to make sure the Democrats seize this opportunity. Here are three things you can do to make that happen:
- Call your Representative and Senators and tell them that you want:
a. A vote before the end of the year on a three year extension of the stimulus package tax cuts and tax relief on income below $250,000
b. To oppose any effort to give further tax cuts on income over $250,000
c. To oppose any effort to eliminate the estate tax or to reduce it below its 2009 levels
- Contact the White House – 202-456-1111 – and urge the President to publicly promise to veto any effort to give further tax cuts on income over $250,000 or to eliminate the estate tax
- Send a letter to the editor explaining why you support a three-year extension of tax relief for middle and working class Americans, and oppose elimination of the estate tax and further tax cuts for incomes over $250,000