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Well, I just paid my taxes last week, so now seems like a good time to talk about the federal tax code. As I'm stuck in a Denver hotel right now, going into a detailed analysis of the tax code actually sounds like fun to me. I can practically see people's eyes glazing over already, and I haven't even thrown out any numbers yet. But that's the problem on the left; we see taxes as a means to an end, i.e. as a way to fund worthy government programs. Republicans, on the other hand, see the tax code as a way of achieving their view of the optimal society, which leads to a lot more energy and debate on the right about taxes.
Frankly, we've been playing defense on taxes since 1980. The pattern's always the same: Republicans propose massive income tax cuts, mostly geared towards the wealthy. Democrats respond by complaining that the tax cut is too large, and propose their own, more modest tax cut plan. But regardless of how the political battle goes, the end result is lower income tax revenues, which is the Republican plan all along. To make it worse, Republicans can then turn around and campaign against Democrats that dared to vote against their massive tax cuts.
So maybe it's time we on the left start talking about our own vision of the tax code, one that goes beyond simply protecting the progressive income tax. We need to get back on the offensive, by realizing that many important social and environmental goals can be achieved through a proper tax code. Republicans, of course, prefer to spend time talking about the income tax, or eliminating taxes on investment. The basic Republican goal is to eliminate any and all taxes on wealth, from the income tax to the estate tax, and replace these taxes with taxes on labor, most notably a national sales tax. Fun, huh?
But let's talk about a different area of the tax code, payroll taxes. Under the current system, employers are required to pay half of the Social Security and other payroll taxes, with employees paying the other half. This means that a company's tax burden goes up with every new employee. Any type of tax works as a disincentive to use the taxed resource. So in the case of our current system, we are basically encouraging companies to hire as few people as possible, in order to keep payroll taxes down. While this has led to great increases in worker productivity, I think this has run its natural course. Payroll taxes are now a disincentive to companies to hire more workers.
Our current tax code still reflects an industrial era America, one in which there was still an abundance of natural resources, but a limited supply of labor. But in the 21st century, there is a surplus of labor globally, a problem that becomes worse as populations continue to grow. Natural resources, on the other hand, are dwindling everywhere, from energy to water. So why not propose a bold new tax code, one that would replace the portion of payroll taxes paid by corporations with taxes on natural resources and waste? This could include taxes ranging from landfill fees or efficiency standards to taxes on timber or other natural resources. For more details on how this would work, please take a look at this report by Redefining Progress.
By replacing payroll taxes with taxes on natural resources and waste, companies will no longer have to worry about additional taxes when they hire more workers, giving a boost to employment. More importantly, it would spur new research and improvements in resource efficiency, in the same manner that payroll taxes have led to such exponential growth in worker productivity over the decades. Technology and management improvements could dramatically reduce our use of energy and other natural resources, and the resulting savings would lead to further economic growth. It could also potentially reverse the steady decline in our natural resources, and lead to emerging technologies in alternative energy sources and efficiency measures.
Once the new system is in place, it could also be extended as a replacement for the corporate income tax, which has become a national joke. The largest corporations increasingly pay little or no corporate income taxes, thanks to loopholes, subsidies, and other tax shelter schemes. As a portion of total government revenue, corporate income taxes have fallen to 10%, the lowest rate in decades. Clearly, the system is broken, and using taxes on resources as a replacement would make it more difficult for corporations to evade paying taxes.
Now, critics of such a system are sure to argue that this will stifle economic growth, as corporations will simply pass on the new resource taxes to their consumers. Same argument that is made against the minimum wage, actually, and it is equally bogus here. As consumers, we have a choice at where we shop; we are not forced to purchase products from any specific company. Under the new tax system, some companies will simply increase the price of their products, whereas others will invest in new technologies to reduce their use of resources and cut down on waste. In a competitive economy, these companies will gain market share over those that refuse to change their methods of production, leading to widespread use of resource efficient industrial practices.
Progressives can use this new vision of the tax code to counteract the Republican vision of an investor driven society, replacing it with a society in which natural resources are valued and waste becomes unacceptable, with an economy that promotes job growth instead of encouraging companies to avoid hiring fulltime workers. If Democrats are willing to be bold enough to embrace new taxes on natural resources and waste, it would give the left a unifying vision of the tax code, one that could accomplish many progressive goals in the areas of the environment, unemployment, and corporate responsibility.