Real tax reform?

from Peter Radford

OK, let’s all calm down. The Republican tax plan is now in its last stages of design. The two versions that exist need to be stitched together and then the compromise version passed in both houses of Congress.

The law as we currently know it is a classic piece of plutocratic largesse. It will fail in its supposed intentions: it will not do much at all for the economy. It gives rich people and large corporations big dollops of cash and a slew of new loopholes to feather their respective nests. It does nothing for the middle class, except for its upper reaches in the rise enclaves around our biggest cities where it will raise rather than lower taxes. And it raises the possibility, but not the certainty, of cost to social programs down the road when the deficit grows and the far right can start shouting about the lack of affordability of those programs.

Beyond that? Poof!

Nothing.

The law will not destroy the economy. It will not destroy anything at all.

I know I am one who has complained about it loudly, but that’s because of its class basis. The reality is that the law is ineffective as tool of permanent class war simply because it leaves untouched a great deal of what we need to protect the poor, workers, the elderly, and the sick. Even in this more extreme hour the Republicans haven’t summoned up the courage to tilt full force at things like Social Security and Medicare.  

And, as we all need to remember, taxes that are reduced can always be increased. I am known for my incessant criticism of Bill Clinton and his failed Third Way politics, but he did very modestly undo some of Reagan’s most damaging tax cuts. Likewise even the timid Obama managed to offset some of the damage done by the Bush tax cuts of 2001/2003.

So: relax. We live to fight another day.

Which moves us beyond criticism to the question of true tax reform. What would it look like? What would a progressive tax reform consist of?

Off the top of my head, and at the risk of upsetting everyone, here goes …

First: what are the objectives of reform?

I would argue for massive simplification. The current tax code is Byzantine and open to way too much exploitation by the rich who can afford expert advisors. So my first goal would be to reduce it to a more easily understood and enforced rump of what it currently is. Other countries have done this. We can.

Next, I would argue that any tax code needs to raise sufficient revenue to support a full set of social programs. The goal is not a balanced budget but full funding to support social goals. We need to counter the incessant attacks made by austerity hawks on those goals.

Then I would suggest we get rid of the privilege given to capital income. We ought tax work and capital equally.

Lastly, the tax code ought weigh most heavily on those who have the income and wealth to pay for it. So it has to be progressive in total.

Second: what taxes does such reform imply?

We would get rid of capital gains tax and, instead, tax gains as income and at income tax rates. Dodges like carried interest would disappear.

The level at which income tax kicks in would be raised considerably, after which rates would graduate steeply as incomes rise. There is a strong argument for raising the top rate to pre-Reagan levels, but in the exact level would emerge from the calculus of sufficiency.

I am in favor of the elimination of most if not all deductions. They distort economic decision making. So let’s be bold and get rid of them.

I also like the idea of a Federal VAT to bolster funding for social programs. Yes, I know it is regressive, but the flip side is that it is a rich vein of revenue. We could do with it. And: don’t forget we have eliminated income tax on lower incomes to defray part of this regression.

In order to get us back to a fully progressive system I would then add a guaranteed income. This would make up for the cost of the regressive nature of VAT and the loss of deductions at the lower levels. It would also streamline the welfare system which ought appeal to anyone seeking efficiency.

Third: what about corporate tax?

In general the same principles ought apply. Simplification throughout; the elimination of deductions; and enforcement of the new simple rules. Policy goals such as the pursuit of equality might cause us to tilt the corporate tax in favor of corporations with decent bonus programs for executives [enforcing a ratio of worker to CEO’s pay?]; domestic investment rather than overseas investment; and other objectives, but the problem with such additions is that they open the door for the inevitable subsequent tinkering with the tax code that produced our current mangled system.

In any case it’s fun to throw a few ideas about like this. What we all need to remember that, at some point, there will be an opportunity for progressive reform. And unlike our conservative opponents we must not waste the opportunity when it arises. We need to debate now what a progressive tax code would contain.

Our turn will come.