Monday, November 28, 2011

A Goal For Occupiers: Down with regressive taxes!

Although the occupy movements have elicited widespread sympathy, they have been better at expressing general unhappiness than at suggesting specific reforms. One trouble with specific goals is that it is hard to find any that broad masses of people can agree on.

It would be wonderful if the energy, sincerity, and enthusiasm of the occupiers were focused on some concrete action that they could demand Congress take. I would like to suggest a goal which could unify the occupiers: getting rid of regressive taxes.

Republican presidential contenders have renewed old disputes about the merits of “progressive” taxes ( higher incomes pay a higher tax rate) and “flat” taxes (everyone pays the same percentage). There is something to be said for both sides of this issue. But nothing whatever can be said in favor of regressive taxes ( higher incomes pay a lower percentage in taxes).

Several federal taxes are highly regressive. The most obvious one is the FICA tax supporting Social Security and Medicare. This 15.3% tax applies to the first dollar earned, only applies to wages and salaries, and only applies to the first $106,800 this year. A person earning $106,680 this year pays $16,340.40 in FICA taxes, half directly and half indirectly as the so-called “employer’s share.” A person earning twice as much still pays the same $16,340.40, as does someone who makes $1,000,000, or about 1.6%.

Some but not all of the injustices in the FICA tax will be reduced beginning in 2013 unless Obamacare is repealed or declared unconstitutional.

The federal income tax also has regressive elements, with much lower tax rates on income from dividends and capital gains than on wages and salaries.

Supporters of these major loopholes claim that it is unfair “double taxation” to tax dividends, since the corporations paying them have already paid corporate income tax on their income. And they proclaim it unfair to tax capital gains, part of which is not really income because of inflation, at the same rate as wages.

The argument about double taxation is sheer sophistry, since money is always subject to taxation whenever it changes hands and no tax system can avoid this. The argument about inflation has merit but wouldn’t if capital gains were indexed to exempt the portion caused by inflation.

It is obviously unfair to tax hedge fund managers with billion dollar incomes at a much lower rate than that paid by the people who clean their offices. It is apparently impossible to eliminate this injustice without major and harmful side effects as long as capital gains are taxed at lower rates than earned income. The solution to this problem is therefore to eliminate the preferential rate for capital gains.

I therefore urge the Occupy movement to focus on one unifying and clearly meritorious reform: getting rid of all regressive taxes. The movement’s energy, enthusiasm and public attention could make this reform politically possible. A mobilized public opinion could force Congress to ignore the well-financed lobbyists, spin-doctors, and special pleaders who would rush to oppose such a reform.

Down with regressive taxes!


This piece has appeared in the Daily Telegram, Adrian, Michigan.

Sunday, November 13, 2011

Unemployment not just a problem for returning veterans

It is hard to disagree with President Obama when he tells us it is wrong for returning veterans to be unable to find work. Even Senate Republicans went along with his proposal to give tax credits to companies that hire unemployed veterans.

Still, this kind of rhetoric and legislation should make us all very uneasy. Although it sounds good in Veteran’s Day oratory, it smacks too much of telling us that the wrong people are unemployed.

Government should not be in the business of deciding who should be employed and who should not be employed. Nor should anybody else be in that business. In a full-employment economy, veterans, like everyone else, would be able to find jobs.

We often hear laments that older people, young people, and members of racial minorities suffer from higher unemployment than do middle-aged non-minority people, which again takes the existence of unemployment as a given and suggests it should be distributed more equitably.

There is nothing in the structure of the physical or social universes that requires the existence of unemployment. During World War II the United States not only had no unemployment but it actually had a labor shortage. And the amazing results? Women (“Rosie the riveter”) and black people suddenly found themselves hired to do work that had previously been denied them. (The shortage of workers, aggravated because employers were not allowed to raise wages to attracted needed labor, led employers to offer fringe benefits like medical insurance, which the government did not count as wage increases.)

During the heyday of the Soviet Union, likewise, there was also a shortage of labor instead of unemployment, because state-run factories and farms (and that was all there was) were not allowed to raise wages to the point where the demand for labor would have fallen to be equal to the supply. The notorious Gulag Archipelago, or system of concentration camps, functioned as a kind of civilian draft to get needed labor for difficult projects in unpleasant parts of the U.S.S.R.

There are several ways the U.S. could assure full employment without the unpleasantness of a war or Soviet-style economy. Small decreases in average wages could bring the demand for labor into equilibrium with the number of people seeking work, as was the case in World War II America and in the Soviet Union. If measures need to accomplish this are politically unpalatable, the government could become the employer of last resort, guaranteeing everyone a job at the legal minimum wage, modified versions of the WPA/CCC programs of Franklin D. Roosevelt, but on a larger scale. The costs of doing this would not be out of line with what we have lately been spending on ineffective “stimulus” programs.

Whether we supported or opposed the wars they have been fighting, we can only wish returning veterans the best. But we can wish no less for all other Americans. It is time to stop talking about reducing unemployment and to start talking about eliminating it.


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