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Some but not all of the injustices in the FICA tax will be reduced beginning in 2013 unless Obamacare is repealed or declared unconstitutional.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

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