Those of you that have been following the progress of our emergence (or lack thereof) from the Bush Great Recession may have noticed that, for all intents and purposes, our economy remains stagnant. Well, stagnant for anyone who isn’t making the majority of their income through capital gains. Unemployment remains disturbingly high, and while many of the “leading economic experts” at the Fed will claim that unemployment is a lagging indicator and that as long as inflation remains under control there isn’t a major problem, the sizable lines at food pantries and in unemployment offices tend to disprove that theory. A recent study indicates that this is going to be the trend for the foreseeable future, as companies are making colossal profits without needing to add jobs. On top of this, Republicans in Congress, believing (or so I suppose; they might just be protecting their corporate overlords) that the Bush Great Recession is over, are pushing for massive cuts in the budget to bring the deficit down. The facts that the cuts they have proposed represent a mere drop in the bucket compared to the monstrous deficit and almost exclusively target programs and spending that help the people hurt most by the economic downturn AND most experts believe such drastic cuts would push the Bush Great Recession to untold lows are all irrelevant. What matters most is looking tough on “the profligate waste of Washington” while protecting corporate interests. Between the unfounded belief that the economy is already healthy again and the Republicans being seemingly hellbent on driving the economy off a cliff, things aren’t looking good for the American economy. It cannot be sustained as it is now without it becoming more battered than your average Lifetime Movie of the Week protagonist.
I’m certain that by this point, my readers, you’re saying to yourselves “So if the economy’s so bad, then what should be done to fix it? Where are your ideas, Mr. Big Shot?” My first response, my readers, is “I’m getting there. Hold up a second.” It’s taken several months, but I’ve assembled a six-part plan for a complete overhaul of the American economy. This is the first of what I intend to be a six-part series (because trying to put all of this into one post would likely result in reader petrification). So, without further explication, let’s get started with the first, and arguably the most important, part:
1. Completely revamp the income tax system
I say “income” because I think at this point everyone knows that our system for corporate taxes is broken beyond repair and will likely never be fixed. If you didn’t already know that, I’d hope that seeing Exxon-Mobil, the most profitable company in history, receive A REFUND of over $100 million would be enough to convince you of that fact. So, since the corporate system stands roughly the same chance of being fixed as Colonel Qaddafi winning the Nobel Peace Prize, it is imperative that the income tax system be totally overhauled. This is usually around the time that the gnashing of teeth, stamping of feet, and shouting of poorly written slogans referencing an event the average American doesn’t fully comprehend begins. Any time the mention of changes to the tax system comes about, people freak out because they think they already pay too much in taxes. They’re wrong, for two reasons: 1, the average American pays fewer taxes than any other major mostly developed nation except Chile and Mexico (and America’s still in much better shape than either of those countries), and 2, marginal tax rates are at their lowest level since the Truman Administration. Furthermore, my tax plan would (much like the President’s plan, prior to the disgusting “compromise” in the lame duck session) result in either no change or a substantial DECREASE in taxes for most Americans, so unless a person is capable of swimming Scrooge McDuck-style through his or her wealth, this plan would be to that person’s benefit.
Here’s my idea, complete with comparisons to the current tax schedule (which you can see for yourself at irs.gov). For simplicity’s sake, I’ve determined everything based on an individual filing as Single:
From $0 to $8,375: 10% (Currently: 10%)
From $8,375 to $50,000: 15% (Currently: 15% to $34,000, 25% above)
From $50,000 to $150,000: 20% (Currently: 25% to $82,400, 28% above)
From $150,000 to $250,000: 25% (Currently: 28% to $171,850, 33% above)
From $250,000 to $500,000: 35% (Currently: 33% to $373,650, 35% above)
From $500,000 to $1,000,000: 40% (Currently: 35%)
From $1,000,000 to $3,000,000: 50% (Currently: 35%)
From $3,000,000 to $5,000,000: 60% (Currently: 35%)
From $5,000,000 to $10,000,000: 70% (Currently: 35%)
From $10,000,000 up: 75% (Currently: 35%)
As you can see, for the vast majority of people, there won’t be any real changes. Just in case you can’t see that, here’s a quick example. Your intrepid neighborhood blog writer earned roughly $32,500 last year in taxable income. Based on the current system, I owed the feds $4,456.25 (worry not for me, my readers; payroll deductions resulted in a refund this year). Based on my system, I would owe $4,456.25. That’s right: no change at all. I can live with that.
Let’s look at the young ingénue doctor just getting her feet wet after finishing her residency. We’ll make a conservative estimate of her earnings at about $120,000. Based on the current system, she’d have to pay $27,309.25 in taxes. My system? $21,081.25. That’s nearly $6,000 that can either go directly into the economy or towards getting out from under the avalanche of debt the average professional student must contend with following graduation. Doesn’t seem too shabby if you want to talk putting money back into people’s pockets, but I’ve presented my system as a means of both repairing the economy for the average American AND eradicating the deficit to generate the funds needed to propel the other changes I’ve got in store for parts 2 through 6 of this plan. At some point I’m going to need to generate a good deal more money, and cutting taxes, despite what Republicans have been saying for the last 30 years, does the exact opposite. Well, that’s where the major changes come into play.
For my final example, let’s have a look at the “busy” hedge fund manager who makes a killing in the market to the tune of $150,000,000 in annual salary (for the sake of this argument, let’s assume that he counts this as normal income and not capital gains…don’t worry, I’m getting to that soon). Under the current system, that fellow pays the federal government $52,477,643.75 in taxes. Seems like a decent amount, right? It’s nothing compared to what that fellow would pay under my system. Under my new tax brackets, this fellow would be looking at a bill of $111,039,581.30. That’s right; this fellow’s tax bill would more than double under my system. Our poor hedge fund manager would somehow have to survive on a meager thirty-nine million dollars a year. How will he manage? At these rates, just 100 people making exactly $150 million would generate nearly six billion dollars in one year in additional tax revenue. That’s just people making exactly that amount; given that in 2007 the top 400 earners in this country made an average of $345 million each and income disparity has only gotten worse since then, we could be talking upwards of $55 billion in one year in additional revenue from just 400 people.
“But wait! If the tax rate on millionaires is going to be so high, what’s the incentive in being a millionaire?” First off, let me remind all of you that, in our hedge fund manager example, $39 million is still an awful lot of money. It’s nearly three seasons under the contract LeBron James signed for taking his talents to South Beach. So clearly, our hedge fund manager is not going to be applying for food stamps any time soon. Secondly, part of the point of this plan is to deincentivize taking huge amounts of compensation and hoarding it. Once that money comes off a company’s books and goes into the employee’s hands, it’s gone for good and does nothing to further aid in the growth of the company. As long as that money stays in the company, however, it can go toward furthering the company’s goals, be they expansion to new markets, development of new products, investment in infrastructure, etc. Consider the following: A company’s CEO is currently taking home $250 million in compensation when this new tax system comes into effect. Knowing that most of that money will be lost to the government, will the members of the executive board of that company continue to be inclined to pay the CEO that much? Or will they instead try to funnel a larger portion of that money back into the company in the hopes of further growing profit margins? If that CEO’s pay drops just 40%, that puts him at the same level as our hedge fund manager with a final take-home number of $39 million, more than enough to buy another Bentley and continue lording his conspicuous consumption over his neighbors. By dropping his pay 40%, though, the company now has another $100 million to pour into other areas of the business. Maybe the company looks at replacing some of their equipment that’s begun to show its age (buying new equipment = work for the makers of said equipment = jobs = economic growth). Maybe the company looks into expanding production in the hopes of gaining a larger share of the Chinese market (higher production levels = more workers = jobs = economic growth). Before you jump to the conclusion that this proposal is comically idealistic, consider that this is how the business world used to work. The only reason things stopped working this way is because a washed-up movie star decided he wanted his corporate buddies to be richer than astronauts. It CAN be done this way, in many countries (I’m looking at you, Scandinavia) it IS done this way, and if we want to stop our slide into the gutter, it NEEDS to be done this way.
The second major target in my overhaul of our tax system is the estate tax. Currently, thanks to the “compromise” brokered between the President and the Slashonomists, the rate for any money passed on to heirs is 35%, following an exception of $5 million. That last part is the part Republicans don’t want the average American to know about. Under the current system, if a person’s net worth at the time of their death does not exceed $5 million, that person’s family pays no estate tax. As you might expect, most people aren’t worth $5 million dollars at the time of their death; in fact, less than half of 1% of estates currently qualify for having to pay any tax at all. If one listens to most Republicans, however, one would assume that everyone pays an exorbitant amount of “death tax” (as they are often want to call it). Multiple Republican senators have proposed eliminating the estate tax altogether, which would be beyond catastrophic for the Treasury. Consider the case of Dan Duncan, the richest man in Houston, who picked an exceedingly lucky year to die. When Mr. Duncan, with an estate worth roughly $9 billion, passed away, he did so during the one-year estate tax holiday introduced in the original Bush tax cuts. Because he died that year, his family paid no estate tax. Let me repeat that just so it sinks in a little more: Mr. Duncan’s heirs, who had done nothing to earn a cent of their inheritance, collected $9 billion tax-free. Had even the rudimentary current estate tax been in play, the feds would have collected $3,148,250,000. Had the 2001 estate tax been in play (55% with an exception to $675,000), the amount would have been $4,949,628,750. This family, clearly already worth an amount incomprehensible to the average American, received a tax cut of OVER THREE BILLION DOLLARS because an old man died at the right time. For perspective, the major sticking point in the NFL lockout is due to the owners’ insistence on one billion additional dollars. One family could have solved the labor issues in the NFL with just their estate tax break. That’s disgusting, and it should never happen again. That’s why my plan would require a sizable estate tax in the vein of the Clinton tax rate. I’m willing to cut a little more slack with exceptions, and I’d have no issue with maintaining a $5 million threshold. If you’re making enough money to have to pay the Paris Hilton Tax (which I’m advocating everyone use when discussing this tax from now on…people tend to react more favorably when they realize she’s going to be rich for being a member of the Lucky Sperm Club (in more ways than one)), though, you’re going to face a rate of 55%. To quote Theodore Roosevelt (a progressive Republican, which would be about as welcome in the Republican party today as Rush Limbaugh at a pharmaceutical trade fair), “Every dollar received should represent a dollar's worth of service rendered, not gambling in stocks but service rendered.” With this, I think America can more closely approach that goal.
Finally, the most hideous perversion (minus the entire corporate tax system, of course) of the tax code: the capital gains tax and its use by stockbrokers and hedge fund managers. Thanks to loopholes written into the tax code, people who generate most of their income through stock market transactions are now permitted to classify their entire income as capital gains, and thanks to the Bush tax cuts (noticing a theme?), the maximum rate for capital gains is 15%. Think about that for a second; if you make more than $34,000 under the current tax system, you pay a higher tax rate than a stockbroker who makes $3 million. If our sample hedge fund manager counts all $150 million of his earnings as capital gains, he’d only pay $22.5 million in taxes. That’s absurd. Now realize that this also counts for everyone who lives off the interest of sizable investments. A 60-something retired executive with no job can make millions in stock dividends, accumulated interest from any number of other investments, cash from property transactions, and real estate speculation and pay no more than 15%. What a farce. To correct this, I would raise the capital gains tax by 200%, to a maximum rate of 45%. I’m aware that this isn’t perfect and could catch some people it isn’t intended to catch (seniors cashing in bonds, for example). There are ways to work around that, and by definition the maximum rate is just that: the most that could be levied. What matters most in the short-term is finally demanding a fair amount of tax be paid for these transactions.
I won’t even get into a few of the other ideas I’ve seen (a surtax on all income above $1 million, a miniscule transaction tax on all stock market trades and transactions) because most of you are probably already asleep. Suffice it to say, though, that while further changes still may well be necessary to get our economy going again, restore our budget to workable levels of debt, and curtail the rampancy of corporate greed, I think this is a good start. Something needs to be done soon, and I see no reason that this couldn’t be that something (well, besides the unrelenting opposition by the Republican drones at the behest of their corporate overlords). When an individual considers a budget, there are always two aspects to discuss: expenses and revenues. The Republicans have placed all kinds of focus on the expense side of the equation. Why can’t the revenue side be part of the discussion as well?
Next time: trade policies and American businesses, Or, Why Protectionism Isn’t a Bad Word
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