Archive for April 26th, 2013

Our tax systems has been broken by the corrupt US government, which is currently owned by the 1 percent.

“Conservatives like to point out that the richest Americans’ federal tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.”

What should shock and outrage us is that as the top 1 percent has grown extremely rich, via redistributing income from the 99 percent, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since Ronald Reagan lead the revolution of the 1 percent of the 1980s.

Here’s what conservatives and Corporate Democrats don’t want you to know. Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010.

The United States has among the lowest top marginal income tax rates for developed nations. These low rates are not essential for growth. In fact, they destroy growth and jobs. Consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America’s by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn’t kick in until individual income reaches $400,000 (or $450,000 for a couple).

The same is true of US based corporations. General Electric, for instance, has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes — its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012. Many US corporations don’t pay any taxes, yet get rebates and refunds from the government, meaning they have negative tax rates.

One reason for the poor US economic performance is the large distortion caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie. But the rich also use their money to push legislators to enact laws that redistribute income from the 99 to the 1 percent. That’s precisely why the US economy is performing so badly.

Because this legislatively enacted income redistribution scam is a continuous process, incomes for the middle class have stagnated and declined for the last thirty-three years. Their incomes and wealth are being redistributed to the 1 percent.

The consequences of our broken tax system are not just economic. Our tax system relies heavily on voluntary compliance. But if citizens believe that the tax system is unfair, this voluntary compliance will not be forthcoming. More broadly, government plays an important role not just in social protection, but in making investments in infrastructure, technology, education and health. Without such investments, our economy will be weaker, and our economic growth slower.

Society can’t function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair — that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent — then faith in our democracy will surely perish.


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