The Miami Herald, April 1, 2012
A tide that lifts all yachts
Harold Meyerson
Harold Meyerson is editor-at-large of The American Prospect. He opines:
... In 2010, according to a study published
last month by University of California economist Emmanuel Saez, 93 percent
of income growth went to the wealthiest 1 percent of American households,
while everyone else divvied up the 7 percent that was left over. Put another
way: The most fundamental characteristic of the U.S. economy today is the
divide between the 1 percent and the 99 percent. ...
10 years ago ... 65 percent of the income growth went to the top 1 percent.
This time around, it’s reached 93 percent — a level so high it shakes the
foundations of the entire American project ... … since 1970 … 5.1 percent of
all wages and salaries paid in the United States went to the wealthiest 1
percent. In 2007, the share going to the wealthiest 1 percent had more than
doubled, to 12.4 percent.
[Material in italics has been added for
counterpoint. Predictably, the American Prospect editor supports the
following failed liberal solutions]:
-
Raising the tax on investments to the level of the tax on wages [or
lower the tax on wages to make it the same as investments]
-
increasing the inheritance tax [or if you tax 2% of wealth each year
you don't need death taxes or gift taxes]
-
changing some laws to give stockholders and other corporate stakeholders
the power to diminish the share of corporate revenue routinely claimed
these days by top executives [or let the stockholders elect new
directors who will correct CEO compensation]
-
revitalizing unions [or invest union funds only in companies that
have union workers and reasonable CEO wages to prove how profitable the
companies can be]
...
the growing concentration of wealth and income in the United States is a
long-term threat to everything we profess to stand for. A nation where 93
percent of income growth goes to the top 1 percent is not a nation that will
embark on great projects, or long command the allegiance of its people.
2-4-8 Response: A Better Way to Close the Gap
Mr. Meyerson is right about the increasing
concentration of income and wealth in the top 1% but wrong to claim that
any, "changes to the tax code ... aren’t remotely sufficient to the
challenge of restoring the broadly shared prosperity that Americans
enjoyed". We just have to think a little bolder about tax reform and include
a tax on net wealth in the tax blend solution. We can obtain the maximum
government revenue with the lowest tax rates if we maximize the tax base.
For the first time in history, computers and internet
databases have enabled the possibility of implementing a net wealth tax that
would apply equally to rich and poor. In fact, a 5% tax on the $53 trillion
in individual net wealth could replace the entire $2.1 trillion in FY 2010
tax revenue. Before the widespread availability of computer record keeping,
wealth taxes had been limited to countries that sought to tax only society’s
well-to-do. This tax only the rich policy was often compounded by imposing
the net wealth tax on top of an income tax with progressive rates.
A more balanced approach can produce the same revenue
by taxing individual net wealth at 2% (excluding $15,000 and qualified
retirement funds) and taxing the $12.5 trillion individual income at 8%. By
eliminating the 14% payroll taxes (and paying social security and Medicare
from general funds) everyone keeps 92% of their salary. Because savings and
consumer power is maximized, the economy gets a real boost. The
wealth-income tax combination is progressive (proportional to the ability to
pay) and the application of same tax rates for rich and poor make it the
fairest tax system on the planet.
Business tax reform is also needed to shift the economy
into high gear and to raise some additional revenue. A 4% tax on $10
trillion in sales would yield another $0.4 trillion in revenue and permit
reduction of the corporate income tax rate to 8%. Reliance more on income
and less on profit also tends to close the gap between C corporations and
other types of business which pass-through the tax liability to the owners.
Implementation by means of a value added tax (VAT) would also bring the US
in line with the major economic powers of the
world while keeping the US
business rates well below all major competitors. This type of significant
corporate and business tax reform is also a politically cognizable tradeoff
for the elimination of business tax loopholes (including deferrals of
foreign income) which are entrenched in the tax code. All business tax
returns would also be digital and available to the public in order to
encourage both tax compliance and public confidence in business.
Taxes on capital gains, estates and gifts would not be
necessary (although a gift outside the family would be treated as income).
Similarly, deductions for mortgage interest would not be necessary since the
unpaid principal is an offset to net wealth computation. The 2-4-8 Tax Blend
also achieves a balance between individuals and business while respecting
and promoting the financial needs of persons at different stages in their
life. The simple rates of the 2-4-8 Tax Blend also make it easy to quickly
estimate the tax that would be owed for any individual or business.
Eugene Patrick Devany, JD, MPA
www.TaxNetWealth.com
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