Federal tax policies have become unfair and skewed toward the wealthy. Greater tax fairness may be achieved by: (i) raising taxes on high-income taxpayers (the top 1%), while lowering taxes or leaving them unchanged for the rest of the population; and (ii) ending corporate welfare and modifying taxation of multinational corporations. A specific subsidiary of the second would be: (iii) repealing fossil fuel tax incentives.
Individual Taxes. With regard to individual taxes, simplification, flat rates and the like usually mean that the rich will pay less and the middle class and working poor more. We remember the much-touted remarks by then-presidential candidate Governor Mitt Romney about “47 percent” of low-income households paying no federal income tax. This conveniently ignored the fact that poorer individuals and families pay a much larger share of their incomes in payroll, sales and property taxes than the more affluent. There are also controversial issues of whether simplification would do away with the popular mortgage-interest and charitable deductions, etc.
On the other hand, hard-working families outside the top 1% need and deserve tax relief – and the super-rich should pay their fair share. As per the “Buffet Rule,” millionaires and billionaires should not pay lower rates than their secretaries. An example of a specific tax change that would lead to greater fairness is to eliminate the “carried-interest loophole,” whereby hedge fund managers are taxed at the highest long-term capital gains rate of 20% instead of the normal earned-income high of 39%.
Corporate Taxes. Corporations too should pay their fair share. A prominent study released earlier this year found that for each dollar the 50 biggest companies paid in federal taxes between 2008 and 2014, they received $27 in boons from the federal government. Even if that is exaggerated, the fact remains that some of the most profitable ventures in the world, such as oil and gas companies, still receive billions of dollars worth of United States taxpayer subsidies — including preferential tax rates, price supports, preferential loans, import restrictions and the like. The annual price tag to our federal government just for tax breaks and other incentives for the fossil fuel industry has been calculated to exceed $550 billion. In addition to getting rid of subsidies, Congress should enact penalties for corporate “inversions” (reincorporating overseas and restructuring as a foreign company in order to avoid U.S. taxes).
Estate, Dividends and Capital Gains Taxes. By contrast, in certain areas of taxation, the best advice may be basically to leave-well- enough-alone. With regard to the federal estate tax, the supposedly “permanent” provisions of the American Taxpayer Relief Act of 2012 (ATTRA) appear to have struck a workable political compromise. Reigniting the controversy over estate/death taxes seems unlikely to produce more palatable results for the vast majority of Americans or even Congressional representatives. Similar thinking applies to changes to changes in taxing dividends and long-term capital gains. The ATRA fixed the rate at 20%, and they are likely to stay there.