This post continues the discussion of inequality and fairness in tax policy begun in Part I and Part II. The idea is that democratic egalitarianism calls for a tax policy that serves to restrain the growth of inequality and the concommitant consolidation of economic power in the hands of an elite oligarchy, else democractic institutions cannot survive. Brute capitalism must be balanced by government intervention on behalf of the people, else the economy will work to allow the rich who control the levers of power to exploit the working middle and lower classses.
Former Minnesota Republican Governor Tim Pawlenty is running for president. Like the rest of the GOP cast of hopefuls, he is bound and determined to introduce radical changes to the federal tax system that will carry out a corporatist agenda and so has released a proposed tax plan. There is lots wrong with his plan, from the likelihood of it costing 7.8 trillion to 10 trillion over a decade, to the fact that it reduces revenues to the federal government so much that it raises only about 13.6% of GDP, a starvation level (especially when you consider the military commitments that the right is so supportive of) that would jeopardize all important public services and public goods like public transportation, public health care, public retirement security, and public parks. Then there's the wacky extremist right-wing corporatist tax policy that it incorporates--a policy designed to continue the raping of the American economy and the American middle class by the elite current owners and managers of America's concentrated capital.
It includes:
- a radically less progressive schedule of rates--10% and 25%
- zero taxation for almost all income from capital--capital gains, dividends, and interest
- elimination of the federal estate tax
- reduction of the corporate tax rate from a statutory rate of 35% to a statutory rate of 15%
- elimination of "special interest handouts, carve-outs, susidies and loopholes."
There's nothing commendable about this so-called plan. It is nothing more than a shifting of the tax burden to the middle class (and below) that furthers the corporatist agenda of allowing multinational corporations and their owners and managers a free reign, using all the benefits of the market established by government but sharing almost none of the burdens.
Consider each of the items mentioned above in turn.
- A reduction of rates to 10% and 25% reduces the progressivity of the tax system, when today's context of enormous leaps in inequality and further concentration of income from productivity in the hands of owners and managers demands instead a radical restructuring towards increased progressivity, with rates on incomes of greater than a million at 45% and higher as the millions mount.
By lowering rates as indicated in the plan, Pawlenty benefits the elite few at the cost of the overwhelming majority of Americans, since tax cuts are of the greatest benefit to the Big Business multinational corporations, their owners and managers, and the rest of the wealthiest elite while spending cuts (achieved through an arbitrary low percentage of GDP as a goal for maximum spending) will be especially detrimental to almost all programs that benefit ordinary Americans, from Social Security, Medicare, Medicaid and unemployment to parks and other services that are maintained in the public interest because they preserve our cultural heritage for the future and provide benefits to ordinary Americans today.
- Zero taxation of capital gains and interest and dividend income from capital is a part of the corporatist dream of paradise for the elite--their income is sacrosanct and untaxed, while the working middle class and poor pay all the taxes to support the system that made their wealth possible. Our current preferential taxation for capital gains and dividends already discriminates in favor of the rich, since it allows the rich to accrue greater wealth, while they pay workers stagnant wages and force them into borrowing more and more (which gives the rich, especially the banksters, even more wealth from exorbitant fees to usurious interest rates to draconian foreclosure and other remedies). "The richest 400 US taxpayers paid an effective personal income tax rate in 2008 of only 17.8%," as noted in the CTJ report, Pawlenty Plan Would Cut Income taxes for Richest 400 Americans by 73 Percent, June 8, 2011. Reducing that with zero taxation of capital income is nothing but exploitation.
The right's rationale for this exploitation has been proven wrong across the globe--the claim that the few at the top are the entrepreneurs responsible for job creation, and that all good things will eventually trickle down to the middle and lower classes.
Pawlenty actually stated that "there's about 5% of our country that is our entrepreneurial class." CTJ, Pawlenty Plan Would Cut Income taxes for Richest 400 Americans by 73 Percent, June 8, 2011. In other words, Pawlenty is claiming that the "top 5%" shouldn't be taxed because they are the entrepreneurs that create job for everybody else. This is simply bunk. For example, Bill Gates quit being an entreprenuer long ago. He was an entreprenuer when he was a member of the middle class working in his parent's garage. He is now a monopolist who protects his revenues by preventing better products from getting in the market stream whenever possible (e.g., his use of bundled microsoft software that kept out other products). Entrepreneurs are most often little guys, or at best inventive people who are given free reign in their jobs to be creative. They are very seldom the managers and owners at the top who make money by trading and investing in the secondary market.
When the elite get almost all of the goodies from productivity gains, good things don't trickle down to the rest of us. They hoard them for themselves, living in gated communities, setting up elaborate lifestyles where they "require" excess wealth to maintain themselves, socializing with other elites that reconfirm the value of the elites, and in almost every way maintaining a distance from, and a negative attitude towards, the masses of people.
This provision (combined with the other elitist provisions) means that the richest 400 US taxpayers will pay almost nothing--they'll get a tax cut of about 73% from their already too low tax burden. See CTJ, Pawlenty Plan Would Cut Income taxes for Richest 400 Americans by 73 Percent, June 8, 2011.
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Elimination of the federal estate tax is just another way to allow unstable inequality to grow even more rapidly. The estate tax paid at their death is often the only time that wealthy owners of most of the financial assets in the country contribute to the federal fisc--this is because they can choose to hold onto stocks during life, and with no sales, there is no tax whatsoever. (Of course, with a zero tax on all dividends, interest and capital gains, this would be even more true under Pawlenty's plan.)
Pawlenty is willing to treat the wealthy owners of capital as having no obligation whatsoever --not even upon their death--to support the federal government that made all that wealth possible in the first place. So their income from capital would be tax free during their lifetimes, and all that accumulated wealth would go to their heirs without tax. Their heirs would continue the accumulation of wealth and the power that adheres to great wealth. This is a travesty for democracy: inherited wealth is not "earned", has nothing to do with entrepreneurialism (even if building wealth in the first place might be vaguely connected to once-entrepreneurial talent), and gives an undeserving and genuinely unfair advantage to heirs who get a windfall that places them immediately in a position to command respect from fellow elites and audiences with government officials that they wish to subvert to their wishes.
- Reduction of the corporate tax rate from 35% to 15% furthers the corporatist agenda directly. Major multinational corporations would continue to use the United States system to their advantage and pay practically nothing for the privilege, while using their funds--with the full activist radical right of the Supreme Court as aiders and abettors through Citizens United--to further subvert democratic institutions to their own objectives.
At the current statutory 35% rate, taxpaying corporations actually pay taxes--on the amount of income that is determined to be included in taxable income, which is already much lower than their actual economic income--at a rate of only about 24%. The majority of corporations manage to pay no or incredibly low taxes, even with a 35% statutory rate. Our rate isn't high at all, when you realize that we do not have many of the other taxes (excises, VATs) that other countries have for corporate entities. A 15% rate would most likely result in an average negative tax rate for US businesses.
Of course, as CTJ notes, if corporatist lobbyists are able to get legislation like this that reduces the corporate tax rate to 15%, then all those businesses that have avoided the corporate tax by using the too-readily available pass-through regimes will then convert to corporations, and there will be even less revenues under Pawlenty's plan (and less sharing of the burden by the elite).
- Elimination of loopholes cannot possibly make up for the reduction in revenues, and will of course have varying effects depending on just which loopholes are eliminated.
The specifics remain unspecified. Of course, the preferential rate for income from capital is absolutely the biggest one of these, and under his plan that is the whale that swallows the minnor of whatever other loopholes he may or may not eliminate. Many of the other "loopholes" have been strongly lobbied for by the very group of elite owners and managers that his tax plan generally rewards. The R&D credit, the "active financing" exception, the accelerated depreciation, the expensing--all of these are corporatist-friendly loopholes that have no reasonable rationale in tax or economic policy but which major multinational corporations with excessive political power cherish.
CTJ notes that "[e]ven if Pawlenty's plan eliminated nearly all tax expenditures, those taxpayhers with incomes above one milion dollars annually would enjoy enormous tax cuts." The organization's calculations show that even assuming ALL itemized deductions and credits are eliminated, taxpayers with incomes in excess of $1 million would get (just from the personal income tax cuts and not considering the estate tax cut and the reduction in the corporate income tax, which will affect primarily the wealthy who own most of the financial assets including corporate stock) a 41% tax cut amounting to about $289,000 annually, at a cost to the fisc of more than $140 billion annually! See CTJ, Pawlenty Plan Would Cut Income taxes for Richest 400 Americans by 73 Percent, June 8, 2011.
Analysis of the media coverage and other issues relating to Pawlenty's corporatist proposal to be continued in a later posting.
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