Our nation needs a plan to pay for long-overdue investments in education, health and retrofitting our energy infrastructure. Nothing could be more obvious. But, just as obviously, we need a plan to pay for those investments.
Short-term borrowing, during an economic downturn, certainly makes sense. Long term, we need to do much more than borrow. We need to totally reverse 30 years worth of federal tax and budget policy.
George W. Bush, over his eight years, took tax and budget policy to the crony-capitalist limit. His White House racked up $5 trillion in national debt by waging reckless wars, shoveling lush contracts and bailouts to corporate and Wall Street insiders, and, perhaps most arrogantly of all, slashing already-low tax rates on the incomes of the super rich.
Few Americans realize just how incredibly little, historically speaking, our nation's wealthy now pay in taxes.
In 1955, the year April 15 became the IRS tax-filing deadline, America's top 400 taxpayers paid three times more of their income in taxes than the top 400 of 2006, the most recent year with IRS data available.
According to a new Tax Day report that we co-authored, if the top 400 of 2006 had paid taxes at 1955 rates, the federal treasury would have collected — from these 400 taxpayers alone — an additional $35.9 billion more in revenue in 2006.
The 139,000 U.S. taxpayers who made over $2 million in 2006, our report also notes, averaged $5.9 million in income. They paid 23.2 percent of their total incomes in federal income tax. The comparable rate for equivalent high-income Americans in 1955: 49 percent.
If the over-$2 million set in 2006 had paid taxes at the same rate as their 1955 counterparts, the federal treasury would have collected $202 billion.
We've now lived through 30 years of "shrink, shift and shaft" federal budget and tax policies. Right-wing pols, aided by Democrats who should have known better, have shrunk government and the share of taxes paid by the wealthiest 1 percent. The tax burden, consequently, has shifted off wealth and onto wages, off the federal tax system and onto the regressive tax systems of states and localities.
The direct result: States and localities have gotten the budget shaft — and that has forced years of chronic underfunding for mass transit, education and myriad public services.
So what can we do, as a nation, to start turning this situation around? Our Institute for Policy Studies report, "Reversing the Great Tax Shift," advances a set of specific steps that would generate over $450 billion in annual revenue, dollars that would help finance our recovery fairly.
We recommend that lawmakers:
Tax income from capital gains and dividends at the same rates as wage income. Under current law, income from investments gets taxed at 15 percent. Income from work gets taxed at up to 35 percent. No coherent moral justification exists for such an enormous tax preference for income from wealth. According to Citizens for Tax Justice, taxing all forms of income the same would generate $80 billion a year.
Create a new top tax rate for incomes over $2 million. Presently, a person with an income of $300,000 faces the same tax rates as a person with an income of $3 million. Instituting a top tax rate of 50 percent on incomes over $2 million would generate more than $60 billion a year.
Levy a progressive estate tax on large fortunes. The federal estate tax, our nation's only levy on grand accumulations of private wealth, will expire in 2010 and revert to the 2000 status quo. Lawmakers aren't going to let that happen -- if, for no other reason, to take inflation into account -- and that reality creates an opportunity to make the estate tax more progressive.
One reform would be to institute graduated tax rates on large estates, while exempting estates worth less than $2 million, $4 million for a couple. Such an approach would generate over $100 billion a year a decade from now -- while taxing no more than 1 of every 200 estates.
All these steps, we believe, would enjoy widespread public support.
Our grandparents seriously taxed the rich. Why can't we?