Saturday, October 12, 2019

The Three Most Beautiful Words in the English Language: Tax the Rich

I know you agree. And finally this beautiful idea is getting the policy and public attention it deserves. In your Sunday Times, though it's already online, is a lengthy op-ed by economists Emmanuel Saez and Gabriel Zucman based on their forthcoming book (pre-order today!) The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.
They start out with this observation:
"America’s soaring inequality has a new engine: its regressive tax system. Over the past half century, even as their wealth rose to previously unseen heights, the richest Americans watched their tax rates collapse. For the working classes over the same period, as wages stagnated, work conditions deteriorated and debts ballooned, tax rates increased.
Stop to think this over for a minute: For the first time in the past hundred years, the working class — the 50 percent of Americans with the lowest incomes — today pays higher tax rates than billionaires."
And their key point is this:
"The good news is that we can fix tax injustice, right now. There is nothing inherent in modern technology or globalization that destroys our ability to institute a highly progressive tax system. The choice is ours. We can countenance a sprawling industry that helps the affluent dodge taxation, or we can choose to regulate it. We can let multinationals pick the country where they declare their profits, or we can pick for them. We can tolerate financial opacity and the countless possibilities for tax evasion that come with it, or we can choose to measure, record and tax wealth.
If we believe most commentators, tax avoidance is a law of nature. Because politics is messy and democracy imperfect, this argument goes, the tax code is always full of “loopholes” that the rich will exploit. Tax justice has never prevailed, and it will never prevail.
For example, in response to Elizabeth Warren’s wealth tax proposal — which we helped develop — pundits have argued that the tax would raise much less revenue than expected. In a similar vein, world leaders have become convinced that taxing multinational companies is now close to impossible, because of international tax competition. During his presidency, Barack Obama argued in favor of reducing the federal corporate tax rate from 35 percent to 28 percent, with a lower rate of 25 percent for manufacturers. In 2017, under President Trump, the United States cut its corporate tax rate to 21 percent. In France, President Emmanuel Macron is in motion to reduce the corporate tax in 2022 to 25 percent from 33 percent. Britain is ahead of the curve: It started slashing its rate under Prime Minister Gordon Brown in 2008 and is aiming for 17 percent by 2020. On that issue, the Browns, Macrons and Trumps of the world agree: The winners of global markets are mobile; we can’t tax them too much.
But they are mistaken. Tax avoidance, international tax competition and the race to the bottom that rage today are not laws of nature. They are policy choices, decisions we’ve collectively made — perhaps not consciously or explicitly, certainly not choices that were debated transparently and democratically — but choices nonetheless. And other, better choices are possible."
This point, that low taxation of the rich is a policy choice and not "required" by the nature of modern capitalism or globalization, is developed at length in the article. It is a crucial point.
So too is an associated point made by David Leonhardt. Not only is it not true that, even if you instituted higher taxation on the rich, they would simply avoid the taxes, it is also not true that such taxes would wind up reducing economic growth. As Leonhardt notes:
"[T]he second half of the 20th century was mostly a victory for the low-tax side. Companies found ways to take more deductions and dodge taxes. Politicians cut every tax that fell heavily on the wealthy: high-end income taxes, investment taxes, the estate tax and the corporate tax. The justification for doing so was usually that the economy as a whole would benefit.
The justification turned out to be wrong. The wealthy, and only the wealthy, have done fantastically well over the last several decades. G.D.P. growth has been disappointing, and middle-class income growth even worse.
The American economy just doesn’t function very well when tax rates on the rich are low and inequality is sky high. It was true in the lead-up to the Great Depression, and it’s been true recently. Which means that raising high-end taxes isn’t about punishing the rich (who, by the way, will still be rich). It’s about creating an economy that works better for the vast majority of Americans.
In their book, Saez and Zucman sketch out a modern progressive tax code. The overall tax rate on the richest 1 percent would roughly double, to about 60 percent. The tax increases would bring in about $750 billion a year, or 4 percent of G.D.P., enough to pay for universal pre-K, an infrastructure program, medical research, clean energy and more. Those are the kinds of policies that do lift economic growth."
Amen This issue is one important reason why, even though I have my doubts about Warren as a candidate against Trump, I ove the fact that she is pushing higher taxation on the rich and that Saez' and Zucman's work is reflected ttin her plans. There is considerable policy risk to the Democrats in managing to beat Trump and then failing to move in this clearly necessary direction. The time is past for putting up with the current unjust, regressive, anti-growth tax system.
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It is absurd that the working class is now paying higher tax rates than the richest people in America.

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