November 18, 2012

STILL LACKING THE COURAGE OF HIS CONVICTIONS:

Tax reform? We need a revolution : We should be shifting from taxes on corporations and income to taxes on pollution, wealth and consumption. (Bruce Ackerman, November 18, 2012, LA Times)

In framing the case for reform, the commission took the basic tax system as a given. In contrast, a final deal should recognize that the country is taxing the wrong things. We should be shifting from taxes on corporations to taxes on pollution and wealth, from taxes on income to taxes on consumption. These changes would increase revenue and promote a more just and efficient economy.

The corporate tax is the brainchild of the early 20th century. Progressives used it as symbol to demonize evil corporate fat cats conspiring against the public good. But shareholders can pass on a great deal of the tax to workers and possibly consumers. To the extent that investors bear the burden, the high corporate rate encourages them to send their money overseas.

The traditional aims of the corporate tax are better served by other means. Imposing an annual wealth tax on the super rich is a more effective way to curb economic inequality. On very conservative assumptions, a 2% annual wealth tax on households with $7.2 million in assets -- the top half of the top 1% -- would yield $70 billion a year. As the experience of France, Norway and other nations shows, it is perfectly feasible to impose such taxes, and they would put real meaning into the rhetoric of shared sacrifice.

Similarly, a carbon tax on polluters to curb global warming provides a better way to ensure corporate responsibility. The tax could yield an estimated $1.25 trillion over the next 10 years. This gives firms a powerful incentive to clean up cheaply, while consumers pay prices that encourage them to buy products that do less environmental damage. Japan has already introduced such a levy, and it is on serious agendas elsewhere.

These taxes are usually nonstarters for Republicans in the House. But would they consider them an acceptable price to pay in exchange for reduced corporate rates? The corporate tax yielded $175 billion last year. With the new taxes generating $2 trillion over a decade, the corporate rate could be cut significantly as part of a grand bargain that generated a huge net gain for the Treasury.

The president and the speaker also should be expanding their negotiating room by considering how a tax on consumption might contribute to a better deal on the income tax.

Other than his wealth tax, why tax income at all?
Posted by at November 18, 2012 7:10 AM
  
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