FAIR TAX POLICY
Lane Siekman "A Voice for Hoosier Families"
BRINGING SMALL TOWN VALUES TO WASHINGTON
The talk in Washington D.C. has now turned to tax reform but what they really mean is tax cuts for the wealthy. Let's face it: No one likes paying taxes and no tax rate is low enough to make everyone happy. Lane understands that we need a fair tax policy in America but tax cuts for the rich don’t really help the economy and the middle class. We must reform and simplify the tax code to help ordinary people. Lane will work to end tax breaks for the wealthy and special interests. Lane supports repealing the special, low income tax rates for those with incomes greater than $250,000. He will fight to remove corporate loopholes in the tax code which large corporations in recent years have exploited so that they have paid nothing in federal income taxes and have actually received tax rebates from the IRS. End the rule allowing American corporations to defer paying federal income taxes on profits of offshore subsidiaries and repeal dozens of other loopholes and tax subsidies throughout the federal tax code that benefit oil, natural gas, and other special interests.
It has been a longstanding tradition in America to protest taxes since the beginnings of our Republic. Even Lyndon B. Johnson once said "In 1790, the nation which had fought a revolution against taxation without representation discovered that some of its citizens weren’t much happier about taxation with representation."
At a time of massive wealth and income inequality, we need a tax system in this country that is based on the ability to pay. It is unacceptable that major corporations have paid nothing in federal income taxes, and that corporate CEOs in this country often enjoy an effective tax rate that is lower than their lower level employees. In 1953, the corporate income tax accounted for 32 percent of all federal revenue. Today, despite record-breaking profits, corporate income taxes only bring in 11 percent of total federal revenue.
President Trump and republicans in Congress claim that cutting tax rates for the richest Americans will improve the standard of living for the working class. Supposedly, top-bracket tax breaks will result in more jobs being created, higher wages for the average worker, and an overall upturn in our economy. It's at the heart of supply side economic and the infamous trickle-down theory. It has been tried before with very mixed results.
The past 50 years have seen a gradual decrease in the top bracket's income tax rate from a high of 91% in 1963 to what is really, in 2010, the effective tax rate of large, profitable corporations in the U.S. was only 12.6 percent, not the 35 percent nominal tax Republicans and corporate tax lobbyists complain about.
These shifts in tax policy have given us an opportunity to study and evaluate whether or not lower taxes for the rich actually translate to more wealth for the average American. We can compare changes in the top tax rate with real GDP growth rate (a measure of the growth of the entire U.S. economy), and three other measures of how life is for the average working American: annual median income growth, annual average hourly wage growth, and job creation.
If tax cuts for the rich really help the economy and the middle class then we would see an increase in the four indicators whenever the tax rate dropped. However, this is not the case. It does happen sometimes, but the opposite happens at other times. Empirical data from the past 50 years refutes the argument that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole. Cutting the top tax rate does not lead to economic growth, income growth, wage growth, or job creation. Top-bracket tax cuts are an ineffective attempt at stimulus that will not cause any growth -- unless, of course, if you're talking about the size of the deficit. Economic indicators are dependent on a variety of factors, not just tax policy, but an attempt to stimulate economic growth by cutting taxes for the rich will do nothing -- it hasn't worked over the past 50 years, so why would it work in the future?
So what do we do to really reform Tax Policy?
Lane's 16 point tax plan. (because taxes are complicated)
- Reform and simplify the tax code to help ordinary people. Despite its complexity, our tax code fails in its basic task of raising enough revenue to finance adequate public investments. It also fails to raise revenue in a very progressive way. In 2015, the richest one percent of Americans received more than 22 percent of the income in the U.S. and paid less than 24 percent of total taxes in the U.S. In other words, when all the federal, state and local taxes that Americans pay under current law are taken into account, our tax system is not progressive.The wealthiest 2.1 percent of households in America must pay their fair share. These changes would not affect any married couples with income below $250,000 or singles with incomes below $200,000.
- End Tax Breaks for Capital Gains and Dividends for the Wealthy. This plan would repeal the special, low income tax rates on capital gains and stock dividends for married couples with incomes greater than $250,000. Capital gains and corporate stock dividends are taxed at lower rates than the wages and salaries most of us live on. This is why some billionaire investors like Warren Buffett are able to pay effective tax rates that are lower than what their secretaries pay. The Congressional Budget Office estimates that 68 percent of this tax break went to the richest 1 percent of Americans in 2013.
- Repeal the tax break that excludes capital gains on bequests and gifts from taxable income. This exclusion in effect subsidizes wealthy families who hold onto assets in order to pass them onto the next generation, increasing the sort of dynastic wealth that is a feature of economic inequality. Large exemptions for homes and other assets would ensure low- and middle-income households are unaffected by this change. This would also prevent the sort of complex schemes involving derivatives that have been used by some prominent billionaires to avoid taxes on capital gains.
- Higher Income Tax Rates for the Richest Americans.The overall impact of this personal income tax plan would be to make sure that the wealthiest 2.1 percent of households in America pay their fair share.This plan would replace the top three income tax rates (33%, 35%, and 39.6%) with more progressive rates: 37% on income between $250,000 and $500,000.43% on income between $500,000 and $2 million.48% on income between $2 million and $10 million. (In 2013, only 113,000 households, just 0.08 percent of all taxpayers, had income between $2 million and $10 million.)52% on income of $10 million and above. (In 2013, only 13,000 households, just 0.01 percent of taxpayers, had income exceeding $10 million.)
- Limit tax deductions for the rich. Our tax code has several complex provisions to limit the benefits of tax breaks for the wealthy, including the Alternative Minimum Tax, the personal exemption phase-out (PEP) and the limit on itemized deductions. This plan would replace these provisions with a simpler one limiting the tax savings for each dollar of deductions to just 28 cents for high-income households. These new tax rates would be created by an additional tax on AGI (the income one reports on a tax return before subtracting most deductions) applying only to households with incomes above $250,000.
- Remove Corporate Loopholes in the tax code. Large corporations in recent years have exploited so many loopholes in the tax code that they have paid nothing in federal income taxes and have actually received tax rebates from the IRS. For example, General Electric, Boeing and Verizon paid no federal income taxes during the combined 2008 through 2013 tax years. During that period, those three corporate giants racked up combined profits totaling more than $102 billion. In fact, they received income tax rebates from the Internal Revenue Service totaling more than $4.1 billion. Corporations have been setting up thousands of shell corporations in the Cayman Islands and other offshore tax havens to avoid paying taxes in the U.S. A report by the Congressional Research Service shows that each and every year, large corporations are avoiding $100 billion in U.S. taxes by stashing their profits in offshore tax havens. This situation has become so absurd that one five-story office building in the Cayman Islands is the “home” to more than 18,000 corporations.
- We need to end the rule allowing American corporations to defer paying federal income taxes on profits of offshore subsidiaries. Under current law, U.S. corporations are allowed to defer or delay U.S. income taxes on overseas profits until this money is brought back into the United States. U.S. corporations are also provided foreign tax credits to offset the amount of taxes paid to other countries. This motivates large companies to shift as much of their profits as possible overseas and it allows corporations to receive huge tax breaks for establishing manufacturing facilities in countries with very low or no corporate tax rates. Congress can close these loopholes by requiring U.S. companies to pay taxes on all of their income by ending the deferral of foreign source income. This takes away the tax incentives for corporations to move jobs offshore or to shift profits offshore because the U.S. would tax their profits no matter where they are generated.
- We can also repeal dozens of other loopholes and tax subsidies throughout the federal tax code that benefit oil, natural gas, and other special interests, saving $135 billion over the next decade. Another way American companies avoid U.S. taxes is through corporate inversions. Under this practice, an American company acquires or merges with a much smaller foreign business and then claims that the newly merged company is a foreign one for tax purposes — even though the majority of the ownership is unchanged and little or no personnel or operations have actually moved offshore. Congress should end this tax scam by treating corporations as American corporations for tax purposes when it is still majority owned by U.S. interests.
- Close the many loopholes that allow U.S. corporations to artificially inflate or accelerate foreign tax credits. For example, when U.S. corporations earn profits overseas, taxes paid to the foreign country are credited against U.S. tax liabilities. Under current rules and tax planning strategies, corporations are allowed to claim foreign tax credits for taxes paid on foreign income that is not subject to current U.S. tax. As a result, companies are able to use such credits to pay lower taxes on their U.S. taxable income than they would if it was all from U.S. sources – providing them with a competitive advantage over companies that invest in the United States. We need to reform current law to limit foreign tax credits to offset income only from the country in which it is earned.
- Bring back Estate taxes on the very wealthy. More than a century ago, President Theodore Roosevelt recognized the danger of massive wealth and income inequality and what it meant to the economic and political well-being of the country. In addition to busting up the big trusts of his time, he fought for the creation of a progressive estate tax to reduce the enormous concentration of wealth that existed during the Gilded Age. “The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” the Republican president said. “The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is passed by men of relatively small means. Therefore, I believe in … a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.” A progressive estate tax on multi-millionaires and billionaires reduces wealth inequality and provides funds to invest in paying down the national debt or new programs. The estate tax now applies only to the wealthiest 0.2 percent of Americans, but Republicans have proposed to repeal it altogether. A repeal would cost $269 billion over the coming decade and would help just 5,400 families next year. Nearly three-fourths of the benefits would go to those families inheriting estates worth more than $20 million.Instead of repealing the estate tax, we must strengthen it by making the wealthiest Americans pay their fair share. We can exempt the first $3.5 million of an individual’s estate from the estate tax. This would only impact the wealthiest 0.3 percent of Americans who inherit more than $3.5 million. 99.7 percent of Americans would not see their taxes go up by one penny under this plan.
- End tax breaks for dynasty trusts. Billionaires have for decades manipulated the rules for trusts to pass fortunes from one generation to the next without paying estate or gift taxes. If we strengthen the “generation-skipping tax,” which is designed to prevent avoidance of estate and gift taxes, by applying it with no exclusion to any trust set up to last more than 50 years. Prevent abuses of grantor retained annuity trusts (GRATs) by barring donors from taking assets back from these trusts just a couple of years after establishing them to avoid gift taxes (while earnings on the assets are left to heirs tax-free).The lawyer who invented this technique for the Walton’s claims it has cost the Treasury $100 billion since 2000.
- Sharply limit the annual exclusion from the gift tax (which was meant to shield the normal giving done around holidays and birthdays from tax and record-keeping requirements) for gifts made to trusts. Close other loopholes in the estate and gift tax, including valuation discounts.
- Protect farm land and conservation easements by increasing the maximum exclusion for conservation easements to $2 million. This will protect family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes.
- We need to tax the speculators in our stock markets. One of the major reasons why the middle class is collapsing and the gap between the rich and everyone else is growing wider and wider is because of the greed, recklessness, and illegal behavior on Wall Street. Millions of Americans lost their homes, life savings, and ability to pay for college because Wall Street gamblers crashed the economy in 2008. During this financial crisis, the taxpayers of this country provided Wall Street with the largest bailout in the history of this world — $700 billion from the Treasury Department and $16 trillion in total financial assistance from the Federal Reserve.
- We can create a tax on Wall Street to significantly reduce speculation and high frequency trading which nearly destroyed the economy seven years ago. Importantly, this initiative would also raise the revenue necessary to make public colleges and universities tuition free, create jobs, rebuild our crumbling infrastructure, protect our environment, and make other investments in our future. This would not tax investors, retirees, or parents saving to send their kids to college. Instead, it would impose a tax on Wall Street investment houses, hedge funds, and other speculators. If those Wall Street investment houses chose to pass the tax along to investors, this plan would provide a tax credit to individuals making under $50,000 and couples making under $75,000 to ensure that they would not be impacted.Wall Street has fully recovered from the recession but the typical middle class family is earning less income today than it did 26 years ago and students are drowning in debt. It is time for Wall Street to pay society back for the tremendous damage it did to the middle class of this country.
- We can also lift the cap on taxable income that goes into the Social Security Trust Fund. Right now, someone who earns $118,500 a year pays the same amount of money in Social Security taxes as a billionaire. If we apply the Social Security payroll tax on all income above $250,000 to expand Social Security benefits and to ensure that Social Security remains solvent for the next 58 years. This plan would only impact the wealthiest 1.5 percent of wage earners; 98.5 percent of wage earners in the United States would not see their taxes go up by one dime under this plan.