'America the Possible': How We Can Reclaim the American Dream and a Just Society
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Another good idea is a reverse income tax, as recommended by Bob Reich in Aftershock. Building on the negative income tax idea examined in the 1960s and today’s earned income tax credit, he urges that “full-time workers earning $20,000 or less (this and all subsequent outlays are in 2009 dollars) would receive a wage supplement of $15,000. This supplement would decline incrementally up the income scale, to $10,000 for full-time workers earning $30,000; to $5,000 for full-time workers earning $40,000; and then to zero for full-time workers earning $50,000.
“The tax rate for full-time workers with incomes between $50,000 and $90,000--whether the source of those incomes are wages, salaries, or capital gains--would be cut to 10 percent of earnings. The taxes for people with incomes of between $90,000 and $160,000 would be 20 percent, whatever the income source.”
Reich would join this support for those at the bottom with higher taxes on the wealthy, generating almost all the income needed to pay for his wage supplements: “In a nation facing a widening chasm between the very rich and everyone else, it is not unreasonable to expect those at the top to pay a higher tax on their incomes, from whatever source (wages, salaries, or capital gains). I propose that people in the top 1 percent, with incomes of more than $410,000, pay a marginal tax of 55 percent; those in the top 2 percent, earning over $260,000, pay a marginal tax of 50 percent; and those earning over $160,000, roughly the top 5 percent, pay 40 percent. These taxes, when added to the modest amounts contributed by taxpayers who earn between $50,000 and $160,000 under my plan, would raise $600 billion more than our current tax system per year.”
Another major step forward should be to implement the important proposal put forward by Bruce Ackerman and Anne Alstott in The Stakeholder Society: “As a citizen of the United States, each American is entitled to a stake in his country: a one-time grant of eighty thousand dollars as he reaches early adulthood. This stake will be financed by an annual 2 percent tax levied on all the nation’s wealth. The tie between wealth-holding and stakeholding expresses a fundamental social responsibility. Every American has an obligation to contribute to a fair starting point for all. Stakeholders are free [to] use their money for any purpose they choose: to start a business or pay for more education, to buy a house or raise a family or save for the future. But they must take responsibility for their choices. Their triumphs and blunders are their own.”
Reich and Ackerman are right to focus on the revenue side of their proposals. In the years ahead the federal government should spend more on social and jobs programs, on environmental protection, and on neglected needs abroad. Meanwhile, our annual federal budgetary deficits should be brought down to sustainable levels. Government cannot count on high growth rates to expand the federal coffers. The good news, from the point of view of finding our way forward through this thicket, is that there are many ways to raise new revenues--closing down tax breaks for the rich, shifting taxes from things we want to encourage to things we want to discourage, taxing luxury items, closing corporate tax loopholes, strengthening the estate tax, and moving toward a more progressive tax structure. For example, a 2009 report by John Cavanagh and his colleagues at the Institute for Policy Studies proposed the following plan that would raise an additional $3 trillion in federal revenues over a five-year period:
1. Repeal tax breaks for households with annual incomes over $250,000: $43 billion per year.