Occupy the Tax Code
Cross-posted from Tikkun Daily By Norma Altshuler the capital gains tax, we will call upon the wealthiest Americans to pay more for essential economic stimulus and social programs. At the same time that income equality is growing, states are slashing education and safety nets at unprecedented rates. This leaves the most vulnerable Americans without basic opportunities and protections. We need to channel more money to states to protect social services and reverse layoffs of public employees. We must invest in job training programs, particularly for high-growth sectors like health care workers and home weatherizers. All of this requires money, and we need to ask the wealthiest Americans - who have benefited the most from the jobless recovery - to contribute more. Reforming taxes on capital gains, the profits from sales of stocks and other financial assets, will target the wealthiest without hurting the economy. Capital gains taxes are the main reason why Warren Buffet's secretary pays a higher percent of her income in taxes than he does. The wealthiest Americans pay 35 percent of their marginal wages and salaries in taxes, but only 15 percent on profits from buying and selling stocks. The top .1 percent reap about half of capital gains, so the wealthiest of the wealthy benefit tremendously from these provisions. It's time to end this unfair system and treat capital gains just like we do any other kind of income. A Wall Street executive should pay the same amount on a million dollar profit from cashing in her stocks as she does if she receives a million dollar bonus. Further, we should hold investors accountable for profits when they occur, not when they sell stock. Currently, investors only have to pay capital gains taxes when they cash in a profitable asset, not when stocks gain value. This means that they can game the system by timing gains realizations, and that they benefit from interest-free deferrals. If I earn an extra $1,000, I have to pay taxes that year. Why should I be able to strategically time when I pay taxes on $1,000 in stock market profits? Some investors may not have cash in hand when assets increase in value, so we can allow them to wait to pay the tax until they sell the asset, but hold them responsible for modest interest payments. Conservatives claim that we can increase capital gains revenues by loweringthis tax, but this argument is short-sighted. It's true that when capital gains taxes are lowered temporarily, traders sell significantly more stocks and the government gets a one-time revenue boast. However, most non-partisan economists (including the Congressional Budget Office) agree that in the long term, lowering capital gains taxes lowers tax revenues. Actually, raising the capital gains tax would cause a temporary spike in government revenue. If investors know that capital gains tax increases are scheduled, they will sell profitable stocks right before the tax hike. This time of budget shortfalls is a ripe opportunity for this change. These changes are unlikely to significantly reduce national savings rates or hamper growth. Pension funds and endowments, which are the biggest investors in venture capital and other high-risk sectors, are exempt from capital gains taxes. Historically, changes in capital gains tax rates have not discouraged savings from other investors. This increase would be larger than previous ones, but gradually phasing in the increase would also allow us to adjust policy to respond to any unanticipated side effects. Gradual reform is also most likely to be politically feasible. This kind of tax reform is essential to creating a more progressive political system. As the Occupy movements remind us daily, America's top 1 percent hold more than a third of the countries' wealth and reaped two thirds of the economic growth in the years leading up to the financial crisis. We need to draw on this momentum to have a national conversation about what we value and what specific polices we can reform. Norma Altshuler is a graduate student at the University of California at Berkeley's Goldman School of Public Policy. To read more pieces like this, sign up for Tikkun Daily’s free newsletter, sign up for Tikkun Magazine emails or visit us online. You can also like Tikkunon Facebook and follow us on Twitter.