10 Ways to Force the Stinking Rich to Share Their Wealth
For all the moaning from deficit hawks, the U.S. budget is simply not in crisis. If investors were losing confidence in our nation's ability to pay off its debts, we'd see a major reduction in demand for U.S. Treasury bonds. And we do not, in fact, see any such reduction. Last week the Treasury sold $21 billion in 10-year bonds, and investors were clamoring for them in such droves that the government had to turn away nearly 80 percent of them. If investors were really worried about the U.S. paying back its debt, they'd demand a very high interest rate from the government to compensate them for the risk they were taking. But in fact, interest rates are remarkably low. That 10-year bond currently fetches a yield of around 3.9 percent. For entire years of President George H. W. Bush's reign, the yield was above 8 percent, often eclipsing 9 percent.
Deficit hawks aren't interested in the deficit, they just don't like the idea that the government spends money on social projects that help poor people. To close the deficit, we could either raise taxes or cut expenditures, and you never hear deficit haws begging to raise taxes. Here are 10 ways a deficit hawk who didn't hate poor people could ease his anxiety
1. Ban Offshore Tax Havens For Big Corporations
The government loses about $100 billion a year from corporate tax evasion. Companies that do their business in the United States hide their assets in another country that offers very low taxes, or none at all. You know the places: Bermuda, the Bahamas, the Cayman Islands, Switzerland, etc. This is illegal, but it happens anyway. President Obama vowed to end this absurdity shortly after taking office last year, but strangely, the proposal evaporated over time. It's easy to see why. According to the Government Accountability Office, 83 of the 100 largest American corporations (pdf) engage in this kind of tax evasion. All of those companies have lobbyists.
Congress did finally take some action on this front in March, when it passed its paltry $15 billion jobs bill. The legislation included some efforts to crack down on corporate tax deception, but nowhere near enough. Over 10 years, the new provisions are only expected to bring in an additional $8.7 billion—that's less than 1 percent of the overall problem.
2. Close the Loophole for Hedge Fund Kingpins
Why do the richest people in the world get taxed at the lowest rates? Nobody makes more money than Wall Street hedge-funders, but thanks to a particularly preposterous loophole in the tax code, they pay only a 15 percent tax rate for income that is supposed to be taxed at 35 percent. Why? Instead of taking a salary, hedge fund managers compensate themselves by taking a percentage of their fund's profits, and these profits are subject to the capital gains tax rate, rather than the income tax rate.
This costs us about $5 billion a year, and it's very easy to fix. Obama supports closing the loophole, and has included it in his current budget proposal. Congress just has to pass the thing.
3. Increase the Capital Gains Tax
But why is the capital gains tax only 15 percent? For that, we can thank Dick Cheney. When President Bush was devising his epic tax cut agenda, he didn't have a problem with axing most taxes for the super-rich. But one tax cut struck him as just too conservative: the capital gains tax. Capital gains are increases in the value of investments like stocks—poor people don't buy stocks, and besides, the capital gains rate was already very lenient, a mere 20 percent. But Cheney fought a behind-the-scenes battle to overrule Bush, and his plan to slash the capital gains tax passed.
Obama supports reinstating the pre-Cheney 20 percent capital gains tax, and Congress doesn't have to lift a finger to restore it—the Cheney cut expires at the end of this year. As always, be on the lookout for heavy lobbying from Wall Street.
4. Tax Financial Speculation
We all know that rampant financial speculation fueled the housing bubble that led the U.S. economy off a cliff in 2008. There's an easy way to crack down on this—make Wall Street companies pay a small tax for every trade they make. The idea is simple. If there is a small up-front cost to each trade, speculators will be less likely to make reckless bets, since they'd stand to make less money. The U.K. government already levies a tax like this for every trade conducted on the London Stock Exchange. If the tax doesn't deter any trading, then the government makes a lot of money off an economically unproductive activity. If the tax does deter trading, then Wall Street is taking fewer reckless bets that put the economy in danger.
Either way, taxpayers win. But even with a transactions tax much smaller than that deployed in the U.K., Dean Baker, co-director of the Center for Economic Policy and Research, calculates the government could bring in $100 billion a year (pdf), even if financial speculation dropped by 25 percent as a result of the new tax. That's actually a very conservative estimate, since Baker's calculations are based on trading volumes from 1997, which are much lower than those today.
5. Impose a Wall Street Bonus Tax
Wall Street bonuses are obscene, and everybody knows it. Taxing the hell out of them is one way to rein them in. Rep. Dennis Kucinich has proposed a 75 percent tax on banker bonuses, and Wall Street has a $150 billion bonus pool.
6. Tax Too-Big-To-Fail
Remember President Obama's big push earlier this year to tax too-big-to-fail banks? It was a good idea, but it actually could have been much stronger. Obama decided to try and tax big banks in order to pay off the $117 billion loss that taxpayers are expected to take from the Troubled Asset Relief Program. But his tax didn't actually do that—it would have recouped $90 billion over 10 years, although Obama vowed to keep the tax in place until the full $117 billion was recouped, something Obama himself would have no way of ensuring.
But there's no reason why we should settle for even $117 billion from giant banks, whose failure puts our entire economy in jeopardy. By establishing much more onerous tax rates for banks with assets above a certain level—say, $300 billion—the government could actively discourage banks from becoming too-big-to-fail. If banks didn't downsize, taxpayers would at least benefit from some upside in the arrangement. As it stands, big Wall Street banks take home the profits while we eat the losses.
Sadly, even Obama's weak version of the too-big-to-fail tax has evaporated amid heated Wall Street lobbying.
7. Restore the Estate Tax to Pre-Bush Levels
One of Bush's major tax cuts was literally a boon for rich kids. When wealthy parents die, the government taxes the inheritance their children can receive. (Conservatives refer to this as the "death tax.") It's a tax on millionaires—before Bush, estates worth with up to $1 million ($2 million for couples) were totally exempt from the tax. Bush cut the tax rate on these inheritances from 55 percent to 45 percent in 2001, but he also phased in other cuts in increments, excluding more millionaires from the tax. By last year, inheritances worth up to $3.5 million ($7 million for couples), were totally exempt. If Obama hadn't acted last year, the estate tax would have been wholly obliterated.
Obama rightfully stepped in to stop this slide, proposing to hold the estate tax even at the levels from the end of the Bush era, instead of letting it go away altogether. This year's budget proposal would make the Bush-era estate tax permanent. But Obama could clearly do much more by simply restoring the estate tax to Clinton-era levels.
8. Tax Rich People for Social Security
Right now, any income you make in excess of $108,000 a year isn't subject to Social Security taxes. If Wall Street tycoons like Pete Peterson are so worried about the financial state of Social Security (which is currently projected to be totally fine through 2037), they can surely agree that millionaires should be taxed more in order to boost the program's balance sheet.
9. Raise Income Taxes on The Rich
Bush cut the tax rate for the wealthiest Americans from 39.8 percent to 35 percent. Obama plans to reverse this cut by simply letting the Bush cut expire at the end of the year. Bravo.
10. Simplify the Tax Code
In 2008, Goldman Sachs paid a total tax rate of just 1 percent.The bank did this despite being one of the largest and most profitable banks in the country. Under any reasonable tax system, the bank would have paid the full 35 percent tax rate for the largest corporations. But the bank didn't do that. It pays lots of tax lawyers very well to sift through the massive U.S. tax code and find loopholes that will benefit Goldman Sachs, at the expense of the United States.
The sheer complexity of the U.S. tax code encourages this kind of behavior. It allows corporations and rich individuals, to take the time to exploit the system for their own advantage, and makes explaining this exploitation very difficult. That's why stories about taxes are always so technical and boring (apologies). Overhauling the tax code and imposing a simple, progressive system would end a lot of abuse. But don't hold your breath. Congress has always had the power to reconfigure the tax code. Instead, it has spent decades inventing new loopholes.