It's hard to find anyone, of any (or no) political party, who truly thinks the current U.S. tax code is fair. It favors certain industries and certain types of income and spending, to the detriment of others. Its complexity creates opportunities for tax evasion, and also compels Americans to spend somewhere between $100 and $400 billion preparing their returns, depending on which study you turn to, according to PolitiFact.
A fairer tax would not only be, well… fairer and simpler, but also could generate jobs, says a new report from the Economic Policy Institute. In "A Perfect Match: Coupling tax fairness with job creation for a stronger economy," senior policy analyst Ethan Pollack, states, "Congress could simply use tax fairness reforms to pay for job creation policies."
Such a move has several benefits, Pollack says. Tax increases on high-income households – one of his proposals – generate little drag on near-term economic growth. At the same time, the additional revenue generated by the government could be invested in infrastructure, which would generate jobs. In addition, linking temporary job creation policies with permanent tax changes would bring down the U.S. budget deficits over the medium and long-term. Finally, moving toward full employment while also boosting taxes on higher earners would help stop the trend toward income inequality, which has become more pronounced over the past few decades, he adds.
So, just what sort of policies is Pollack proposing? He identifies four:
1. Capping the value of deductions at 28 percent: Itemized deductions tend to be regressive, as their value rises along with the taxpayer's income. Capping the value of deductions that taxpayers could take at 28 percent would mitigate this impact, while also raising $333 billion over the next decade, the report says.
2. Raise taxes on high earners: The top rate for high earners has been chopped in half over the past 30 years, dropping from 70 percent in 1980 to about 35 percent currently, as this chart from OutsidetheBeltway shows. Moreover, the current tax code doesn't really differentiate between the well-off and really well-off, Pollack says. He supports the Fairness in Taxation Act (FTA), which would add five tax brackets, ranging from 45 percent for taxable income above $1 million, to 49 percent for incomes above $1 billion. The FTA also would eliminate the preferential rate on capital gains and dividends. These changes would generate $1.5 trillion over a decade.
3. Close corporate loopholes: This would raise $168 billion over a decade, according to the report.
4. Adopt a financial transactions tax, or FTT. In its 2012 "The People's Budget," the Congressional Progressive Caucus supports a financial crisis responsibility tax of 0.15 percent of covered liabilities, to be paid by banks with more than $50 billion in assets. The Budget also proposes a tax on derivatives, credit default swaps, futures, and other financial instruments. Altogether, the FTT would raise $849 billion over a decade, Pollack says.
Together, these changes would result in almost 1.3 million new jobs in 2013, and more than 1.8 million new jobs each year from 2014 to 2017, the report states. How? By dedicating the additional revenue raised by the tax changes to investments in infrastructure and other types of economic stimulus.
What do you think? Are these changes, assuming any could be implemented, likely to help the economy and make the tax code more fair? Or, would they slow down job creation? Feel free to leave a comment where it says "Add New Comment" below.