Who is going to pay for it?
In 2020 with eyes open, we are witnessing the political and economic structural unraveling of the United States.
We face decreasing life expectancy, sickness induced bankruptcies, homelessness throughout the land, addictions of despair, infrastructure breakdown of roads, bridges, rails, electricity and drinking water systems, environmental degradation, chronic underemployment, and a population divided and primed to tear each other apart.
If this is a strong economy based solely on the stock market’s bubble rising to Dow 29,000, then God help us when the next downturn comes.
As markets fail to deliver the unprofitable necessities of life, inequality grows to levels not seen for a hundred years since the last financial collapse, which was followed by economic depression, totalitarian governments, and world war.
The majority of Americans are increasingly unable to thrive and in many cases unable to survive. Yet the wealthiest have never had it so good.
As of 2017, Bill Gates, Warren Buffet, and Jeff Bezos collectively held more wealth than 50% of the population, or more than 160 million people. 50 families own 31 million acres of land. The top landholder on the list is a man by the name of John Malone, a name most Americans have never heard of, who holds the equivalent amount of land as two states of Rhode Island and eighty Los Angeles International airports.
And how does this absurd reality of inequality not only persist but continue to grow?
History has shown that a small minority can enrich itself at the expense of the majority by perpetuating false consciousness that prevents a person from perceiving the true nature of their social and economic situation, in other words, their self-interest.
We are distracted by divisions that obscure and subvert class consciousness and ratchet up tension between race, religion, ethnicity, gender, and scapegoating of the most marginalized and oppressed people.
Yet in these dire straits, there is a glimmer of hope — people are yearning for change to improve their situation. We have an opportunity to raise class consciousness and literacy around progressive economic policy demands.
With trust in government at all time lows, we must awaken from a collective amnesia and highlight moments in history when the government served as a shield for the people instead of a shield for the oligarchs.
As FDR’s revolutionary Economic Bill of Rights comes back into focus eighty years later, there is a growing understanding that freedom from want is a cornerstone of democracy. For how easily people are manipulated when their belly is empty.
To save the republic and save democracy, we must recalibrate our political economy for the 21st century and pass an economic bill of rights as outlined by FDR during his 1944 State of the Union address:
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all — regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
The 21st century fight for America is to guarantee a job with a living wage, parity prices for farmers, antitrust protection for businesses, housing, healthcare, social security and education.
We have the policies and treasure to pay for it if we can educate, organize, and mobilize our fellow citizens.
Language and Concepts: Classes, Taxes & Spending
Taxation can be broken down to three basic concepts:
- A progressive tax takes a larger percentage of income from high-income groups than from low-income groups.
- A proportional tax takes the same percentage of income from all income groups.
- A regressive tax takes a larger percentage of income from low-income groups than from high-income groups.
For example, a gas tax or a value added sales tax on groceries and consumer goods is regressive because the less money one makes, the larger percentage of income it takes to pay it.
The fairest tax is a progressive tax. Those with the most, pay the most.
One way to frame the impact of taxes on the poor, middle class and rich can be framed on how the tax affects the consumption of goods categorized as necessities, amenities, and luxuries.
- Taxes on the poor eat away at the necessities of life like food, housing, medicine, etc. Keep in mind, almost half of U.S. families can’t afford basics like rent and food.
- Taxes on the middle class cut into the amenities that make life easier and more pleasant like a laptop for education, a washing machine in the house, and an occasional recreational outing with friends and family.
- Taxes on the rich affect luxury consumption and may reduce the number of high-end cars, yachts, vacation homes, and expensive jewelry and art.
As we discuss what is fair taxation, it is important to highlight these differences in taxes on different classes and the impact each will have.
There are also three kinds of government stimulus: Fiscal, Monetary, and Credit.
- Fiscal stimulus is on government budget meaning taxes and spending. We currently have a budget deficit around $960 billion, meaning we have raised $3.5 trillion in taxes and have spent $4.4 trillion in outlays. Of course Trump’s 2017 tax cuts have increased the deficit as did the tax cuts under G.W. Bush and Reagan. Republicans are very dependable on running deficits when they hold the presidency and shout the loudest demanding austerity when Democrats are in power.
- Monetary stimulus refers to lowering interest rates, changing the money supply, or other ways of using the U.S. Treasury and Federal Reserve to prop up the Wall Street system of banks that then lend to the public at a higher interest rate. Anyone taking a look at the repo market today is alarmed to learn that without $6 trillion in U.S. government funding over the past few months, the entire economy is at risk of collapse.
- Credit stimulus is often the least understood by the economists because they are not taught about it in school even though it has been used again and again by the U.S. government. Founded on Hamiltonian economics, credit focuses on government lending with long term maturities and low interest rates to stimulate the physical, productive economy. This can be done off fiscal books through the Federal Reserve credit window. Credit Stimulus helped FDR organize the New Deal to rebuild the U.S. infrastructure despite the bankruptcy of the private banking system. The Federal Reserve will continue to be a key player in the events to unfold in 2020 even though the Democratic presidential candidates generally run from any discussion about Federal Reserve policy.
Equipped with these concepts, let us return to the question — Who Is going to pay for it?
Show me the receipts
To increase fiscal revenue to finance the social programs guaranteed in an economic bill of rights, we will focus on progressive taxes that cut into the luxuries of the rich, which include:
- Taxes on labor income
- Taxes on capital gains
- Wealth tax
- Estate tax
- Corporate Tax
- Removing the cap on social security
- Wall Street Sales Tax
Taxes on labor income
During the last depression, FDR increased taxes up to 75% for the highest incomes to pay for New Deal programs. This tax rate went up to 90% on the wealthiest during World War II. The chart below highlights a slow decline in tax rates, with a precipitous drop since Reagan came to power in 1980.
When we talk about raising top income rates, we have a historical precedent in the golden age of American capitalism when the economy was growing at its fastest rate. An increased rate to 70 percent for those earning more than $10 million/year would only affect 16,000 Americans, or .05% of the entire U.S. population of 320,000,000. This would generate over $70 billion per year, at least.
Receipt: $720 billion/decade
Taxes on Capital
Despite the income tax rate becoming more regressive over the past half century, the wealthy often receive their largest income from capital gains, which is a rise in the value of a capital asset like stocks or real estate. According to a paper by Lily Batchelder and David Kamin, capital gains and dividends account for 70 percent of the income of the families that earn $53 million or more a year.
Yet income from capital gains and dividends is taxed at a lower rate than most labor taxes.
Senator Ron Wyden has proposed taxing capital gains as regular income every year. According to Vox, Wyden’s plan would focus on “wealthy Americans who report income above $1 million or assets above $10 million for three consecutive years, taxation would no longer be tied to when people sell their stocks, artwork, or houses. It would instead happen every year that the asset gains in value. If I hold stock worth $20 million one year and it increases in value to $23 million the next year, I would pay tax on that $3 million gain when I file taxes that year.”
In the paper above, Batchelder and Kamin estimated that a mark-to-market tax limited to the top 1 percent of earners could raise over $170 billion per year.
Receipt: $1,700 billion/decade
Wealth tax
Wealth taxes are familiar with all homeowners who already pay it through property taxes on their home. What would happen if we extended this tax to the wealthiest in the land?
According to Elizabeth Warren’s campaign , a progressive 2% wealth tax on 75,000 households with a net worth of $50 million or more and a 6% tax on every dollar of net worth above $1 billion, would bring in over $375 billion per year.
Receipt $3,750 billion/decade
Estate tax (also known as the Silver Spoon Tax)
Now the wealthy will be reeling just mentioning the proposed taxes above. Yet if we increase the tax rate for the wealthiest on capital and labor, and we tax the currently possessed wealth, we are still faced with generational accumulation of assets thereby nourishing an aristocratic class, which can distort democracy.
According to an estimate from the Joint Committee on Taxation (JCT), “only 1,800 estates [paid] any estate tax in 2018.”
The Institute on Taxation and Economic Policy (ITEP) writes, “one robust approach to restoring the estate tax is the Responsible Estate Tax Act, proposed by Sen. Bernie Sanders (I-VT). His bill would reinstate the $3.5 million exemption and apply graduated tax rates depending on the size of the estate, ranging from 45 percent to 65 percent, and close loopholes in the tax.” The bill would raise an estimated $32 billion per year in revenue.
Receipt: $315 billion/decade
Corporate Tax Rates
Beyond progressive taxes on wealthy families, we need to identify tax evasion by corporations. According to ITEP, 60 of America’s biggest corporations paid no federal income taxes on $79 billion in U.S. pretax income. Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate, these companies enjoyed a net corporate tax rebate of $4.3 billion. These corporations include IBM, Amazon, Netflix, and General Motors. If these companies paid the statutory 21 percent federal tax rate, they would owe $16.4 billion in federal income taxes.
Just returning to the corporate tax rate before Trump took office would generate $135 billion per year. Of course the tax rate could be raised much higher as the chart shows above. And corporate taxes should encourage investment in the physical economy and provide deductions for investments in plants and equipment that create jobs while increasing the tax rate on corporations with runaway shops outsourcing U.S. jobs.
Receipt: $1,350 billion/decade
Removing the cap on social security
The current tax rate for social security and medicare is itemized as FICA or Federal Insurance Contributions Act in our paychecks. The employer and the employee both contribute 6.2% for a total of 12.4%. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Any income above $128,400/year will pay 0% on social security and medicare.
According to the Committee for a Responsible Federal Budget (CRFB), “Social Security will be insolvent in only 16 years. Social Security cannot guarantee full benefits for current retirees…That means the program will be insolvent when today’s 51-year-olds reach the retirement age and today’s youngest retirees turn 78. At that point, all beneficiaries will face a 20 percent across-the-board benefit cut.”
And according to the AARP, “Social Security Is the principal source of family income for nearly half of Older Americans. Twenty-four percent of those aged 65 and over live in families that depend on Social Security benefits for 90 percent or more of their income.
“In other words, it saves over 22 million people from poverty, including 15.33 million elderly Americans aged 65 and up, 5.63 million adults between the ages of 18 and 64, and 1.11 million children under the age of 18.”
It is important to remember that Social Security was created under FDR because old people were dying in poverty after a life of work. Any cut to social security will also mean cutting short the lifeline for millions of elderly Americans and their families. Cutting social security will cause mortality on the American population.
Simply removing the cap would eliminate the shortfall.
Receipt: Solvency of Social Security and Medicare
Wall Street Sales Tax
According to the Tax Wall Street Party website, “ Wall Street speculators pay no tax on their share of an estimated annual turnover of over $5 quadrillion (5,000 trillion dollars) in stocks, bonds and derivatives. A 1% tax on these sales, equally divided between the federal and state governments, would by most estimates bring hundreds of billions annually into public treasuries and largely solve budget deficits at all levels of government. The Wall Street Sales Tax also discourages the most dangerous forms of speculation, especially derivatives speculation, and helps to level the playing field between financial services — which are now in effect subsidized because they are not taxed — and the tangible, physical production of manufactured goods on which our economic survival depends…Household-level investment must be protected with a $1 million yearly exemption. The 1% Wall Street Sales Tax is…a sales tax directed at professional financial speculators.”
Even a small .01% tax, according to Public Citizen, would raise nearly $77.7 billion per year. Although this is far too low of a percentage for my taste, the receipt is below.
Receipt: $777 billion/decade (minimum)
In Conclusion
Grand total of these progressive back-of-the-napkin tax calculations on the wealthiest:
- Taxes on labor incomes Receipt: $720 billion/decade
- Taxes on capital gains Receipt: $1,700 billion/decade
- Wealth tax Receipt: $3,750 billion/decade
- Estate tax Receipt: $315 billion/decade
- Corporate Tax Receipt: $1,350 billion/decade
- Social Security Receipt: Solvency
- Wall Street Sales Tax Receipt: $777 billion/decade
Total: $8,612 billion/decade
This annual increase of $860 billion/year of progressive tax revenue would ensure that we are moving closer to realizing the Economic Bill of Rights. Some of the taxes proposed above are actually conservative in their estimates like a .01% Wall Street Sales Tax or a corporate tax of only 20%.
Of course the IRS will need to be adequately funded to ensure compliance and crack down on tax evasion of the super rich and transnational banks and other corporations.
There are additional revenue considerations like the role tariffs should play in penalizing goods entering the U.S. that were created by slave labor without environmental standards, and how to steer the Federal Reserve to provide long term loans at low interest to rebuild the U.S. infrastructure and create tens of millions of jobs.
As we move into the most decisive year of modern America, I believe the best framing will help unify the working classes and highlight the growing aristocratic upper class and corporate cartels using monopolistic tactics to suppress competition, rights, and democracy in the workplace and political arena.
We are in a fight for our lives between working class people and oligarchs.
Who will control the shield of government?
Who is going to pay for it?
Get active in 2020 while you still can.
