Time to Reform a Tax System that Favors the Wealthy

It turns out Donald Trump has carried forward more than $900  million in business losses on his personal income taxes in 1995 and may not have paid taxes for up to 18 years, according to reporting by the New York Times.

What’s outrageous is not that Trump took advantage of existing tax law; it’s that a law allowing him to avoid hundreds of millions in taxes even exists to begin with.

Other provisions of our regressive tax code provide similar benefits to the wealthy and large corporations:

  • The owners of real estate can “depreciate” assets even if those assets are actually increasing in value;
  • Corporations can stash huge amounts of revenues overseas to avoid taxes, and
  • The incomes of hedge fund managers and other professional investors are taxed at lower “capital gains” rates than rates paid by hard working Americans on “ordinary” income.

These are just a few examples of a tax system riddled with loopholes that favor the rich.    But perhaps the most egregious provision of all is that dividend and capital gains rates top out at 20% whereas taxes on ordinary incomes go as high at 39.6%.

As a matter of basic fairness and common sense, the incentive (e.g. lower rates) should be on encouraging people to work hard, improve their lives and get ahead.

Instead, in today’s system, we discourage labor through high tax rates, but give huge breaks to people who invest in real estate or churn paper assets for a living.

In addition, since the Great Recession starting in 2008, an almost exclusive emphasis on monetary policy through the Federal Reserve Bank, including buying bonds and keeping interest rates low, has served primarily to inflate asset values while wages have stagnated for ordinary Americans.

These policies not only favor the wealthy.  They can lead to asset bubbles and put our entire economy at risk.

There is very little that comes out of “Lying Donald’s” mouth that remotely resembles the truth.  But Trump is “right on” in this respect –  the system is rigged and nowhere is that more evident than in our regressive tax system.

Democrats need to stand up and fight for tax fairness.  That starts not just with closing loopholes of the kind Donald Trump has used to avoid taxes.  It also means increasing the top rates on dividends and capital gains so the wealthy pay their fair share.

Supply-Side Voodoo and the Need for Meaningful Tax Reform

For decades, Republicans and their wealthy patrons have outflanked the Democratic Party on the issue of tax reform. Republicans have successfully propagated the “supply side” myth that tax cuts stimulate demand and economic growth. And they have wrapped their bogus message in a veneer of anti-government rhetoric that has effectively resonated across the country.

Three of the top Republican contenders – Donald Trump, Jeb Bush and Marco Rubio – have recently come out with detailed tax proposals and all contains additional large tax breaks for the wealthy in a system that is already heavily regressive. See “Democrats Need to Stand-Up to Special Interests and Reform Regressive Tax Policies”.

As Paul Krugman wrote in Friday’s New York Times in an Op-Ed piece entitled “Voodoo Never Dies”:

“Of course, once the Republicans settle on a nominee, an army of hired guns will be mobilized to obscure this stark truth. We’ll see claims that it’s really a middle-class tax cut, that it will too do great things for economic growth, and look over there — emails! And given the conventions of he-said-she-said journalism, this campaign of obfuscation may work.

But never forget that what it’s really about is top-down class warfare. That may sound simplistic, but it’s the way the world works.”

With the exception of Bernie Sanders, Democrats, meanwhile, have been largely silent or timid on the subject. Sanders has come out strongly for progressive tax policies, calling for, among other reforms, a rise in the top personal income tax rate from 39.6% to 50% and increasing the capital gains tax on the wealthiest Americans.

But other Democratic have not been quite as forthcoming. Hillary Clinton’s wishy washy approach was discussed in a recent TDV blog, “Progressive Taxation: Not on Hillary’s Agenda.”

With respect to Sanders, the “hired guns” that Krugman speaks of are probably keeping their powder dry for now, waiting to see if his candidacy actually survives. It will be interesting to see how the issue is handled in the upcoming Democratic debate on October 13.   Will other Democrats besides Sanders finally stand-up and be counted?  Or will they effectively duck the issue, unwilling to take on the hired guns or, in some cases, their own Wall Street contributors?

One thing you can be sure of: Without some sort of meaningful tax reform, it is going to be  difficult to pay for the investment that America so desperately needs to stimulate economic growth and improve educational opportunity and health care for all Americans.