The point is to end
the current system in which billionaires get all the privileges and financial
benefits of owning assets in the U.S. but don't pay taxes that are proportional
to the benefits they extract.
As has been widely
noted, the Republicans' proposed "tax reform" is not only just more
BAU (business as usual, i.e. cut taxes for the wealthy), it's also not real
reform. At best, it's just another iteration of D.C. policy tweaks
packaged for PR purposes as "reform."
You want real tax
reform? This is what real tax reform would look like:
1. Shred the entire
2,700 page tax code and replace it with a 25-page code. As
I explained in The Fetid Swamp of Tax Reform (November
10, 2017), the 2,700 page current tax code is a complexity thicket designed
to hide tax breaks and subsidies for big political donors.
Politicos
give lip service to simplifying the tax code for PR purposes, but no politico
actually wants radical simplification because this would eliminate the biggest
grab-bag of political favors available to pass out to big donors.
Though
radical simplification is politically impossible, it's the first and most
important real reform.
2. Replace the
entire convoluted mess of income tax for the bottom 99.5% with transaction
taxes collected at the point of transaction. A
transaction tax is similar to a value-added tax (VAT) or sales tax, but it's
radically different in key ways: a transaction tax is levied on financial
transactions, not just sales.
A
transaction tax would be levied on every high-frequency stock trade, every loan
that was sold, every financial transaction anywhere in the U.S. or any
transaction anywhere in the world involving a U.S.-based entity or asset.
Since the vast
majority of financial transactions are executed on behalf of banks,
corporations and wealthy individuals, a transaction tax would naturally collect
more taxes from those at the top of the wealth-power pyramid. The
transaction tax could be very modest because it would be collected on billions
of transactions--everything from stock trades to purchases to loan payments.
A transaction tax
couldn't be dodged by moving assets to offshore tax havens or renouncing
citizenship. The model here is property taxes,
which are collected regardless of who owns the property, where they do their
banking, their citizenship, etc. The entity that owns the property must pay the
tax, or forfeit ownership via an eventual auctioning off of the property to pay
the tax liens.
Nobody
cares if the owner banks in a tax haven, or declares taxes in another country;
either they pay the property tax due or they forfeit their ownership.
A transaction tax
eliminates all tax returns, all accounting for income, deductions and expenses,
and correlates to wealth/income. The working-poor
household would pay a transaction fee when they buy something at a dollar
store, but the fee would be much less than current state sales taxes. The point
of the transaction tax is that it includes all the transactions of the wealthy
class that aren't simple purchases of goods and services.
To
insure a progressive tax structure, financial transactions above certain
thresholds of size and frequency would be taxed at a higher rate.
The fundamental idea
behind a progressive tax structure is that taxes paid reflect the financial
benefits flowing to the top class. In other words, taxes
collected should reflect this chart of where the the gains have flowed in
recent years:
As I
noted last week, the wealthy class already pays most of the taxes. But the
chart above makes it painfully clear that most of the financial gains aren't
flowing to the top 10%; they're flowing to the top 1/10th of 1%.
3. This reality
demands a tax structure that correlates to where the gains in income and wealth
are flowing. Once again the model should be property taxes: whatever
entity owns assets in the U.S. should pay a slice of those assets in taxes.
It
doesn't matter whether the entity is in Timbuktu or the Cayman Islands, or if
they have a formidable array of attorneys slaving away for them; if they own an
asset in the U.S.-- real property, stocks, bonds, mortgages,etc.--they have to
pay the equivalent of a property tax on assets above a high threshold; high
enough that the bottom 99.5% are for the most part excluded (for example, above
$10 million).
There is no other
way to break the injustice of offshore tax havens described in this article: Why have we built a paradise for
offshore billionaires?
If an
individual or corporation doesn't want to pay any tax in the U.S. in this tax
structure, fine, all they have to do is sell all their U.S.-based assets and
execute no transactions with any U.S.-based entities or assets.
The point is to end
the current system in which billionaires get all the privileges and financial
benefits of owning assets in the U.S. but don't pay taxes that are proportional
to the benefits they extract. If billionaires want to
move all their assets and transactions to some other nation, that's their
prerogative. But at least they won't be pillaging the U.S. and its residents
and getting away with financial murder.
A
transaction-asset-based tax structure would free the bottom 99.5% of an immense
burden of complexity and compliance while ensuring that
taxes were levied in proportion to one's financial activities and that those
benefiting the most from owning U.S. assets would pay taxes that were
proportional to their benefits.
A
levy of 3% (0.03%) on $1 trillion is $30 billion. Total net worth of U.S.
households rose to $95 trillion this year. Excluding pensions, IRAs, and 401K
accounts of the bottom 99.5%, total net assets--the majority of which are owned
by the super-wealthy--total around $60 trillion.
A 3%
tax on all assets above $10 million would bring in around $1.5 trillion, the
total amount collected in federal income taxes in 2015. A two-tiered
transaction tax would bring in a similar amount, replacing the entire payroll
taxes of Social Security and Medicare.
Amount of Federal Revenue by Source (Tax
Policy Center)
These two taxes
would eliminate income and payroll taxes and all the enormous costs of
compliance, and wipe out offshore tax havens. Since both
transaction and asset taxes would be low, the motivation to sell all U.S.
assets and execute no transactions involving U.S. based assets or entities
would be low. Would it really be worth giving up all the enormous income
streams flowing from U.S. assets to evade a 3% tax?
Is it
worth going to a lot of trouble to evade a 36% corporate income tax and a 39.6%
individual income tax? Definitely. Is it worth going to a lot of trouble to
evade a 3% tax? To the super-wealthy, that's mere friction.
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If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.