think-progress: A 99 percent crowdfunded ad ran...

A 99 percent crowdfunded ad ran in the SF Chronicle today. New media movement meets old-style print.

There is a lot in here, so I’m going to break it down in sections and then talk about how all of this will work together. The first thing I’m going to cover is the tax proposals.

Before I go into the merits of the tax proposal I must say that I take umbrage with the following line:

The United States does not have a lack of financial resources; it has an intentionally unfair distribution of resources.

Intentionally unfair? Then they go on to mention that the system has gotten less progressive. If I’m not mistaken the fact that we have a progressive tax system at all would lead one to believe that the intentions were for fairness. But I think this cuts to the heart of the major problem with the Occupy Movement, the need to demonize the system and the 1%. Rather than saying that bankers are just humans pursuing the rational goal of maximizing their wealth, and that the problem isn’t so much vested interests as it is bad ideas and poor policies.

Tax the highest income households: From 1960 to 2004, the top 0.1 percent of U.S. taxpayers — the wealthiest one in one thousand — have seen the share of their income paid in total federal taxes drop from 60% to 24.3%. America’s highest income-earners — the top 400 people who have wealth equal to 154 million Americans — have seen their federal income tax drop from 51.2% in 1955 to 18.1% in 2008. If the top 400 paid as much of their incomes in personal income tax as the top 400 of 1955, the federal treasury would have collected $50 billion more in revenue from just those 400 taxpayers. If the top 0.1% of taxpayers — Americans with incomes that averaged $4.4 million — had paid total federal taxes at the same rate as the top 0.1% paid these taxes in 1960, the federal treasury would have collected an additional $250 billion in revenue.

Let me just start by saying that NONE of their numbers line up or make sense in this. They do a terrible job differentiating between marginal and total tax rates. Ignoring these huge errors however, I think returning to 1960’s level top marginal tax rates (which they say were 91%) would be a terrible idea. Peter Diamond and Emanuel Saez have done research and found that the optimal top marginal tax rate is 70%. Anything above that and there will begin to be negative effects on the economy.

Merely not extending the Bush tax cuts would add nearly $500 billion each year in tax revenue. Thus in just over two years the goal of the deficit committee would be met. This would be insufficient to correct the wealth divide and does not go as far as Occupy Washington, DC advocates.

This would be a good policy only if the economy was well on its way back to full employment (5%) which it isn’t at the moment and may not be when the tax cuts sunset. This however is the large problem with using tax cuts as temporary fiscal stimulus (the Bush tax cuts were argued for as a way to help stop the recession in the wake of the dot com bust and 9/11), it makes it harder and harder to repeal them.

A tax of a half of a percent or less on Wall Street speculation could raise over$800 billion in a decade. The Speculation Tax on the purchase of stocks, bonds and derivatives would be a tiny tax with a big impact. People in the U.S. pay much higher taxes on purchases of food and clothing; it is only fair that the wealthy pay taxes on purchasing wealth instruments.

I think the speculation tax is a good idea, but a chunk of the revenues raised should be set aside to mitigate future financial crises. I think the more complex the financial instrument the higher that tax should be as well (as a way to try to disuade people from taking on undue risk).

A fair tax on capital gains, treating it as ordinary income would raise $1 trillionover a decade. Wealth-based income and work-based income should be treated equally under the law as it used to be. Warren Buffet has received a great deal of attention for pointing out that he pays a lower tax rate than his secretary or anyone who works for him. The reason for this is that investment income is taxed at a much lower rate than income from labor. The United States needs to tax wealth more and work less.

This is a good call, I would suggest making sure that there’s still a high enough level of exemption so that lower and middle class have an opportunity to take a piece of the wealth.

Congress should enact a “pure worldwide” tax system, in which all profits of U.S. corporations, whether they are generated in the U.S. or abroad, would be taxed by the U.S. This would end “deferral,” i.e. where taxes are deferred until money is brought back into the United States. U.S. corporations would continue to receive a credit against any taxes they pay to a foreign government (the foreign tax credit) so that profits are not double-taxed. Under a pure worldwide tax system, corporations would have little or no tax incentive to move jobs offshore because the U.S. would tax profits of corporations no matter where they are generated. The Treasury estimates that deferral of U.S. taxes on offshore corporate profits costs close to $50 billion each year, and many experts think this estimate is substantially understated.

I think this needs to be thought through a little more, I think there’s a risk of having a lot of companies fleeing. Additionally I don’t think that it’s taxes that are making companies choose to offshore jobs, the chief incentive is cheaper labor.

Ending deferral does not even address the hundreds of billions lost through tax havens. Tax havens should be shut down through the passage of the Stop Tax Haven Abuse Act. In fact, the U.S. Treasury estimates this costs $100 billion each year. In 2006 the U.S. Senate Permanent Subcommittee on Investigations reported that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes.

This makes a lot more sense economically than the one above.

Closing corporate tax loopholes would return the fair share of taxes paid by corporations to the f government. Declining corporate taxation is another prime factor in increasing deficits. Corporate income taxes have fallen from roughly 4.8% of GDP in the 1950s to only 1.8% of GDP over the past decade. Ending just two large breaks, deferral of overseas revenue and accelerated depreciation would raise about $114 billion over a decade. The Treasury Department lists $365 billion in corporate tax breaks being gifted annually — that’s $3.65 trillion over the next 10 years. Due to tax loopholes, corporations pay record low tax rates — they actually pay 21% on average. Indeed, a recent report by Citizens for Tax Justice found that Wells Fargo received $18 billion in tax breaks, while both Verizon and General Electric paid negative taxes. Earlier Citizens for Tax Justice reported that 12 major companies which together made $171 billion in profits from 2008-2010 paid anegative $2.5 billion in taxes, thanks to $62 billion in tax subsidies.

Tax loopholes definitely need to be closed but the corporate tax rate should also be lowered, not to be revenue neutral, but a flat tax of say 28-30% on corporations makes more sense.