Ten years ago today, the first Bush tax cuts were signed into law. The fiscal damage they have inflicted is still unparalleled. But while the tax cuts for the top 2 percent of American earners will stay off the table until December 2012, there are any number of other progressive tax increases that Washington could adopt, but won't even consider. The public deserves to know what they are. Here are my picks:
1. Scrap the cap on earnings subject to the Social Security payroll tax. Did you know that millionaires and billionaires only make payroll tax contributions on earnings of $106,800? If you didn't, it could be because you are among the 94% of American earners who make less than that amount -- and are taxed on all of their earnings as a result. Social Security payroll taxes are only paid on wages up to $106,800 with employees and employers contributing equally. Scrapping the cap on earnings subject to the payroll tax, while not counting earnings above the cap toward benefits, would eliminate Social Security's entire long-term shortfall. Since Social Security doesn't contribute to the deficit, scrapping the cap won't reduce the deficit. It will make Social Security solvent for the next 75 years, and tie its financial health to growth in earnings in the upper strata, which continue to grow more rapidly than middle- and lower-income earnings. (Click here for a complete fact sheet outlining different options for scrapping the cap.)
2. Enact a modest financial speculation tax. If we levied a 0.25 percent tax on every purchase and sale of stock, and a 0.02 percent tax on every purchase and sale of a future, option, or credit default swap, we would raise $1 trillion in revenue in the next decade. (Credit to Dean Baker for all the data.) It would have the added advantage of discouraging financial speculation, since its effect would be minimal on people holding investments for long periods of time.
3. Increase the corporate income tax rates by 1 percentage point. CEOs love to complain about how high the top corporate tax rate is in America. They say it discourages competition. They say we should have a rate that is closer to Ireland's 12.5 percent. (How's that doin' for Ireland?) But the truth is that all their whining is just empty bravado. While the top corporate tax rate is officially 35 percent, thanks to countless tax loopholes and accounting tricks, 115 out of the 500 companies on the Standard & Poor's index paid a total rate of less than 20 percent over the last five years. Maybe if we jack up their rate a little bit it will offset the effect of some of the loopholes. The Congressional Budget Office (CBO) estimates that, despite the loopholes, raising all corporate tax rates by 1 percentage point will generate $101 billion in revenue over the next ten years.
4. Impose a fee on large financial institutions. Remember the bailouts of 2008 and 2009? Good times. We gave the big banks over $1trillion in interest-free loans. The banks paid back the money they owed, but never paid interest on the principal. Nor do they pay for the implied guarantee that if they go under, the taxpayers will pick up the tab. A 0.15 percent tax on all financial institutions with assets of $50 billion or more is one small way to fix that. It will also provide the treasury with $71 billion over the next ten years, according to CBO.
5. Tax carried interest as income. The carried interest loophole is how hedge fund managers claim a portion of the earnings on funds they manage -- typically 20 percent -- and it is taxed at capital gains rates, which are much lower than income taxes. That's why, among other reasons, Warren Buffett pays a lower tax rate than his secretary. Taxing those earnings as income would net $21 billion over the next ten years. Again, my source here is CBO.
Runner up: Increase tariffs on imports from developing countries with lower labor and environmental standards. It's a great idea. It would strengthen American exports, protect our patented technology, and bring the government much-needed revenue. I just could not find a scored proposal of how much it would save.
I left out a carbon tax and a value-added tax, because absent significant correctives, neither is progressive. (Though both may be necessary.)
There you have it. Five progressive tax increases buy you an end to Social Security's funding gap, and more than $1.2 trillion in revenue. Bring income tax rates back to Reagan levels, and throw in a millionaire's surtax, and we could be enjoying single-payer health care clinics aboard our high-speed trains.
Oh, well. It's nice to dream.