Flat Tax Flat Wrong

Now comes Rick Perry, trying to arrest his plunge in the polls with a “simplified” tax plan that would give Americans a choice between a new, flat tax rate of 20% or their current income tax rate, whichever they prefer.

The Texas governor also would eliminate the estate tax, lower the corporate tax rate, propose a Balanced Budget Amendment, ban earmarks, freeze federal hiring and salaries through 2020, halt all pending federal regulations, repeal Obamacare and Dodd-Frank financial regulations, as well as Section 404 of the Sarbanes-Oxley Act, which requires reporting on internal management controls, and he would add private accounts to Social Security. That would be a good day’s work for a dedicated right-winger, but those “fixes” wouldn’t do much good for the United States of America — particularly for the working class. Still, that apparently is how one gets ahead in the GOP.

Perry claims his is a tax simplification plan, which would allow Americans to file their taxes on a postcard and would save up to $483 billion in compliance costs. Reihan Salam of the conservative National Review noted that Perry’s claim is absurd as Americans presumably will have to determine their tax liability under the current tax code and also under Perry’s new “flat” tax code and choose which one gives them the best deal. “Rick Perry’s proposal is not a flat tax. Rather, it is an alternative maximum tax or MAXTAX,” Salam wrote.

Effectively, no American would ever pay more than 20% of income in federal taxes under Perry’s plan, and most would pay much less. And you can’t run the federal government with that level of taxation.

Perry was trying to steal the momentum from pizza mogul Herman Cain, whose “9-9-9” plan sounds good to the math-impaired, but would increase taxes for the bottom 84% of the population, according to the Tax Policy Center.

Michael Linden, director of tax and budget policy at the Center for American Progress Action Fund, figures that the 9% corporate tax would be passed on to workers and consumers, so most wage-earners would pay all three of Cain’s taxes, or up to 27% of their income. Currently, someone in the bottom one-fifth pays 2% of their income in federal taxes while someone in the middle quintile pays 15%. Today, people in the richest 1% pay about 30% of their income in federal taxes. Under Cain’s plan, since the 1 percenters make about half their income from capital gains, which are exempt from the wage tax, their effective rate would drop to 13.5%.

And Cain’s tax plan would further widen the federal deficits. After Cain provided specifics of his plan, Linden figured that the 9-9-9 plan would generate only 14% of GDP in revenue, compared with 18.5% of GDP the current tax system collected in 2007. That was the last year before the Great Recession — and that year the Treasury still fell $163 billion short.

In 2000, the last year the US ran a budget surplus, federal tax revenues were 20.6% of GDP, according to the Congressional Budget Office. The next year George W. Bush cut income tax rates and the red ink has flowed ever since.

“Even if Cain adopted all of the draconian spending cuts contained in the House Republican Budget, 14% of GDP in revenue would still result in $11.5 trillion in added debt from 2013 through 2021,” Linden wrote. (And this was before Cain proposed exemptions for workers in inner city “opportunity zones,” which would create potential breaks for the working poor but also would reduce revenues. Cain also would abolish the minimum wage, public schools and unions in the “opportunity zones.”)

Brian Beutler noted at TalkingPointsMemo.com (Oct. 21) that over the 58 years before the Great Recession, the share of federal revenues that came from individual income taxes has remained fairly stable, fluctuating between 40 and 50 percent, peaking just before George W. Bush slashed rates in 2001.

The rest has come from corporate income taxes, payroll taxes and various other taxes. But the big business share has shrunk over the past 60 years while the burden on workers has grown. Since 1950, payroll taxes have grown to more than one-third of federal revenues, from one-tenth. In the same period, corporate income taxes have shrunk from one-fourth of revenues to 10% today.

Despite their anti-tax rhetoric, most Republican presidential candidates are OK with the working poor paying more taxes. Perry told Iowans in August, “We’re approaching nearly half of the United States population that doesn’t pay any income taxes. And I think one of the ways is to let everybody, as many people as possible, let me put it that way, to be able to be helping pay for the government that we have in this country.”

Rep. Michele Bachmann told South Carolinians in July: “Part of the problem is today, only 53% pay any federal income tax at all; 47% pay nothing.” She added, “We need to broaden the base so that everybody pays something, even if it’s a dollar.”

And former Massachusetts Gov. Mitt Romney in August suggested he was open to raising taxes on lower-income Americans: “We want to make sure people do pay their fair share. Half the people in this country pay no income tax at all,” he said.

Dante Atkins noted at DailyKos.com (Oct. 23), “The difference with Romney, of course, is that in his next breath, he added that he does not want to raise taxes on the middle class, leading to the inevitable conclusion that either Romney wants to raise taxes on the poor, or he is contradicting himself.”

Don’t fall for the flat-tax, soak-the-poor rhetoric.

Move Your Money

Sen. Bernie Sanders (I-Vt.) has noted that the country’s six largest financial institutions (Bank of America, CitiGroup, JP Morgan Chase, Wells Fargo, Morgan Stanley and Goldman Sachs) have assets exceeding 60% of the nation’s gross domestic product, but instead of using those $9 trillion to stimulate the economy they are padding their profits with fees on debit cards.

Occupy Wall Street is promoting a national Bank Transfer Day on Nov. 5. It is encouraging people to take their money out of big banks and put it into community banks or credit unions that are much less likely to nickel-and-dime their members or depositors on checking accounts and debit card fees.

Local Occupy movements have been organizing transfers from big banks in their communities. For example, hundreds of people took part in marches on big banks in Austin that resulted in the withdrawal of $162,000 from Bank of America and Chase Bank in October.

It’s a small move, to transfer your money to small banks and credit unions, but it’s a move in the right direction.

As we go to press, Occupiers around the country are increasingly under attack from local officials who apparently want to shut down the protests. The Occupy movements on Wall Street and elsewhere have acted with restraint when police provocateurs have interfered with protesters’ First Amendment rights to free speech and assembly. The Occupy Wall Street and allied 99% movements have gotten a discussion going on the damage that Wall Street banks have done to the economy and they have the right to continue asking those questions in public places.

As we have said before, this is not a Democratic movement. Occupy Wall Street and their local affiliates are the populist movement that the Tea Party pretended to be and they are more effective in their independence. Many in the Occupy and 99% movements don’t like what Obama and the Democrats have done, but the debate should clarify the differences between the Democrats, who at least are trying to move President Obama’s jobs bill and stimulate the economy, and Republicans, who are determined to stop any initiative that might put people back to work before the next election. — JMC

From The Progressive Populist, November 15, 2011


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