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GUEST COMMENTARY: Flipping tax system on the rich would pay off debt

Friday, June 17, 2011 | 2:58 p.m. CDT; updated 2:09 p.m. CDT, Tuesday, July 19, 2011

Our country once had a more widely shared appreciation for both public services and the workers who provide them, including firefighters, teachers and police officers.

Today, however, state legislatures across the country are singing a different tune. Instead of raising new revenue to protect those services and workers, states are slashing from their budgets the things that make our nation strong.

Cutting to get out of a deficit is like digging to get out of a ditch. It puts everything we value at risk. It doesn't have to be this way.

What if there were a solution to state deficits that would raise significant revenue, encourage investment and create jobs — without cutting vital public services? And what if the revenue required by such a solution could be generated solely by making tax systems as fair as most Americans think they ought to be?

The solution is simple: We need to turn states' fiscal status quos upside down — literally.

United for a Fair Economy's new report, Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, demonstrates that one powerful solution is to invert each state's tax structure. We calculated how much revenue state governments would raise if they flipped their current effective tax rates at the 50th income percentile and had the top 20 percent of income-earners in each state pay taxes at the same rate as the poorest 20 percent.

The results of this fiscal flip are quite dramatic. By turning each state's tax system on its head — from regressive to progressive — states would raise an additional $490 billion in revenue, easily wiping away the combined $112 billion state and local government budget shortfalls. The lake of red budget ink that has stained capitals across the nation would disappear overnight.

The report shows the extraordinary regression of our current state tax structures. In plainer terms, low- and middle-income taxpayers are paying a greater share of their incomes in taxes than the wealthiest taxpayers in every single state in the nation. Relying on such an unsustainable structure is economically unsound and bad for our communities. And as several recent studies have pointed out, flipping them would be consistent with the majority of Americans' perception of "fair."

Achieving the "flipped" system would require significant changes in our state tax structures. For example, states would need to rely less on regressive sales taxes and raise more revenue from income taxes, in part by levying higher tax rates on the wealthiest Americans.

Of course, the biggest hurdle to achieving this inverted model is a lack of political will. But state-level elected officials can no longer ignore the fundamental roots of their deficit problems. Slashing essential public services and jobs will only drag us further away from achieving the kind of tax fairness that most taxpayers are already demanding.

Shannon Moriarty, a co-author of Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, is the communications director for the Tax Fairness Organizing Collaborative at United for a Fair Economy.

This column was distributed through OtherWords.org, a project for the Institute of Policy Studies.

 

 


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Comments

matt arnall June 17, 2011 | 3:48 p.m.

I would like to vote for this person if they ever run for any office. Why can't lawmakers possess any problem solving skills. This is good common sense.......or maybe I should just wait till some rich person wants to trickle down some money to me.

(Report Comment)
James Krewson June 17, 2011 | 4:16 p.m.

Raising tax rates AGAIN on the wealthy only forces them to move to another state or country, and/or forces them to close their business and in effect causes MORE UNEMPLOYMENT. Increasing tax revenue DOES NOT GO HAND IN HAND WITH DEBT REDUCTION. The writer doesn't realize that we have tried this in the past and it has resulted in worsening the economy and higher unemployment. In order to have true deficit and debt reduction, there MUST BE SPENDING CUTS! You can't continue to spend like a drunken sailor, then raise taxes on the wealthy who then decide to shut down their business, causing more unemployed workers...this is the reality, not a theory. What I don't understand, is how these "public service" workers think that they deserve higher wages and better pensions than the general public. Are they somehow anointed from on high that we should bow down to their every need? Come on now...

(Report Comment)
Richard Saunders June 17, 2011 | 4:31 p.m.

"For example, states would need to rely less on regressive sales taxes and raise more revenue from income taxes, in part by levying higher tax rates on the wealthiest Americans."

I would expect someone who has written a book on taxes in the US to realize that the most of the wealthiest people don't have "income" in any size relative to their assets, and thus the idea is a total fail. Of course, even if it did "work" it is still theft, and thus, like all taxes, morally wrong.

So in complete ignorance of both logic and morality, Shannon Moriarty advocates thuggery against one class of people in order to right an alleged wrong against another. In other words, it's politicaly motivated grandstanding advocating a force for wealth extraction (just as long as it's someone else's). Because, after all, you and all of your belongings are merely state property for other people to fight over.

Also, Mr. Krewson's comments are also spot on.

(Report Comment)
Gregg Bush June 18, 2011 | 12:20 p.m.

"Raising tax rates AGAIN on the wealthy only forces them to move to another state...."
Declarations do not a reality make.
I prefer the reality-based community where claims are studied by thoughtful, skillful, and insightful people.
http://tinyurl.com/6zsbfez
It ain't too sexy of a title, but it's science.
Even Murdoch's paper picked it up.
http://tinyurl.com/3e6dguo
And yet another study with the same liberal bias that so much of reality has.
http://tinyurl.com/3muae2p

(Report Comment)
frank christian June 18, 2011 | 1:27 p.m.

Gregg B. - Not a new "study", a rearrangement of numbers to try to make a liberal point, but a little Thomas Sowell, http://www.insidebayarea.com/opinion/ci_..., can show better, the results of tax increases on us and our economies.

(Report Comment)
Gregg Bush June 18, 2011 | 2:52 p.m.

US economic policy of the late 1920s is a suicide pact. We know where it leads.
Of course, Sowell would recommend it - he's part of the wrecking crew.

(Report Comment)
John Schultz June 18, 2011 | 8:23 p.m.

Gregg, are you referring to Hoover's own stimulus program? Funny how a lot of things Dubya and Obama tried to "fix" the economy didn't work back then either...

(Report Comment)
Gregg Bush June 18, 2011 | 8:53 p.m.

And funnier still how massive deficit spending from FDR and Truman's "Marshall Plan" for Europe was so successful.
Just like the successful high taxes on the topmost wealth of the ultra-wealthy under Ike.
But I agree, the tax-cut "stimulus" from Hoover, Dubya and BHO was just as crummy back then as it has been today.

(Report Comment)
Tony Robertson June 18, 2011 | 11:00 p.m.

Gregg Bush: What should the top marginal income tax rate be, and at what income level should it kick in?

(Report Comment)
John Schultz June 19, 2011 | 1:01 a.m.

Now Tony, don't go getting things complicated by asking people just how much we should tax those rich folks. Nevermind that the Obama, er Bush tax cut extensions kept taxes from being raised on us poor folks, right? Just raise them taxes, no need to cut spending, no sirree.

(Report Comment)
Mark Foecking June 19, 2011 | 5:20 a.m.

John Schultz wrote:

"Now Tony, don't go getting things complicated by asking people just how much we should tax those rich folks."

That's one of the deficiencies I see in the linked report - they never lay out exactly what should be taxed and how much.

Expressed as a percentage, sales and excise taxes are, of course, going to be a higher percentage of lower-income people's incomes. However, total revenue from what lower income people spend is tiny in relation to what states get from higher income people. Higher income people spend a lot more money, have bigger houses, more investments, etc.

I don't see how we can solve our deficit crises without raising taxes. The amount of money we can realistically save by spending cuts won't erase the federal deficit (or that of most states). However, I also see it as unfair to advocate drastically higher taxes on the wealthy, especially at the state level. That will be counterproductive, as they move, or otherwise shelter greater shares of their income.

Arthur Laffer's contribution was to show there is an optimum level of tax that maximizes revenue. I'm not sure what that level is, but I'd think it quite a bit more productive to study that, rather than advocate drastically higher taxes on successful people.

DK

(Report Comment)
Derrick Fogle June 19, 2011 | 10:18 a.m.

"The rich will just leave." is total horse poop. Many of those super-wealthy "successful" people are successful at one thing: being bloated leeches that suck all the wealth out of our economy, and essentially use it against us. It would help our economy tremendously if they *did* leave.

If any of them want to leave because of higher taxes, I'd love help them move. I'd be delighted to load all the Forbes 500 people's money onto airplanes, and process their citizenship revocation as soon as their flight takes off. Good riddance, leeches.

(Report Comment)
Derrick Fogle June 19, 2011 | 10:26 a.m.

Robert Reich: 2-minute explanation of economic problems: http://www.youtube.com/watch?v=JTzMqm2Tw...

(Report Comment)
frank christian June 19, 2011 | 11:49 a.m.

Derrick Fogle - After you recover from the "fit", just thrown, try to comprehend that the rich don't have to physically "leave" the country any longer. A couple of electronic moves can transfer millions, billions to about anywhere. Thanks to your supposed saviors, Democrats and their regulations, taxes, that is exactly what has happened.

After your tirade, you give us Rob't Reich? As usual, I was not able to last thru 2 minutes of his crap.

(Report Comment)
hank ottinger June 19, 2011 | 2:11 p.m.

Frank writes: "After your tirade, you give us Rob't Reich? As usual, I was not able to last thru 2 minutes of his crap."

Ah, an open mind is a terrible thing to waste.

(Report Comment)
Mark Foecking June 19, 2011 | 2:55 p.m.

Derrick Fogle wrote:

"It would help our economy tremendously if they *did* leave."

Actually it would take their money out of the economy completely and remove the good things that money does for us. I don't consider them leeches - I consider them successful. Why don't rich people deserve the fruits of their enterprises? Why doesn't having wealth in the community make all of us wealthier (because people get paid to do things for them)?

Historically, I can't think of a nation that has prospered by expelling their rich (or redistributing their wealth). I don't accept the idea that wealthy people don't deserve to be wealthy, and don't accept the idea that they should be penalized for it.

DK

(Report Comment)
frank christian June 19, 2011 | 3:56 p.m.

Hank O. - If I read you right, you have assumed I have never "heard out", Mr. Reich, because of my closed mind. How many times does an open mind have to hear, the super rich take home too much of our wealth! Because they have found too many ways to avoid paying taxes, our schools, roads, bridges, health care etc. are all suffering and huge deficits have occurred. blah, blah. I heard Reich tell a young business man after the problems Clinton "deficit reduction" tax increases had caused, were aired. "Your problem is, you haven't been paying your fair share!" Should I mention that the young man was clearly Not of the super rich? I know that even his friends interviewed for Cabinet investigation divulged that Reich often showed a "loose handle on the truth". In this case, his opening sentence destroyed his whole "sermon" if one thinks about it. "Since 1980, our economy has doubled!" Wasn't 1980 the year Ronald Reagan was elected, President?

(Report Comment)
Gregg Bush June 19, 2011 | 6:32 p.m.

"I don't accept the idea that wealthy people don't deserve to be wealthy, and don't accept the idea that they should be penalized for it."
Taxes are not a penalty.
And a belief in the fiction of a meritocracy is a hallmark of the delusional class. Marx would call them the lumpenproletariat, and Feudalists would call them vassals.

(Report Comment)
Tony Robertson June 19, 2011 | 8:01 p.m.

Gregg Bush and Derrick Fogle: What should the top marginal income tax rate be, and at what income level should it kick in?

(Report Comment)
John Schultz June 19, 2011 | 11:18 p.m.

Here's what Reich glossed over or didn't mention in his video:

1. Spending cuts (he sure mentioned taxes though)
2. People spending within their means (alluded to, but he made it sound like a bad thing that the middle class can't borrow to inflate the economy)
3. No talk about the middle class benefitting from the economy, such as cheaper computers, consumer goods, better cars, and so forth.
4. The Obama administration's economists didn't know what they were saying when they said the stimulus was necessary to keep unemployment below 8%.

(Report Comment)
Derrick Fogle June 19, 2011 | 11:21 p.m.

44.9% @ 5M+/yr, if you're gonna ask so bluntly. But I think a simpler, more understandable idea is to ask *everyone* to take the same hit as the bush cut rollback we were asking those over $250K: about 3%. Across the board.

If we can't seriously entertain such an idea - a 3% across-the-board federal tax increase - we might as well go stick our heads back in the sand.

Think about this: I was born in 1963. Graduated HS in 82, got an AA degree in '84. As an adult, I've never known an economy where the government wasn't spending a significant percentage more than it's revenues. Nobody my age or younger has any idea what a balanced federal budet looks or feels like. Nobody my age or younger has ever known any economy except that where the wealthiest percent or so get significantly wealthier, while the rest of the population stagnates.

It seems like a lot of people don't realize how long this has been going on. We, as nation, as a culture, and as a species, have been living well beyond our means, in almost every sense of the phrase, for decades and more. It's not just the federal budget; the federal budget is just one of the core symptoms of the real problem.

If we want to get anywhere near balancing the federal budget, tax increases will be required. Cuts in spending alone won't do it. And if you believe this perpetual motion machine garbage that tax cuts create a chain of events that eventually creates more revenue, you're just a kook.

If you've been so successfully terrorized by the economic thuggery of the wealthy elite, that you believe you need their protection and you can't do without them, well... how does that collar feel? It's your choice to put that thing on, not mine.

I'm ready to call their bluff. Either they get with the sharing and responsibility parts of the American dream, or they can take their money and get out. I'm volunteering to help them pack.

(Report Comment)
frank christian June 20, 2011 | 7:08 a.m.

Derrick - In reading this, a word came to mind. The word was "sick", as in,is he sick?

Then, a question, why can no liberal your age ever remember the years '97 thru 2000, when a balanced budget and significant debt reduction were both achieved with no tax increases. One major difference from the day you were born. Republicans controlled Congress.

I know, you are not sick, but feel some credibility might be retained if you said you were.

(Report Comment)
Ellis Smith June 20, 2011 | 7:27 a.m.

Whether taxes on the "rich" (and the IRS classifies me as "rich") are raised isn't the place to start. We need to get our government under some semblance of fiscal control. Otherwise, growth of public debt will never stop! One does not cure an alcoholic by giving him/her ever larger quantities of booze!

Given that the comments above are posted in a newspaper published in Columbia, Missouri, a venue with one university and two colleges, I am left wondering what sort of crap is currently being taught as economics.

No government can spend its way to prosperity. :(

(Report Comment)
Mark Foecking June 20, 2011 | 9:29 a.m.

Ellis Smith wrote:

"No government can spend its way to prosperity. :("

China's doing a pretty good job of spending its way to prosperity, but they have the added benefits of a lot of foreign investment and a very positive balance of trade. I think it's more the nature of the investments made, rather than whether government or private business makes them.

DK

(Report Comment)

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