Out of the Woods

Raise taxes

It is election season once again. Promises are flying but canny voters know better than to be taken in by them. They all know that what candidates promise before the election has little to do with what they do once they are in office.

We hear on all sides how candidates will remedy the injustices and inequalities of the economy as it is today. The candidates offer to improve the lot of the middle class. But there is one important question that no one wants to address – except perhaps Bernie Sanders: reducing injustice and improving the lot of the middle class will cost a lot of money. No candidate is telling us where they will get the money to do all these good works.

But unless a candidate has a feasible plan for raising extra money, their promises to make life better for most of us are not worth much. What we need to know about candidates is whether they are going to increase government revenue in order to honor their commitments.

The obvious answer is: we need to raise taxes, specifically we need to raise taxes on the rich, on the people who take home more than $100,000 a year. Candidates who are unwilling to do that will not be able to deliver on their campaign rhetoric.

In 2011 half of the taxpayers earned less than $35,000 a year. The top 1% earned more than 10 times as much at close to $390,000 a year. The tax rate for people earning less than $35,000 was 3%. You would expect the tax rate for the top 1% to be 10 times as much, – 30% – but it was only 23%. It would be more than fair for the top 1% to pay income tax at a much higher rate.

The rich get financial benefits not given to us. For instance, employees of Walmart or fast food restaurants do not earn enough to get by and the government – the taxpayers – help out. Food stamps and other social services for people who do not earn enough to live, are in fact a subsidy to their employers. Instead of paying for food stamps we should demand that employers, like Walmart or fast food restaurants, pay a living wage.

But is the subsidy for business not at the same time a subsidy for the customer? Suppose we demanded that Walmart and their competitors paid a living wage. They would still be forced by competition to keep their prices low. Their profits would decline. It is the employer who derives special benefits from government subsidies.

Businesses get preferential treatments in other ways. 39% Fortune 500 corporations paid no income tax between 2008 and 2012. By law corporations are supposed to pay 35% federal income tax.

Trucking companies get to use the interstate highway network. The government pays for that. The government doesn't pay for my computer that I work on when writing, sometimes – although not frequently – for-profit. Trucking companies get a government subsidy. I do not.

The first step towards a creditable program of increased fairness is to raise the income tax on the top 10 or 15% of wage earners. A second step is to abolish subsidies for business. We must make all employers pay a living wage. That will save taxes and improve the lives of that half of citizens who earn less than $34,000 a year. The government will gain considerable revenue by collecting taxes on large corporations. If businesses use government supplied infrastructure for profit they should be made to pay for that. Media companies, for instance, should pay for using TV or radio channels.

These recommendations are becoming very mainstream. They have even been endorsed by a recent report from the International Monetary Fund. But Congress is, once again, deaf.

Common wisdom is that candidates who promise to raise taxes on the rich and to abolish subsidies for private businesses cannot be elected.

But the top 10% of taxpayers are only 10% of the voting public. How could they possibly block the election of someone chosen by the majority of the remaining 90%? The fear is obviously that some very rich people can affect the election by spending, literally, millions of dollars to support candidates that will not interfere with their making obscene profits.

To be sure money talks very loudly in elections. But not always. We have seen some notable exceptions such as the defeat of Eric Cantor of Virginia by an unknown opponent who had no money.

Political candidates who are serious about remedying the glaring injustices in our current political and economic commitments will have to take a chance and come out openly and say what needs to be done: raise taxes and shut down business subsidies.