Sunday, August 23, 2015

America’s Regressive Progressive Tax System

Most people think that under our tax system the wealthy pay a higher percentage of their income in taxes than those with less income, with those with the lowest income paying the lowest rate.   This is called a progressive tax system.  

The reasoning behind a progressive system is twofold: one philosophical, one practical.  
Philosophically, under our social contract, all citizens have a responsibility to support the work of the government in providing for the greater good and its helping insure that those in need still have a chance at “life, liberty, and the pursuit of happiness” as promised in the Declaration of Independence.  Those citizens with more wealth, who have benefited more from the system, have a moral responsibility to give back and support their fellow citizens by contributing a greater share of their income through taxes to support the government.

Practically, the wealthier you are, the higher the percentage of your income you can afford to pay in taxes because despite that higher tax rate so much is still left over for your personal use.  On the other hand, if you have only a very modest income, you can hardly afford to pay any taxes and still have a livable standard of living.

Our federal income tax is based on this theory, although it is far less progressive today than it has been in the past.  For example, in the 1950s during the Eisenhower years, the wealthiest American’s payed a marginal tax rate of 90%.  During the Johnson and Nixon years, that rate dropped to 70%.  Under Reagan the rate dropped to 50%.  And under Bush II, the rate dropped to 35%.

Did these higher federal income tax rates hurt the wealthy or the country during this period?  No.  The wealthy were still quite wealthy.  And the country was strong economically, with of course the usual dips of the economic cycle.

So what have we gotten in exchange for these reduced taxes on the wealthy?  Nothing but ever increasing deficits (despite a reversal in the last years of the Clinton presidency), reduced government ability to pay for infrastructure projects, education, and provide a safety net for those in need, and increased income inequality.  The economy and nation have not grown stronger; the rich have just gotten richer.

But the story doesn’t end with the federal income tax.  It gets much worse when factoring in state and local taxes, especially sales taxes, which fall disproportionately on those with less income and are thus regressive.  This is especially severe in those states that currently have no income tax and so rely totally on regressive taxes.  For example, the state of Washington has the most regressive tax system in the country.  There the poorest 20% of residents pay seven times as much of their income in state and local taxes as the top 1%.

Each year, Citizens for Tax Justice issues a report, “Who Pays Taxes in America.”  The most recent CTJ report shows that combined local, state and federal taxes produce a system that more resembles a flat tax than a progressive tax: In 2015: 
The top 1% - those with incomes averaging $1.7 million - will pay 32.6% of their income        in taxes.  
The same is roughly true for the next 9% - those averaging more than $176,000. 
The next 50% - those averaging between $49,000 and 125,000 will pay an average of 29%.  
The next 20%, those with an average of $30,000, will pay 23%.  
The bottom 20%, averaging $15,000, most of whom live in poverty as defined by the government, will pay 19% of their income in total taxes.

The unfairness of this system is manifest.  It’s unfair even that those who earn $200,000 a year pay the same tax rate as those earning many millions.  It is outrageous that the middle class pays virtually the same rate … 29% as opposed to 32%.  It is beyond belief that the poorest 20% of Americans pay 19% of their incomes in taxes … yes, they typically pay little or no federal income tax, but state and local sales taxes take a substantial cut out of their pockets when they are barely scraping by.

This describes a tax system that should put the United States to shame.  And it should put the wealthiest Americans to shame, although I think the evidence shows that that emotion is almost impossible to call forth from them, the example of Warren Buffet to the contrary notwithstanding.

The solution is that the federal income tax should be put back on a much more progressive scale, as it was for most of its history.  And state and local governments should be required to use a progressive income tax for their tax revenue rather than a sales tax or other regressive tax system.  

This not only makes moral sense, it makes economic sense.  The result would be a substantial boost in real income for most Americans with a resulting boost in spending and thus to our consumer economy.  If the net changes were not tax revenue neutral … that is if the changes resulted in higher tax revenues … that would provide much-needed funds to begin repairing our country’s neglected infrastructure and for other important but underfunded government tasks.

Our current tax system should be unconstitutional, but there is no measure in the constitution that requires fairness in the legislative process.  But if legislators and the general population cannot see, when presented with these facts … and they are facts, that our tax system is unfair, not to the rich as they frequently complain but to the rest of the populace, and that it hinders a large portion of the population in the exercise of their right to “life, liberty, and the pursuit of happiness,”  then our nation is at a very sad point.

Wednesday, August 19, 2015

Our Archaic Transportation System

The United States prides itself in being a technologically advanced country, a leader in the technology revolution, and yet our transportation system is archaic.  It is based primarily on a mode of transportation … the car and truck … that was developed a century ago and that technologically has not progressed much in the intervening years.  And it is based on the use of a fuel which has been recognized as causing the coming disaster of climate change.  

It is inefficient and not user-friendly.  For example, despite the vastness of the NJ turnpike, during the extended rush “hour” it is a slog.  And on a recent trip back from the city to Philadelphia, the 17 mile trip from the Verrazano Narrows bridge to the Goethels Bridge took 2 hours!  A huge traffic backup caused by a lane closure.

To the extent that we have a passenger rail system, it too is outmoded and archaic, both as regards the equipment and the infrastructure.  The technological advances made and implemented in western Europe and other countries with advanced, efficient rail systems put us to shame.  (I can’t speak to the quality of the freight system.)

Our air travel system also is caught in this technologically archaic vise.  Air travel makes sense for long flights … say 800 miles or more.  But for shorter flights, it is both terribly inefficient and not user friendly.  By the time you factor in the time it takes to get to the airport, be there the suggested amount of time prior to flight for security and other reasons, and then getting from the airport into the city you’re traveling to, the fact that the actual flying time may be short is irrelevant.  The total amount of time spent and the discomfort experienced is far greater than it would be using regional transportation on an up-to-date high speed rail system.  But that system doesn’t exist.

Why is our transportation system, a vital part of our future economic competitiveness and our national security, in this sad shape?  There are two reasons, one causing technological backwardness in this area.  The other results in the outdated infrastructure.

The reason why our transportation system is technologically archaic is that the powers/corporations behind the old technology are extremely powerful.  Basically, we’re talking about big oil.  Big oil has for decades not wanted electric cars to be developed (when technologically they easily could) and big oil has not wanted an efficient rail system that would compete with cars for carrying people.

But we need both electric cars and an efficient rail system.  Trains need to carry much more of the regional traffic and cars should be used primarily for local purposes and getting to transportation hubs.

It’s no secret that in our governmental system, power resides with the major corporations who lobby Congress and who contribute heavily to campaigns.  There simply exists no countervailing corporate force for changing our archaic transportation system.

The reason why our infrastructure is outdated is said to be that we just don’t have the money.  But that’s not true.  The problem is that the money is going for other things, primarily defense.  Now defense is important, but a large chunk of that huge budget does not advance our security; it only advances the corporate welfare, and yes, also jobs, in the defense industry, which is very powerful.

So again, it’s a question of the power lying with corporations who have a vested interest and there being no countervailing corporate force for changing the way the budget is allocated.

A reader might counter that to change our system would be hugely dislocating for everyone and would harm us.  While it would be somewhat dislocating, I don’t think it would be hugely so for the average person and more importantly it is necessary for our national survival and competitiveness in the future.

Another counter argument is that if we shift money from the defense industry it will cost lots of jobs and people will suffer.  While again there would be dislocation, the shift of funds into infrastructure projects will create a huge number of jobs which will provide ample employment for not only those who lose their jobs as a result of the cutback in defense spending but also for many who are currently un- or underemployed.

Interestingly, these same arguments were not successful when corporate power was on the side of technology or globalization rather than the ones who were being dislocated.  It all comes down to who has the ear of Congress.

Our future economic competitiveness and national security depend on all aspects of our infrastructure being technologically advanced and in top condition.  We have a long way to catch up on both fronts.  The patriotic and sensible thing to do would be to start on both these projects ASAP.