Republicans in the White House and Congress have not tipped their hands on tax reform, other than to say they want corporate and personal income taxes to go south instead of north. Most importantly, they have not expressed themselves on one of the major drivers of the Trump aberration: a middle-class frustration with the inequity on how the nation’s economic pie is split up.
There is no denying that the rich are getting richer in this country, that there is still way too much poverty in the country and that the middle class has seen wage stagnation over the last decade.
There are some mitigating factors. First, wages have risen more sharply over the last year because the labor pool has shrunk sharply. Labor demand now exceeds supply. That upswing is a very recent trend.
Second, the stagnation of middle class prosperity had a lot to do with the heavy toll wrought by the Medical Industrial Complex (MIC). Obamacare didn’t lay a glove on costs in the health care industry, and that failure has expressed itself in higher premiums. The excessive charges for care have drained as much as $5,000 out of every American home.
The latest attack on American households comes from the pharmaceutical giants and their crazy prices on new drugs. Does that part of the MIC believe that manna from heaven pays for their new drugs and not American employers and employees? Drug costs have risen from about 10% of the health care bill a few years back to 20-25%. That hyperinflation (an accurate term) has wiped out other cost-saving reforms in the private health care sector.
Third, some economists rightly argue that the higher quality of products (think smart phones) does not show up in calculations of gross domestic product and poverty/prosperity levels. We are better off than the numbers show.
That said, there are still some obvious fixes that would go a long way to a perception of a more fair tax system.
First, if Republicans want to lower corporate tax rates, and they should, there are some logical offsets to keep tax revenues coming into the Treasury for many public purposes. The current top rate for corporations is 34%, but with various breaks and loopholes, most companies pay somewhere around 25%. Some competitor nations have rates in the teens.
Most of the national conversation on a more competitive rate has homed in on 25% as the top rate. OK, but what about the giant corporations that pay 0% or less than 10%? That just ain’t right.
So, man up, President Trump, Speaker Ryan and Majority Leader McConnell and take on the big boys. Put in a minimum corporate rate of 15% to 20%. You will be perceived as real leaders interested in fairness. You will be draining the swamp.
A similar case can be made for the taking on the stratospheric earnings of athletes, Hollywood types, C-suite executives at large public corporations, hedge fund managers and high rollers in the Medical Industrial Complex (even at non-profit hospital corporations).
Boards of directors have proven beyond doubt that they cannot control top-level salaries. They are incapable of reform.
So, here’s the silver bullet. Raise the top marginal tax rate to 75% on incomes of more than $5 million. At that level, let them work for society with three-quarters of those earnings.
There is precedent. Fifty years ago, the marginal federal rate was 91%. That’s confiscatory, but there is no evidence anywhere that the lower rate of around 40% has stimulated the economy to higher performance.
Again, the treasury and fairness would be served. Besides, how much money does any one American need? And rich people still have most of their income from capital gains at 20%.
Note that entrepreneurs, the guys who reinvent the economy and create all the net new jobs, get most of their returns from capital gains. So, leave the capital gains rate of 20% alone.
Note: the entrepreneurs who make it big tend to far more generous with civic projects than the chieftans at the top of big corporations.
Also, note that the Democratic Party has not forwarded a tax plan to counter the ill-defined GOP plans.
Actually, Bernie Sanders does have a tax plan of sorts that Democrats are starting to embrace. His Medicare-for-all plan would require a payroll tax of at least 25% on every American. The righteous reformer would take employers out of health care. Those are the payers of care for about 160 million American employees. They are also the best bet for real reform.
The scary price tag of the Sanders plan explains why the wily, old senator never talks about the ways and means of his grand scheme. And don’t think he doesn’t know the price tag in new taxes. He staff people surely have done the numbers. He just doesn’t want a spoil a good story with the facts.
None of the above bold ideas for injecting fairness into American tax structure is going to happen in a world led by President Trump, one of the fattest of the fat cats. But they are directionally responsive to the electorate that voted in 2016.