Taking on the Billionaires

The Giveaway

Over the next 6–12 months Congress will almost certainly give the richest 1 percent of the population an income tax gift totaling some $75–150 billion. The 1 percent, with annual incomes averaging $1.3 million will capture 47 percent of the tax cuts for an average annual tax saving of $214,000 each, the non-partisan Tax Policy Center estimates based on Trump’s proposal, which does not differ dramatically from that of the House Republicans.

The Response

It will be virtually impossible to stop this unprecedented giveaway. But states can fight back. They can raise state income taxes on the rich in proportion to the reductions at the federal level, diverting as much of the massive federal tax gift as possible from the pockets of the 1 percent into public investments, public services and support for the 99 percent.

Class Matters

Those who now run Washington insist the “me” should take precedence over the “we,” that the private is superior to the public. Michigan Republican State House Speaker Tom Leonard, who proposes eliminating the state’s income tax, already the lowest in the country, justified his stance by invoking a common meme, “This is the people’s money, not ours.” We need to make clear that, given the current distribution of tax breaks and the unprecedented concentration of wealth, the attitude of the 1 percent might more accurately be summarized as, “This is our money, not the peoples.”

The Consequences

The tax gift to the rich will demand real sacrifice from the poor and the middle class — more closed state parks, fewer health services, overcrowded classrooms, more prison unrest. The House tax plan will reduce federal revenues by $3 trillion in the first 10 years; Trump’s plan will reduce them by $9.5 trillion according to the Tax Policy Center. The Administration appears to agree with the higher estimate given that Trump’s staff proposes federal spending cuts of $10.5 trillion over the next decade.

Why Raise State Income Taxes?

The premise of state-based campaigns focusing on fairness and the obligations of citizenship is that the major problem is not a stagnating economy. The economy is growing. The problem is that all the benefits of that growth are going to a tiny portion of the population while the rest of us experience stagnating wages, declining benefits, and dwindling public services.

Taxing Labor and Capital

Congress wants to cut the tax on capital, which because of past tax cuts, already is taxed at about half the rate as income from labor. Most of us earn our income by working. The rich are different. They earn most of their money from capital, not labor. In 2007, wages and salaries accounted for only 40 percent of the income of the richest 1 percent, according to Professor Alexander Hicks. Sixty percent came from profits, dividends, interest, rent and capital gains. For the richest 0.1 percent, the figure is almost 70 percent.

The False Benefit of State Tax Cuts

State tax cuts do not stimulate economic growth. They generate deficits, which because of the states’ constitutional requirement to balance their budgets, results in reduced public spending, which itself reduces economic growth. According to economist Robert Lynch, “there is little evidence that state and local tax cuts — when paid for by reducing public services — stimulate economic activity or create jobs…”

State Income Taxes: The Lay of the Land

In the 1970’s, on average, states raised their income tax rates. In 1980 they were two times higher than sales tax rates. Beginning in the 1980s, however, states consistently lowered income taxes while raising sales taxes. Today, according to Elizabeth McNichol of CBPP, the median state sales tax rate is equal to the median state top income tax rate.

A History of Failure and Success

Can a campaign focusing on fairness, equity, and responsibility win? The signs are mixed.

The Changing Landscape

State campaigns may be aided by the changing landscape of tax reform. In the face of deteriorating roads and overcrowded schools, even those who ideologically favor reducing taxes are conceding that increased revenues are needed. And drastic cuts in federal aid will exacerbate the problems faced by state legislators. Currently they almost always favor increasing sales taxes. For example, in recent years some 20 states have raised gas taxes to pay for sorely need infrastructure. Nevertheless, once the conversation focuses on how to tax rather than whether to tax, the discussion, but once the tax taboo is overcome, the conversation about equity and the income tax may be facilitated.

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Inst: Local Self-Reliance

Inst: Local Self-Reliance

The Institute for Local Self-Reliance has a vision of thriving, diverse, equitable communities. To reach this, we build local power to fight corporate control