The Need to Tax the Wealthy (Dean Baker making sense again)

[depakid]

he quest to increase taxes on the wealthy is not a gratuitous attack on upper income households; it is driven by the need to raise more revenue to run the government. While many deficit hawks been irresponsible in raising fears of an impending collapse of the American government, the projected deficits for years following the recovery are in fact larger than is desirable.

There are areas of American spending at the federal government level that could be reasonably cut, but even after we have zeroed out the "waste, fraud, and abuse" category of federal spending we will still likely need additional revenue of between 1-2%t of GDP to keep budget deficits in an acceptable range. That leaves a choice between increasing taxes on the wealthy or imposing more taxes on the middle class.

The vast majority of the income gains in the United States over the last three decades have gone to the richest 5% of the population, largely as a result of policies that were explicitly designed to redistribute income upwards. Therefore it is far more appropriate to tax the richest 5%t of families who have prospered than the broad middle class who have suffered.

Of course taxes can be designed in a better or worse manner. The best way to increase taxes on the wealthy, in addition to allowing the Bush tax cuts to expire, would be to apply a modest financial transactions tax (FTT).

There is a long history in both the United States and the rest of the world with FTT. Until 1964, the United States imposed a tax of 0.12% on new stock issues and 0.04% on stock trades. Britain still has a tax of 0.25% on each stock sale or purchase, raising five billion pounds a year. This would be equivalent to roughly $30 billion a year in the American economy.

Robert Pollin and I calculated that a scaled set of FTT on stock, futures, options and other financial instruments could raise approximately $150 billion a year. This would go far towards bringing the long-term budget deficit down to a manageable level.

A FTT would be hugely progressive. While many middle income families own stock, their holdings are dwarfed by the holdings of the wealthy. Furthermore, few middle income families are active traders. Their intention is to hold their stock to support their retirement or their kids' education, not to shuffle it around on a daily or hourly basis. Some mutual funds do engage in frequent trading. An FTT would encourage investors to move their money to funds that are less active traders, thereby allowing them to escape most of the impact of the FTT.

Most of the burden of the FTT will fall on wealthy individuals who are active traders and also on the financial industry itself. Either way, the tax will be overwhelmingly borne by the wealthy. By raising the cost of trading, the tax will discourage the trading that provides the revenue for the financial industry. A well-designed tax should also discourage the creation of exotic assets that may serve little useful purpose, since it could lead to the tax being paid multiple times. For example, the holder of an option on a stock would both pay the tax on the purchase and sale of the option and also on the purchase and sale of the stock itself, if the option was ever exercised.

More: http://www.commondreams.org/view/2009/04/16-10

[excess_3]

1. cigarette tax up 62 cents,,, tax on jet fuel, still 4 cents

yah, I believe everything I resd

not

[bulloney]

2. We keep reading about retailers going out of business. It's because the middle class is shrinking.

You have to redistribute wealth. The wealthy already have the disposable income to buy housing, cars, nice vacations and so on. Putting more money in their pockets by reducing their tax rates only concentrates the nation's wealth in fewer hands and we're seeing the effects of that result today.

The other thing about the wealthy is that their heirs are often financially secure at birth. They don't know what it's like to have to live under a budget and choose between purchasing something you need vs. something you want. Money has come so easily for them and they're looking for ways to get it even more easily. The way they do it is by attacking the tax rates and push for loopholes and lower tax rates.

[depakid]

3. Baker's not talking about reistributing wealth per se- he's talking about paying down the deficit

from the economic meltdown, the wars and the baby boomer retirements and health care costs.

And one relatively painless way to do that is through a FTT.

[dtotire]

4. FTT Tax Makes Sense

I would suggest that the tax should be reimposed. It is not a regressive tax, such as are payroll and sales taxes. I would suggest that the tax be .1% on all transactions, or $1 for each $1000. I would suggest that everyone write a letter to the Senators and Representatives on the Joint House-Senate Taxation Committee to see if legislation can be introduced. The chairmen are: Senator Max Baucus(D-Montana), and Charlie Rangel(D-NY).