Tuesday, February 16, 2010

Progressive Tax Policy Needed

By Beatrice Lumpkin, Chicago

Under cover of the recession, companies laid off over 7 million workers, in 2009 alone. These savage layoffs led to record increases in workers’ productivity. The value that workers produce each hour has gone up. That means that the workers left on the job are forced to work harder and produce more. Yet workers’ pay has not gone up; if anything there have been some pay cuts. So the Recession has been used to increase the rate of exploitation. Who is getting this increased value the average workers have produced?

The Parasites Who Feed On Workers

Workers’ pay has not gone up. So we know it is not the workers getting the value created by their increased productivity. Are the companies who hire the workers getting it? True, they take the first bite out of the profits workers produce with their labor. But only the first bite, because the employer must pay off all of the parasites who feed on the workers. First the employer pays the banks that may well get the biggest part of the profits. Then the landlord must be paid. Landlords continue to raise rents, Recession or no Recession. The big oil and energy companies are also raising their prices. That way they take another part out of the profit. Last, come the taxes, even though many of the biggest companies get out of paying taxes.

So the profit is divided into many parts. There is fierce fighting as to who gets the biggest part of the profit the workers produce. The banks, insurance companies and Wall Street gambling companies are gaining control of the economy. They are grabbing the largest part of the profits, compared to the manufacturing and transportation companies. In other words, there are many parasites that are sucking blood from the workers. As if that was not enough, there are other ways in which workers are cheated out of the value they produce. One way is charging monopoly prices for the commodities working families need to survive. Examples are the high cost of health care and the steep price increases at the gas pump. Raising workers’ taxes is another way of cutting workers’ wages, or taking more of the value that workers produce.

Taxes are needed. Who should pay?

Taxes are needed to fund the government to provide the services we need. In fact, the government needs a lot more revenue to fight the Recession. We need more social services and bigger stimulus packages to save and create jobs. But the important question is, “Who should pay these taxes?”

The short answer is: those who can afford it should pay, or, “Tax the rich.” Another name for this fair principle of taxation is “progressive taxes.” Recessive taxes, on the other hand, put the main tax burden on working people. Sales taxes are a painful example of a recessive tax.

Fighting for progressive taxes is an important aspect of the class struggle. It is a fight that is now being waged in Congress. Some examples are the House bill for health care reform that includes a millionaire tax. In contrast, the Senate bill raises the billions needed by taxing workers’ health benefits. The coming fight to end the huge Bush tax cuts for the rich is another example. In fact, these tax cuts for the rich have robbed the national treasury and made the federal income tax less progressive.

At first, the federal income tax was a progressive tax. But failure to adjust for inflation reduced the value of the individual cash exemption. Only 4 million paid income tax in 1939. By 1945, 43 million had to pay. Taxable incomes of only $500 faced a bottom tax rate of 23%. However, the rate on millionaires was 94%! And that was a good thing even if they had accountants who got them off of paying what they should.

Reagan and Bush Tax Cuts for the Rich: Even in the official, Bush-era history of the federal income tax, they say the Reagan Tax cut of 1981 “represented a fundamental shift in the course of federal income tax policy. This brought the top tax bracket down to 50 percent.” “Over the 22 year period from 1964 to 1986 the top individual tax rate was reduced from 91 to 28 percent.” The Bush tax cut for the rich depressed that top rate even more. Tax cuts for the rich and the huge budget for Two Wars have doubled the federal debt. To get out of the Great Recession, our country needs change, change to a progressive tax policy.

State Budget Crises, like the $13 billion shortfall in Illinois, are also worsened by states’ letting the rich off and putting the main tax burden on working people. Illinois has a flat income tax. The current rate is 3% for individuals, the same rate if you make $20,000 a year or $20 million. The rate for corporations is 4.8% but they have many ways to get out of paying. Already, state employees are being laid off and vital services have been cut back.

Fortunately, a coalition of public workers unions, advocates for children, the disabled, consumer groups and others have formed a coalition to save public workers jobs and the important services they supply. They have united around a bill to raise another $5 billion by raising the individual tax rate from 3 to 5%. Unfortunately, that bill raises the corporation tax rate only a tiny amount, from 4.8% to 5%. The Communist Party of Illinois has issued a call for a progressive state tax that would spare working people. Communists have also joined the call for a second federal stimulus to help states balance their budgets, maintain services and prevent state layoffs.

Attached is a short history, excerpted from an official government web site. It details the huge shift of the tax burden from the corporations to working and lower middle class families.

History of the U.S. Tax System

Excerpted from http://www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml

In 1913, the 16th Amendment to the Constitution passed. The new income tax law had rates beginning at 1 percent and rising to 7 percent for taxpayers with over $500,000 income. Less than 1 percent of the population paid income tax.

World War I, 1918, the bottom rate went up to 6 percent and the top rate to 77 percent. Even in 1918, however, only 5 percent of the population paid income taxes and yet the income tax funded one-third of the cost of the war.

By 1936 the lowest tax rate was 4 percent and the top rate was up to 79 percent. The combination of a shrunken economy and the repeated tax increases raised the Federal government's tax burden to 6.8 percent of GDP by 1940.

World War II. By the end of the war the nature of the income tax had been fundamentally altered. Reductions in exemption levels meant that taxpayers with taxable incomes of only $500 faced a bottom tax rate of 23 percent, while taxpayers with incomes over $1 million faced a top rate of 94 percent. Another aspect about the income tax that changed was the increase in the number of income taxpayers from 4 million in 1939 to 43 million in 1945.

The Tax Reform Act of 1969 reduced income tax rates for individuals and private foundations. The United States experienced persistent and rising inflation rates, ultimately reaching 13.3 percent in 1979. A rising price level will steadily shift taxpayers into ever higher tax brackets by reducing the value of those exemptions and deductions.

The Reagan Tax Cut

The Economic Recovery Tax Act of 1981 represented a fundamental shift in the course of federal income tax policy. It featured a 25 percent reduction in individual tax brackets, phased in over 3 years, and indexed for inflation thereafter. This brought the top tax bracket down to 50 percent.

The 1981 Act also featured a dramatic departure in the treatment of business outlays for plant and equipment, i.e. capital cost recovery, or tax depreciation. In addition to accelerated cost recovery, the 1981 Act also instituted a 10 percent Investment Tax Credit. The 1981 tax cut was a de facto shift away from income taxation and toward taxing consumption.

The Evolution of Social Security and Medicare

The Social Security system remained essentially unchanged from its enactment until 1956. However, beginning in 1956, Social Security began an almost steady evolution as more and more benefits were added, beginning with the addition of Disability Insurance benefits. In 1958, benefits were extended to dependents of disabled workers. In 1967, disability benefits were extended to widows and widowers. The 1972 amendments provided for automatic cost-of-living benefits.

In 1965, Congress enacted the Medicare program, providing for the medical needs of persons aged 65 or older, regardless of income. The 1965 Social Security Amendments also created the Medicaid programs, which provide medical assistance for persons with low incomes and resources.

The basic payroll tax was repeatedly increased over the years. Between 1949 and 1962 the payroll tax rate climbed steadily from its initial rate of 2 percent to 6 percent. The expansions in 1965 led to further rate increases, with the combined payroll tax rate climbing to 12.3 percent in 1980. Thus, in 31 years the maximum Social Security tax burden rose from a mere $60 in 1949 to $3,175 in 1980. The payroll tax rate increased to 15.3 percent by 1990. Between 1980 and 1990, the maximum Social Security payroll tax burden more than doubled to $7,849.

Over the 22 year period from 1964 to 1986 the top individual tax rate was reduced from 91 to 28 percent.

Reference: Online, Research Recap by Oxford Analytica:

The US corporate sector has slashed costs over the past year, eliminating over 7 million jobs and trimming the workweek to a record low. However, the painful rise in unemployment (to an official rate of 10.2% in October) has been accompanied by a record surge in productivity and falling unit labour costs, bolstering equity values and padding corporate profits. The result of such savage workforce cuts was productivity growth of 4.3% during the past year, including a 9.5% annualised third quarter surge — the fastest quarterly rise since the data series began in 1948

For Lincoln quotations on labor source of all value

Merrill D. Peterson, Lincoln in American Memory. Oxford University Press, 1994

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