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Tax shiftIn their never ending quest to tilt it more and more in favor of themselves and their wealthy backers, state lawmakers are again touting a plan to shift North Carolina’s tax system away from income taxes and further onto the sales tax.

As Raleigh’s News & Observer reported in this article, the move was endorsed this week at a legislative hearing by a right-wing group that calls itself the Tax Foundation. Critics of the idea were not invited to speak.

Such a shift is a dreadful idea.

Not only will it make our tax system more regressive than it already is (thereby taxing the wealthy at much lower rates than the poor and middle class), it will make the system much less flexible and resilient to meet the needs of a growing state. While it does make sense to broaden the base of the sales tax to capture more economic transactions, this should be married with a plan to lower sales tax rates so that the tax does not become a monster.

For a healthy revenue system that remains stable and is better able to withstand the ups and downs of the economy, North Carolina needs a healthy balance of a progressive personal income tax, a broad-based sales tax and reasonable property taxes at the local level.

An editorial in this morning’s Fayetteville Observer puts it gently but accurately in assessing this week’s hearing:

“Legislators didn’t invite any opposing viewpoints. It’s clear that the architects of state tax policy want to more aggressively cut corporate and personal income taxes.

If the lawmakers had invited tax experts with differing views, they might have considered the impact that a shift to broader sales taxes has on the poor, who spend a larger percentage of their incomes on basic goods and services. It’s the same problem that plagues proposals for a “flat tax.” Wealthier people who don’t need all of their income for living expenses pay a far smaller share of their earnings in taxes. The shift away from income taxes and toward consumption taxes is one of the driving forces behind the growing gap between rich and poor in the U.S.

While we agree that some shift of sales taxes to services was unavoidable in an increasingly service-based economy, we hope state tax code writers move with caution there, lest they create even broader gulfs between the haves and the have-nots.”

Commentary

As the good people at the great website Too Much Online regularly point out, U.S. inequality is now hitting astounding levels. Consider the following from the group’s recent newsletter:

“You can’t really appreciate how phenomenally unequal the United States has become until you take a gander at America’s peer nations. Consider the UK, for instance. Britain has emerged as one of the world’s most unequal nations. New official UK stats certainly reinforce that reputation.

In the UK, the new numbers show, the richest 10 percent hold 45 percent of the nation’s private wealth. The poorest half own just 9 percent.

But this UK inequality simply pales against the inequity across the pond. In the United States, the latest Federal Reserve figures point out, the top 10 percent owns 75.3 percent of our national wealth. And the households of the bottom half? Their wealth holdings add up to just 1.1 percent.”

Now check out the group’s new infographic about how our regressive tax structure contributes to this situation:

taxing-the-ultra-rich-a-little-history-1-638

Commentary

You have to hand it to the modern class of plutocrats that dominates the American economy. It’s increasingly clear that a goodly number of them really have no sense of shame or boundaries. The latest and powerful exhibit for this proposition can be found in a new story in the New York Times entitled “For the Wealthiest, a Private Tax System That Saves Them Billions.”

Here’s the gist:

“With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means.

In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune.

All are among a small group providing much of the early cash for the 2016 presidential campaign.

Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.

The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.”

The story goes on to explain the creepy and outrageous details of how this obscene money grab by hedge fund managers and other fabulously wealthy parasites has come to fruition (and has been greatly abetted by the Right’s ridiculous and destructive war on the I.R.S.).

All in all, it’s apt story for North Carolinians to ponder at the conclusion of another year in which their own state government has handed millions upon millions to the state’s wealthiest residents while actually raising taxes slightly on folks at the bottom. Let’s hope it causes even some local market fundamentalists to reevaluate their stance and spurs people of all ideologies to action in 2016.

Commentary
Rep. Barbara Lee

Rep. Barbara Lee (Photo: Inequality.org)

We’re now a decade and a half into the 21st Century and the notion that our nation’s runaway inequality is going to get any better anytime soon via the “genius of the market” has been shown to be utter nonsense. To the contrary, the incomes of the nation’s ruling class continue to skyrocket at such an astounding rate that the idea of the U.S. as a “middle class society” has come to seem quaint.

Meanwhile, the New York Times reports that congressional Republicans can’t get their act together to do much of anything.

Of course, it doesn’t have to be this way. If a majority of the members of Congress possessed a modicum of courage and common sense, they’d be rushing through this bill as soon as possible.

As Congresswoman Barbara S. Lee of California explained here about the Income Equity Act of 2015 that she introduced last week:

“Few realize that CEO bonuses and ‘performance pay’ are subsidized by the American people. Corporations are given major tax breaks for providing exorbitant compensation.

Surely we can agree that corporations don’t need taxpayers to subsidize massive CEO pay?—?pay that’s grown nearly 1000 percent since 1978.

In America, corporations and executives are playing with a deck stacked against hardworking families.

And the Republican response to this profound income inequality has been a collective yawn.

It’s wrong for any business to keep workers in poverty while padding CEO’s wallets.

It’s even worse that some of these same businesses take huge tax deductions for millions in bonuses.

Clearly, our tax code is not designed to work for all Americans?—?just the select few.

My bill, the Income Equity Act, prohibits employers from taking tax deductions for excessive compensation—defined as any pay more than 25 times that of the company’s median wage worker or $500,000.

Congress should get to work for hardworking families, not millionaires and billionaires that want to get even richer on the backs of taxpayers.”

Amen, Congresswoman.

Commentary

Gas pumpThe Senate finalized its hurried approval of a new gas tax proposal today and as Budget and Tax Center analyst Tazra Mitchell explained yesterday, there are actually some things to like in it. Most notable among these is the bill’s recognition that tax rates will have to rise in the coming months and years to begin to meet the state’s infrastructure needs.

As today’s Fitzsimon File explains, however, the bill has some obvious and significant problems as well. First, is the wholly inadequate process whereby such a momentous and complicated proposal was rammed through with essentially no opportunity for public input. Second, is the silly camouflage that’s been added in the form of a temporary tax cut that will cost hundreds of Department of Transportation workers their jobs. And third is the inclusion of a totally unrelated proposal to tax people who lose their homes in foreclosure for some of the debt relief they receive (mind you, the people have still lost their homes). Great target for higher taxes there, senators!

Let’s hope the House addresses these flaws when the bill moves to the other side of the Legislative Building next week. Let’s also hope that the House considers one very obvious tool to address the inherently regressive nature of a rising gas tax: reinstating the state earned income tax credit (or EITC).

As Mitchell explained yesterday:

“Policymakers should reinstate a state EITC to offset the fact that the gas tax hits low- and middle-income taxpayers hardest. The state EITC was a key tool to ensuring that low-wage could keep more of what they earn and afford the costs of working, including gas and child care.  Reinstating a state EITC to ensure that the gas tax does not further increase the tax responsibility on working North Carolinians struggling to make ends meet is critical.”
Stay tuned.