Our Progressive Vision: On the federal, state and local levels, our tax policies must be fair to everyone. The fact is, our tax system is thoroughly unfair; it is rigged with loopholes and giveaways that benefit a few, usually rich, individuals and big corporations, at the expense of all the rest of us. Everyone should pay their fair share, and to accomplish that, we must: (1) require disclosure of tax giveaways; (2) eliminate those giveaways that unfairly benefit the rich and powerful; (3) raise tax rates on the rich and where otherwise needed; and (4) cut taxes for people who cannot reasonably afford to pay them.
Require disclosure of tax giveaways
Americans believe, by overwhelming margins, that our tax system is unfair and that rich individuals and large corporations are not paying their fair share. In order to fix the system, we need publicly available information. Governments should list all tax expenditures and require that each must sunset unless regularly renewed. In addition, topline information from the tax returns of large companies should be publicly disclosed. Individuals and big corporations are getting wealthier while simultaneously paying less in taxes. To address the problem, we need to know that they’re doing it and how they’re doing it.
Eliminate unfair tax giveaways
Almost every government’s tax code is riddled with giveaways for the rich and powerful, many of which constitute little more than legalized tax evasion. Citizens want to make these systems fairer. This requires information, analysis, and the political will to put average taxpayers first. State and local governments should hire more auditors, investigators and attorneys to collect from big corporate scofflaws and empower whistleblowers to challenge tax giveaways.
Raise rates on the rich
Conservatives tend to focus their complaints on the federal income tax because nearly every other type of tax, especially on the state and local levels, is regressive. States with income taxes should make their brackets more progressive and add a surtax on extra-high incomes. States should raise inheritance taxes on the very richest estates. At the same time, there are a few “sin” taxes which could be raised not for the revenue but to discourage dangerous behaviors—like smoking, drinking and gambling—and the extra monies could be used to treat people who are addicted to nicotine, alcohol and gambling.
Cut taxes on those who can’t afford them
Just as some high-income individuals and businesses are paying too little in taxes, there are some low-income people who are paying too much. States should raise the Earned Income Tax Credit and the dependent care tax credit. States and localities should ensure that there is a property tax circuit breaker and a tax deferral system that prevents low-and moderate-income Americans from losing their homes.
Disclosure of corporate taxes
Americans believe that large corporations are not paying their fair share of taxes, and they’re right. The situation in Illinois is a typical example: two-thirds of corporations pay no state income tax at all, only eight percent of state revenue comes from corporate income taxes, and the corporate share of taxes has been declining over the years. The first step to fix our broken system is transparency. We don’t know enough details about how corporations manage to evade taxes. We need public disclosure. To be specific, all publicly traded companies should disclose a summary of the amount they pay in state income taxes, including their tax rate and basis (income, credits and deductions). It is true that we don’t and shouldn’t require such disclosure of individuals, but corporations are not people. Corporations are legal structures, created by state law, and they do not need or deserve the privacy rights of individuals.
Sunset tax expenditures
A “tax expenditure” is a form of stealth government spending. Giving exemptions, deductions or credits to certain groups or for certain activities has the same effect as handing them money, and governments divert billions of dollars this way. Tax expenditures never receive the same scrutiny that budget expenditures do. While budget line items are reviewed and adjusted every year, few governments have any mechanism for reviewing tax expenditures. The fact is, many tax expenditures are unjustified giveaways to the rich, many were not properly targeted to achieve their stated objective, and others were justified when enacted but no longer make economic sense. Thus, each tax exemption, deduction and credit should be examined periodically to weigh its costs, benefits and relevance to community goals. The only effective way to bring fairness to the tax expenditure system is to require each to undergo a thorough review and be re-approved through the legislative process. This is accomplished by requiring that all tax expenditures sunset every few years.
Hire tax investigators
Many wealthy individuals and corporations evade taxes. One study indicated that people who make between $500,000 and $1 million per year underreport their incomes by more than 20 percent. That means states and localities lose billions of dollars each year to tax evasion. The fact is, most government tax collection agencies don’t have enough auditors and enforcers to get the job done. The solution is to hire more enforcers and their work will pay for itself.
Raise the inheritance tax
Over the past several years, progressives have been completely outmaneuvered on the inheritance tax. Many believe the federal estate tax applies to them, even though 99.5 percent of Americans are exempt. Nevertheless, the richest one percent in America own over one-third of all the combined wealth in our country—stocks, bonds, businesses, real estate, and personal property like cars and jewelry. The richest five percent own nearly two-thirds of all wealth. We cannot make a dent in the problem of economic inequality without a vigorous inheritance tax and the effort will never have momentum until states lead the way.