Raise The Floor, And Also Trim The Top

It is well known that excessive inequality is very harmful to both the economy and society at large.  Even before we learned the truth about Monetary Sovereignty (MS) and Modern Monetary Theory (MMT) in 2018, the TSAP has long supported both a Universal Basic Income for all, and has also supported hiking taxes on the rich as well.  And even after learning about MS and MMT, we still support hiking taxes on the ultra-rich, and for good reason.

Some may be scratching their heads.  Why do we even need federal taxes at all, if our Monetarily Sovereign federal government has infinite money?  They clearly don't need taxes to pay their bills.  But taxes also have other useful functions as well:

• Taxes compel the use of the official currency, thereby giving it value in the first place.  
• Taxes automatically "claw back" excess liquidity in the money supply due to the "velocity of money", thus to an extent crudely preventing demand-pull inflation before it happens.
• Taxes can be used for social engineering (think vice taxes and Pigouvian taxes) in ways that are otherwise difficult, impossible, illiberal, illegal, and/or unethical to do by other means.
• And finally, progressive taxes can be used to "trim the top" when levied on the top 0.1%, thus reducing inequality without leading to runaway inflation.  Rodger Malcolm Mitchell compares this to a "trophic cascade", such as when wolves (i.e. the federal government) keep elk populations (i.e. the oligarchs) from getting out of control and devouring everything in sight.

So what sort of federal taxes would be suitable for this purpose, knowing what we know now?

• A rich-only, steeply progressive income tax like the kind that prevailed before WWII.  At least the first $100,000 to $500,000 would be exempt, and the new brackets would include marginal rates of 50% above the first $1 million, 70% above the first $10 million, and perhaps 90% above the first $100 million.  With NO LOOPHOLES this time. 
• Tax dividends and capital gains the exact same as ordinary income, but index the basis to inflation for capital gains.
• For the largest corporations, especially those who are "too big to fail", a top tax rate of at least 50%, with NO LOOPHOLES this time.  Tax only retained earnings.  Smaller corporations should not be taxed at all.
• The Universal Exchange Tax, i.e. a tiny tax of 0.1% or less on all electronic transactions.  It would actually be highly progressive in practice since the rich make a disproportionately high amount and number of transactions compared to the non-rich.  "The more you play, the more you pay."
• Various vice taxes (alcohol, tobacco, cannabis, etc.) and Pigouvian taxes (pollution and resource depletion).
• Land value taxes and severance taxes on natural resources such as oil and gas.
• And, of course, the estate tax needs to be made more progressive as well.

State and local governments, of course, are not Monetarily Sovereign, and thus need to raise revenue to pay their bills.  And they can piggyback on the aforementioned federal taxes and levy their own, especially the Universal Exchange Tax and the land value tax and severance taxes, and thus reduce or eliminate their currently regressive sales and property taxes.  Additionally, federal aid to the states should be increased for precisesly the same reason.

A UBI would indeed abolish absolute poverty, no doubt about that.  And that alone would have numerous individual and social benefits.  But without progressive taxation of the top 1% and 0.1%, it would do nothing to reduce relative poverty, and may paradoxically increase inequality.  And inequality in itself is harmful, over and above the effects of poverty.  Thus, it is not enough to either raise the floor or trim the top, we need to do both.  Yesterday.

Thus, Rep. Alexandria Ocasio-Cortez essentially has the right idea as far as taxes go.  And of course, the oligarchs and their sycophantic lackeys are coming down hard on her, but that just goes to show how effective her ideas are in terms of reducing the Gap between the haves and have-nots, which the oligarchs utterly depend on.  All the more reason to do it.

UPDATE:  Elizabeth Warren recently proposed a wealth tax of 2% on the assets of those with a net worth of $50 million and up (that is, on the top 0.1%), and up to 3% above the first billion.  Only the amount over the first $50 million would be taxed.  Controversial as it is, it actually makes a lot of sense, and the TSAP would certainly not oppose it. 

Corporate Tax Cuts Won't Boost Wages Or Improve America's Economic Well-Being

A scathing new report by the Economic Policy Institute confirms what progressives have already known:  corporate tax cuts will NOT boost wages or have any practically significant net benefits for the non-rich.  This report is rather timely, given that a massive corporate tax cut is a key component of the Trump-led Republican tax reform agenda that is currently under debate in Congress.

In a nutshell, the top corporate tax rate had hovered around 50% for decades until 1986 when Reagan cut it to 34%, and to this day it remains at 35%.  And while there were always loopholes for both individuals and corporations, the number of loopholes for corporations also increased dramatically since Reagan's 1986 tax code overhaul, to the point where many large corporations pay zero or even negative taxes!  And all the while, workers' wages have lagged behind both corporate profits (since around 1990) and labor productivity gains (since 1973 and especially since 1980), often not even keeping up with inflation for those at the bottom of the scale.  And trade deficits, foreign tax havens, and foreign cash holdings in such havens have only increased, along with outsourcing and offshoring.

Thus, the idea that further tax cuts for large corporations would benefit American workers is nothing but the latest incarnation of trickle-down voodoo economics, plain and simple.  By all means, close all the loopholes.  Give tax breaks and cuts to truly small businesses.  But cutting the marginal rate on large corporations would do nothing but make the already rich even richer, while blowing a massive hole in the federal budget as well.

In the past, the TSAP recommended cutting corporate taxes while simultaneously closing loopholes.  Currently, though, we no longer recommend any tax cuts for corporations whose annual profits are in the seven figures or higher.  In fact, we now recommend making the corporate tax code that much more steeply progressive, with the top bracket restored to 50%, with NO LOOPHOLES this time, and the very smallest businesses paying no tax at all.  We also support the corporate tax applying only to retained earnings (i.e. profits less any dividend payouts) while taxing dividends and capital gains for individuals at the same rate as ordinary income.  And as we have noted before, the top marginal tax rate for individuals should be at least 50% beyond the first million dollars per year and perhaps 70% beyond the first ten million, again with NO LOOPHOLES this time.  Any overhaul of the tax code that we would support should really include all of these features.