Why the US Needs a More Progressive Tax Code

Class inequality is out of control in the U.S. Lax tax policies are responsible for maintaining this inequality and putting the tax burden on ordinary Americans. By increasing taxes on the wealthiest Americans, and using that money to fund policies that benefit working-class and middle-class Americans, we can begin to address the problem.

Currently, there are seven federal marginal income tax brackets, starting at ten percent for the first $9,525 of earnings, 12 percent for earnings between $9,526 and $38,700, 22 percent for earnings between $38,701 and $82,500, 24 percent for earnings between $82,501 and $157,500, 32 percent for earnings between $157,501 and $200,000, 35 percent for earnings between $200,001 and $500,000, and 37 percent for earnings over $500,001. I propose that we modify the highest two marginal income tax brackets and add three more brackets on top of them. Rather than 35 percent for earnings over $200,001, the rate should be 32 percent for earnings up to $250,000 and 50 percent for earnings between $250,001 and $500,000. For earnings between $500,001 and $2 million, the rate should be 70 percent. For earnings between $2 million and $10 million, the rate should be 90 percent. Earnings above $10 million should be taxed at 100 percent. These changes affect just 2.1 percent of the population. If we are to get serious about tackling the problem of class inequality, this is a good place to start.  

Long-term capital gains are earnings from investments lasting longer than a year. They are taxed at 15 percent for earnings between $39,376 and $434,550, and at 20 percent for earnings above $434,550. I propose that we treat long-term capital gains exactly the same as we treat earnings from income. By simplifying the tax code in this way, we eliminate the preferential treatment of earnings generated through capital, which is disproportionately owned by the wealthy.

For estates larger than $11.18 million, the estate tax applies a rate of 40 percent on the value of the estate that exceeds $11.18 million. I propose that the estate tax should apply to estates as small as $1 million. Rather than $11.18 million, an heir would be able to receive as much as $1 million without being taxed. The value of an estate between $1 million and $5 million should be taxed at 70 percent, and larger than $5 million should be taxed at 100 percent. The gift tax taxes gifts given to other people, not including one’s spouse or medical or educational expenses. For the gift tax, there is an exemption of $15,000 a year up to a lifetime allotment of $11.18 million (which it shares with the estate tax). I propose lowering that to $1 million and combining these changes with a generation-skipping tax, alongside much stricter limits on gifts made to trusts.

While these drastic changes to the tax code would do a lot to change the nature of class inequality in the U.S., complementary tax policies will be required to fully realize this goal. For example, Senator Sanders’ (VT-I) plan to restrict deductions for those making above $250,000 a year to 28 cents for every dollar of deductions would allow for the elimination of the complicated alternative minimum tax. The alternative minimum tax was designed to prevent tax exemptions from lowering one’s tax liability beyond a certain point. Like plans for a wealth tax proposed by Senator Sanders and Senator Warren (MA-D), I suggest that we tax wealth larger than $10 million at 1 percent, $20 million at 2 percent, $30 million at 3 percent, $40 million at 4 percent, and $50 million at 5 percent. This would affect just 0.78 percent of households and generate $545 billion in revenue per year. In addition, I propose eliminating the social security tax cap of $115,800, instituting a Wall Street speculation tax, and stopping corporate tax dodgers. Corporations use a variety of loopholes to avoid paying taxes, and this places the burden of taxation on ordinary Americans. Wall Street speculation is not productive, and so it should be discouraged through taxation. Eliminating the social security cap enables the federal government to continue to fight poverty among older Americans.

Instituting these policies will allow the U.S. to fund investments into ordinary Americans, especially if combined with major cuts to the bloated military budget. The increased revenue from income and long-term capital-gains taxes could be used to help fund a Green New Deal to end our reliance on fossil fuels. A complete switchover to green energy might be achieved through a federal jobs guarantee to overhaul the U.S.’ existing infrastructure. Once this is achieved, the increased revenue could be dedicated to providing social services such as housing and tuition-free public college education to those that need it.

The revenue increase from the estate and wealth taxes could go toward creating a social wealth fund like the one proposed by the People’s Policy Project. In a social wealth fund, assets are managed by the government so that they generate returns, which are used to fund social spending of some sort. Alaska’s Permanent Fund is a successful example of a social wealth fund funded by mineral revenues, holding nearly $60 billion in assets as of 2017 and giving every person in Alaska a yearly dividend of $2,072 as of 2018. With the addition of sources of revenue including other taxes on capital, the transfer of existing government assets into the fund’s control, and the use of leveraged purchases of assets, a similar sized federal government fund could be constructed over time. According to the People’s Policy Project, a fund similar in size to Alaska’s would require $22.6 trillion. For comparison, there is around $100 trillion of wealth held by households and non-profits as of 2017. While this is a huge amount of assets, given enough time and effort, the U.S. would be able to give every adult a yearly dividend while fighting class inequality.

By raising taxes on the wealthiest Americans, we can fight class inequality while funding programs to help the middle and working classes. These major changes in the tax code may be used to fund the Green New Deal, provide social services, and begin building a social wealth fund. It is time that the wealthiest Americans pay a much larger share of the tax burden so that we can fully fund aid to the struggling working and middle-classes while we tackle climate change.

Leave a Reply

Your email address will not be published. Required fields are marked *