Focus on Progressive Tax Reform

(Thanks to Ezra for the pointer)

Man, what a great post from Blue Oregon on Ron Wyden's progressive tax reform proposals. Democrats have been play defence for far too long on this issue, and the time has come, not just to stand up to the Bushies, but to undo some of the damages done in the Clinton years with ill-advised tax-cuts on capital gains. It's really amusing how Wyden cleverly appropriates some of the language of the Steve Forbes crowd -- if they really care about making taxes flatter and simpler when it comes to making the income tax less progressive, how can they possibly object to using the same criterias to take away their precious tax breaks for capital gains? He even steals their line about allowing taxpayers to file taxes " on a simplified, one-page 1040 form". Feisty!

To put it bluntly, it's Class Warfare time. Or, perhaps it will be more accurate to say that we need to face the fact that we are engaged in class warfare whether we like it or not. Lower taxes on dividends results in a shift in the tax burden on to working families (or onto the future generation). It's a simple as that.

By far the most significant part of Wyden's plan is his proposal to tax income from wealth at the same rate as wages. He'd tax dividends and capital gains at the same rate as ordinary income, eliminating absurdly favorable tax treatment for forms of income that mostly go to the rich.

Right now, a teacher and truck driver making a combined $60,000 pay a 25% tax rate on their last dollar of income (that's not their overall rate, but the marginal rate; if they get a $1,000 raise, they pay $250.) But if Paris Hilton or Bill Frist buys and sells some Halliburton stock for a $100,000 profit, they only pay 15%. And those are not unfair examples. According to a New York Times article last year, capital gains and dividends make up, on average, 3 to 4% of the income of people who make less than $100,000 ... but 24.7% of the income of those who make between $500,000 and $1 million, 37.6% of the income of those making between $1 and $10 million, and 61.4% of the income of those making over $10 million. As a result of favorable tax treatment for these forms of income, as Pulitzer prizewinning tax reporter David Cay Johnston has noted, the richest 400 Americans pay a lower Federal tax rate than the merely rich, people making, say, $300,000 a year.

Again, what this proposal means is that Wyden would not just be rolling back the Bush tax cuts; he'd roll back a Clinton tax cut on capital gains, to 20% (a tax cut that Joe Stieglitz, chief of Clinton's Council of Economic Advisers, decried). (Under Wyden's plan, the rich would pay a 35% marginal rate on all income, from whatever source.)

I don't say this often, so please believe me when I tell you this is Read The Whole Thing material. Go.