WASHINGTON (MarketWatch) – As bumbling as Washington appears to be, our political leaders have made substantial progress in getting the deficit under control — at least in the medium term.
In the last two years, they’ve agreed on deficit-reduction measures totaling about $ 2 trillion over 10 years, including about $ 1.5 trillion in spending cuts and $ 500 billion in additional revenue.
That’s significant, but it’s not quite enough to stabilize the debt as a share of the gross domestic product. And it doesn’t begin to tackle the more difficult challenges that will arise in the 2020s and 2030s when the retirement of the baby boomers gets really expensive.
Even with the latest deal to raise taxes, revenues won’t reach the key 20% of GDP line needed to stabilize our debt.
Our immediate deficit problem stems largely from the weak economy: Revenues collapsed in 2008 and haven’t really recovered. Meanwhile, spending to fight the recession ballooned. Just restoring normal growth would cut the deficit in half.
Right now, the economy’s still too weak to tolerate much more austerity. There’s no need to slash spending or raise taxes this year, and probably not next year either.
In the long run, our long-run deficit problems stem from three major sources: 1) An increase in demand for health care, the most inefficient part of our economy; 2) wasteful government spending and tax expenditures; and 3) insufficient revenue.
All three sources must be addressed. That’s not just my opinion; it’s the judgment of all the blue-ribbon committees and commissions that have studied the deficit over the past few years, including Simpson-Bowles and Rivlin-Domenici, who advocated higher taxes in conjunction with reduced spending.
I’ve already described how we should fix Medicare by making our health-care system more efficient. Read how to fix Medicare the right way.
And there’s plenty of wasteful spending and tax expenditures that could be eliminated if only we had the political will. Read why isn’t Obama demanding corporate welfare cuts?
That leaves the question of how to raise the additional revenue needed to pay for the size of government that the people demand. Tanks, roads, prisons and Social Security checks aren’t free. As always with taxes, the key concerns are raising sufficient revenue without creating inefficiencies or inequities.
With those goals in mind, here are five groups of people who should pay higher taxes in the future:
Speculators:
Reuters The constant trading on Wall Street and in other financial centers has enriched the financial industry, but hasn’t helped the economy very much.
A small financial transaction tax should be levied on all trades of financial securities, including stocks, bonds, futures, options and complex derivatives. Proponents have suggested a 25-cent tax on trading a $ 100 stock.
Besides raising significant amounts of revenue, such a tax could help curb the speculative trading that has destabilized economies and fueled the parasitical growth of the financial industry.
Critics say this tax would raise the cost of capital. But financial transaction costs have plunged over the past 20 years with no apparent benefit to the economy. Investment in Main Street didn’t grow, but Wall Street got fat.
The not-quite-rich
MarketWatch In the early 1980s, the payroll tax was set so that 10% of incomes wouldn’t be taxed to support Social Security. As earnings have risen faster for the upper incomes, more of total income has escaped being taxed. In 2011, 17.1% of income wasn’t subject to the payroll tax, a big reason for the program’s long-term funding problem..
President Barack Obama promised voters he wouldn’t raise taxes on anyone making less than $ 250,000, and he agreed two weeks ago not to raise taxes on anyone making less than $ 400,000. That was a politically wise but fiscally foolish promise. It left trillions of dollars of potential revenue on the table.
The debate over whether folks making $ 250,000 are “middle class “ or “rich” is beside the point. If we are ever going to corral the deficit, then even upper middle-class families will need to pay their share. Stabilizing Social Security’s finances, in particular, could be accomplished by increasing the payroll tax for those who make more than the current cap of $ 113,700.
Outsourcers
Corporations have paid a higher tax rate for most of the past 60 years. They aren’t overtaxed.
Corporations complain a lot about the high statutory tax rate, but the taxes they actually pay are relatively low. For most of the past 70 years, corporations paid an effective rate of at least 30%, but that declined to just 21% in 2011, despite near-record profits.
According to the Congressional Research Service, the effective tax rate for U.S. corporations is similar to, if not slightly lower, than the average for other major economies. U.S. corporations are not overtaxed. Read the CRS report on international tax comparisons
One reason the effective tax is low is the generous tax break given to multinational corporations who earn profits overseas. The Joint Tax Committee has concluded that limiting the break could raise more than $ 100 billion over 10 years and reduce the incentives to shift operations to tax havens. Read the report on multinational corporations.
Billion-dollar babies
Reuters Daniel Loeb of Third Point, left, and William Ackman of Pershing Square Capital, right, are well-known and well-compensated hedge-fund managers.
The millionaires and billionaires who run hedge funds and private-equity firms have a sweet tax break that allows them to shield most of their income from the highest tax rates. Instead of being taxed at 39.6% as it should, the income they earn from managing other people’s money is taxed at 20%, just as if their own money were at risk.
Closing this loophole wouldn’t raise all that much money, but it would be fair. And an industry where $ 1 billion salaries are common doesn’t need a taxpayer subsidy.
Tax cheats
Hundreds of billions of dollars in revenue is never collected each year. Small businesses are responsible for a large share of the tax gap.
Each year, more than $ 350 billion in taxes due are never paid. Some of this “tax gap” is undoubtedly innocent, but much of the tax avoidance is deliberate. Collecting even a small portion would help our finances.
Some taxes are more likely to be avoided than others. For working people who have their taxes withheld from each paycheck, the avoidance rate is minuscule, around 1%.
But for taxpayers with small-business income, the avoidance rate is an astonishing 57%, according to the latest analysis by the Internal Revenue Service (which, unfortunately, is a decade old). The owners of small businesses avoid about $ 75 billion in income taxes every year, plus tens of billions in self-employment taxes, mostly because all their income is self-reported. Read the IRS report.
These cheats can get away with it because Washington loves small businesses even more than it does motherhood, apple pie and the troops. A common-sense plan to require more disclosure from third parties was killed as part of the backlash against Obamacare. We should require more disclosure and collect more taxes.
* * *
Despite what you constantly hear, the United States is not a high-tax country. As a share of the economy, the taxes we pay are among the lowest of any advanced nation. Raising a little more revenue is a small price to pay to avoid the debt catastrophe that we are told lies ahead.
Rex Nutting is a columnist and MarketWatch’s international commentary editor, based in Washington. Follow him on Twitter @RexNutting.
More From MarketWatch
Yahoo! Finance – Personal Finance
Title Post: Five people who should pay more taxes
Url Post: http://www.news.fluser.com/five-people-who-should-pay-more-taxes/
Link To Post : Five people who should pay more taxes
Rating:
100%
based on 99998 ratings.
5 user reviews.
Author:
Thanks for visiting the blog, If any criticism and suggestions please leave a comment
Five people who should pay more taxes
This article
Five people who should pay more taxes
can be opened in url
http://bojuhlnielsen.blogspot.com/2013/01/five-people-who-should-pay-more-taxes.html
Five people who should pay more taxes
