Source: http://www.marketwatch.com/story/drastic-tax-changes-only-way-to-save-middle-class-2013-01-14
By Marcus D. Pohlmann
MEMPHIS, Tenn. (MarketWatch) — The midnight hour deal struck in
Washington raised taxes for the wealthiest Americans, amid conservative
protests that it would discourage the wealthy from investments that
could add badly needed jobs to the sagging American economy. The
squabble ignores a much larger economic problem, however, and that
problem is the steady demise of the American middle class over the past
several decades.
The U.S. had a large and vibrant middle class as recently as the 1950s
and 1960s, at a time when organized labor was at its strongest and there
existed one of the most progressive tax structures in the nation’s
history.
The $25,000 workout
Charles Passy joins Lunch Break to look at luxury gym memberships, including Equinox's deluxe, $25,000-a-year facilities in Greenwich, Conn. Photo: Getty Images.
Middle-class households typically had a breadwinner with reliable
full-time work that provided opportunities for skill development and
advancement. The breadwinner’s job also provided enough income to own a
home, support a family of four, put two children through college, and
have roughly six months worth of income in savings in case of an
emergency. Both a health care and retirement plan were provided, as was a
two-week paid vacation.
Since that time, however, labor unions have declined significantly in
membership and the 1980s ushered in major tax reform. Today, only the
top quintile of Americans appears to meet or exceed such a package of
wages, benefits and opportunities. They also hold 90% of the nation’s
wealth and account for virtually all recent income growth.
Meanwhile, the bottom 80% of the working population increasingly have
lesser-skilled jobs in places such as restaurants, retail stores, and
hospitals. These jobs often pay little more than minimum wage; entail
few, if any, benefits; involve little to no skill development or
opportunities for significant advancement; and are often only part-time.
This trend is not sustainable unless we are willing to see the United
States gradually transformed into the equivalent of a “banana republic”
where a wealthy elite lives behind iron gates in cloistered suburbs
while the rest of the population scrambles just to make ends meet.
Missing in that scenario is a large and secure middle class whose level
of affluence gives them a personal stake in the survival of existing
political and economic orders.
Without such a large and faithful center, class warfare is likely to become more prevalent and that can destabilize a nation.
Tax reform proposals that raise the top bracket from 35% to 39% will do
virtually nothing to revive the American middle class. Instead of
dawdling over incremental changes in the existing tax code, we should be
doing something quite different.
Instead of increasing top tax rates from 35% to 39%, we should return to
the pre-Reagan tax rates that went up to 90% on the highest earners.
One would then get tax breaks only for investments that clearly increase
the likelihood of middle-class development here in the United States.
Tax breaks could be retained for such things as child care, education,
charitable giving, out-of-pocket health-care expenses and a limited
mortgage-interest deduction for one home.
All of these help sustain the middle class and assist those in lower
income brackets to work their way toward middle-class status.
Tax breaks for capital gains income, on the other hand, would change
considerably. They would apply only for investment in companies that
provide American citizens with the kind of middle-class wages, benefits
and opportunities discussed above. All other income would be taxed at a
steeply progressive rate that could rise as high as 90%. This would
encourage wealthier Americans to invest in ways that help America as a
whole. The alternative for them would be having much of their income
taxed away so that government could then provide the assistance.
We should change the way the tax code treats capital gains because
capital investment in today’s globalized economy no longer guarantees an
increase in American jobs, let alone American middle-class jobs.
If a corporation is not employing Americans, then it is not advancing
the cause of increasing the size and strength of the American middle
class. This kind of corporate income should be taxed like any other
income.
The current debate over marginally raising the tax rates of the
wealthiest Americans is little more than a diversion from this far more
serious economic issue. Moreover, utilizing the federal tax code in this
manner might accomplish much of what unions have been able to gain
without the disruption or impediments to change that have at times
accompanied union activity.
Marcus D. Pohlmann is professor of political science at Rhodes College
in Memphis and has written extensively on race and poverty in the United
States.
These posts are for informational use only to educate people about their online income taxes
and the financial world around them. If you found this helpful, share
the original article or this one, and help spread the word! With tax season rapidly approaching let us get you the best income tax return you can possibly have by e-filing! Leave us a comment if you want to give your opinion.
Visit our site: http://www.onlinetaxpros.com
And our blog: http://www.onlinetaxprofessionals.blogspot.com
Please like us on Facebook: http://www.facebook.com/onlinetaxpros
and follow us on Twitter: @onlinetaxpros
No comments:
Post a Comment