Taxes are the solution, not the problem

As far as I can tell, if corporations and the top 1% paid anything like a fair share of taxes, budget problems would melt away.

I feel a bit like the recent physicists who seemed to find faster-than-light neutrinos in their data. (There’s the big difference that I’m an amateur at taxes, and they’re anything but amateurs at physics.) But, like them, I’m so boggled by the results that I want to throw it out there for people to pick apart.

Let’s begin at the beginning. The current US deficit is around $1.5 trillion per year. Current US GDP is around $14 trillion per year. Current yearly tax revenues are near $1.1 trillion (IRS pdf, 2008 numbers). In better years revenue is higher, deficits are lower.

An aside: Those numbers are smaller than the multiple trillions of cuts the Super Committee throws around. That’s because they say they need to come up with money for ballooning future costs of social insurance. (The powers-that-be didn’t seem to be worried about the future when tax cuts were implemented.) I don’t consider those future costs a real issue. Social Security doesn’t have any real problems. National health care costs could be cut in half with Medicare for All, based on the evidence from all the industrialized countries that do have national health care systems. (Link is to Congressional Research Service, 2004, pdf. See e.e Table 1, Fig. 1, Fig. 2.) So Medicare for All is the place to start for anyone who is actually concerned about future costs, and not some other agenda.

Further, a healthy deficit level is said to be around 2% of yearly GDP. In addition to other considerations, the ability to buy US Treasury bonds and bills is an important factor in global finance. Zero deficit means the end of that whole asset class, which is not a Good Thing. One wants a sustainable and easily carryable deficit, and 2% is a conservative estimate of that level. Two percent of $14 trillion is $280 billion. (I saw this most clearly expressed somewhere in Krugman’s writing, but all I can find right now is a passing reference here.)

So the yearly shortfall, in round numbers, is $1.2 trillion ($1.5T deficit – 0.280T healthy deficit).

If Fortune 500 corporations actually paid tax on their corporate profits, there’d be much less freeloading from that end. When even Marketwatch headlines “Big Profits, Zero Taxes” you know it’s not a small issue. It’s hard (for me) to find unequivocal numbers on how much difference that would make to revenue, but there are fairly clear data on corporate tax payments as a share of GDP. It’s now at a recent all-time low of 1% of GDP. Moving that back to 4%, about where it was in the 1960s would bring in an extra $480 billion (1% of GDP = $160B, 3% = 480B).

That would entail ending all the corporate loopholes, such as income-shifting in transnationals to whichever tax haven suits them that year, as well as ending special tax breaks for wildly profitable industries such as oil and finance. It would involve adding necessary new taxes, such as a financial transaction tax that would have other beneficial social consequences by slowing down market trading velocity. And it would involve raising rates on large corporations. (Update from comments below: 25 CEOs received more in compensation than their companies paid in taxes. Just mindboggling.)

Then, the other task is to raise taxes on the top 1%. According to the IRS (pdf), in 2008 the top 1% was composed of households making an average of $1.2 million per year. Their effective tax rate is 20% ±5% (CBO pdf, Table 3), and at that rate they contributed well over $350 billion in tax revenue. (For instance, in 2009 the top 1% contributed 36.7% of total income taxes. That proportion is typical during the last decade, plus or minus a few percent. Total income tax revenue in 2008, the last year for which I could find complete IRS data, was $1.081 trillion. 36% of 1.081T = $389 billion.) If their tax rates went to 60%, there would be an extra $700 billion revenue.

So, $700 billion plus $480 billion approaches $1.2 trillion, pretty much the entire yearly shortfall of $1.2 trillion.

That doesn’t pay down the debt. Nor does it provide funds for essential projects such as switching to clean, sustainable energy. But those are one-time charges, as it were, not permanent features of fiscal balance, which I gather is what the Super Committee is worrying about.

Raising taxes on the megarich is not the same as taxing the middle class. It’s not even taxing the upper middle class, such as the heart surgeons and mid-size successful business owners. It involves only having the massively wealthy corporations and households pay something vaguely like their fair share. What’s more, it wouldn’t make a bit of difference to their lifestyles. For an income of $1.2 million per year, that tax increase would drop them from living on $80,000 per month to living on $40,000 per month. They could still jet to Paris for the weekend. Anybody who feels deprived living on $40,000 per month needs therapy, not tax breaks.

All this is something to think about while the news covers the new super ways the Super Committee has found to shred the safety net. Nor is this just a classic “Don’t tax him, don’t tax me. Tax the fellow behind the tree.” The fellow behind the tree has been tax cheating for far too long, and it’s time to rebalance. If the megarich paid their fair share, we could have a future that was more than collapsing bridges and work on their plantations.

Crossposted to Acid Test

18 Comments on “Taxes are the solution, not the problem”

  1. dakinikat says:

    Most of the deficit problem comes from three things: wars, ridiculous tax cuts, and the financial crisis. It’s a no brainer to get rid of the problem but you wouldn’t know that from the idiots in Congress.

  2. Peggy Sue says:

    This is the dirty little secret that the pols don’t want us to consider. Particularly the Norquist slaves who get a rash when you speak of ‘revenues.’ We cannot cut our way out of this mess without destroying the country. Stop the endless, unfinanced wars, throw the corporations = personhood garbage onto the trash heap and have the top 1% + corporations pay for the free ride that’s pushing us to ruin. I read an interesting factoid today: that 25 of the top CEOs are paid in salary + bonus more than their corporations pay in US taxes. And that for all the bellyaching, a company like Verizon:

    “At Verizon, where CEO compensation totaled $18.1 million, the corporation got a federal $705 million federal income tax refund.”

    Remember the strike not so long ago, the workers labeled commies and disgruntled no accounts, demanding more ‘than their fair share’ when they should be happy to have a job, according to Fox News?

    Please! Link to the above quote here:

    • quixote says:

      “25 of the top CEOs are paid in salary + bonus more than their corporations pay in US taxes”


      Wow. Just, wow.

      I think I know what’s going on, and then I find I don’t. And that from someone who’s somewhat clued in to the financial news and generally pays attention.

  3. The more corporations are taxed, the less they will spend on new employment, even less than they already are.

    I believe the issue is entirely related to interest rate charges. The endemic belief that interest rate charges are normal and ongoing is destroying everybody but the trillionaire’s wealth base.

    Whenever we hear a democrat talk about how taxation created government run public jobs programs over the past 100 years, what fails to get mentioned is that in the past, whenever the government used taxation to create a public jobs program, that program actually helped increase the efficiency of some aspect of an industrialized nation.

    Be it making roadways, laying down sewage pipes, phone lines, building the Hoover Dam or a new suspension bridge where one did not exist before, anytime the government spent tax money they were creating new and more efficient ways for small and large businesses to create commerce.

    75 years later, and much of the country and the world is built out. The types of government projects that resulted in increased commerce 75 years ago either are now too costly or would directly compete with businesses already doing that type of work.

    The answer is for all the trillionaires to accept that their money is NO LONGER NEEDED, they no longer need to be getting the highest rate of return on their unneeded money. The trillionaires and billionaires should be getting the LOWEST rate of return on their secured bank investments.

    Until lower interest rates returns on secured bank deposits happens, the trillionaires and billionaires are to blame for the present economic destruction of main street.

    Higher taxation and paying out the highest interest rate of return to the trillionaires and billionaires puts too much pressure on wall street and other investment portals to find higher profit margin investments. The result is a strong and steady U.S. company is blindsided by wall street and the investment fund managers who then try and create the same company in other countries where profit margins are higher and the work force is paid much less, just so they can meet the profit requirements as dictated by the trillionaires and billionaires..

    NOBODY ever talks about interest rates and the destruction they are teeming on a global scale, and it just freaks me out.

    • dakinikat says:

      That really flies in the face of studies. The huge cost of employees is health insurance. Plus executive compensation is off the Richter Scale. Taxes are a relatively small fraction of a capital budgeting decision these days. This is especially true because of aggressive depreciation and tax credits. Interest rates are also at historical lows so I have no idea what you’re talking about there either. What’s holding back businesses right now is the lack of a steady stream of customers. Most people’s real incomes and wealth are down. They’re not spending money. No business will hire if they can’t get positive cash flows from sales.

    • quixote says:

      As Dak says and ralphb seconds, the problem is rather clearly the lack of money and certainty for the buying class, not the selling class. The other thing that argues against your point is that not only are interest rates low now — and the economy is limping — but they’ve been much higher in the past, and yet the economy has done much better. That shouldn’t be possible if it worked the way you say.

  4. joanelle says:

    They must really think we are stupid – Bush lowered taxes for the rich several years ago – so why haven’t we seen them hiring? They say that if we raise their taxes they won’t be able to hire – huh? 😕

    We’re waiting, and waiting, and waiting. Yes, PeggySue, I’ve been saying we need to end the wars, raise the top tier taxes – and not by much’ bring home all the personelle in military bases in friendly nations and use the “war” and foreign base money to pay our military for the infrastucture jobs we’ll be able to fund with the billions being spent overseas.

    Surprise, surprise 🙄 we’ll be able to breathe again!

  5. ralphb says:

    OT but they keep saying this didn’t happen under Bush. Lying asshats!

    2007 Justice memo mentioned gun-walking probe

    WASHINGTON (AP) — A briefing paper prepared for Attorney General Michael Mukasey during the Bush administration in 2007 outlined failed attempts by federal agents to track illicitly purchased guns across the border into Mexico and stressed the need for U.S. and Mexican law enforcement officials to work together on such efforts using a tactic that now is generating controversy.

    The information contained in one paragraph of a lengthy Nov. 16, 2007, document marks the first known instance of an attorney general being given information about the tactic known as “gun-walking.” It since has become controversial amid a probe by congressional Republicans criticizing the Bureau of Alcohol, Tobacco, Firearms and Explosives for using it during the Obama administration in an arms-trafficking investigation called Operation Fast and Furious that focused on several Phoenix-area gun shops.

    • bostonboomer says:

      I think the Obama DOJ just carried on Bush’s policies. That’s what they’ve done in pretty much every area except foreign policy.