Let’s look at the issues
The recent Tea Party-led shutdown of the federal government and near default on U.S. debt threatened never-seen-before economic chaos. That’s why it is especially important for everyone to remember that the recent actions in Congress to reopen the government and raise the debt ceiling are temporary. We will face the same situation in just two or three months, unless Congressional negotiators can reach some type of budget deal.
Keep in mind that this is all taking place when the federal government is already operating under sequestration, a fancy term for mandatory across-the-board budget cuts. Some of these cuts have had a drastic impact on the most vulnerable among us.
Why is Congress unable to reach a consensus on a federal budget? Well, much of it is politics, of course, with Democrats trying to raise revenue at the same time Republicans are calling for tax cuts and vying for face time on Fox News.
In short, Republicans seem to be completely against any effort to raise revenue because it would mean a tax increase. But while no one wants to see their taxes increased, how unfair would it be if the wealthiest Americans had to pay a little more? It’s a fair question to ask.
We should all remember that the wealthiest Americans fared very well under the Bush tax cuts, which led to the largest income gap in U.S. history. Over the ten full years they enjoyed the Bush tax cuts, the richest five percent of the U.S. population received 90 percent of the tax savings. So why shouldn’t the wealthiest among us pay a little more to reduce the size of the federal budget deficit?
Although it’s been said before, now is really the time to seriously address the federal budget deficit in a way that will minimize the harm to working families, the group that was hurt the most by the deep recession that was caused by the Bush tax cuts. This would require a compromise between Democrats and Republicans, something that may be difficult to obtain in a Congress where one party controls the Senate and the other controls the House of Representatives. But there are encouraging signs that some moderate Republicans understand that the budget deficit cannot be addressed by cuts in various federal programs alone.
What they are saying is that they do not want to increase any of the current tax rates but they would be willing to fiddle with some parts of the tax code. Many Democrats say this option is acceptable if it raises enough revenue, but only if it does so without hiking taxes on the middle class.
If Republicans are serious about what they are saying, a good way to begin is by changing the way hedge fund managers calculate their earnings. As we have noted before, hedge fund managers are making tens of millions of dollars a year in profits, but rather than paying the top income tax rate of 35% on these earnings they are paying only capital gains taxes of 15%. Even billionaire Warren Buffett says this is a disgrace and that this policy should change.
If Republicans are serious about fixing tax inequality they could also make all earned income subject to Social Security tax, not just the first $113,700 (going up to $117,000 in 2014). Currently, a worker earning $50,000 a year pays Social Security tax on every penny of that income. But a corporate executive earning $5 million of even $25 million a year pays Social Security tax on only the first $113,700 of income. How fair is that? In fact, if all income was subjected to Social Security tax, and not just the first $113,700, the Social Security program would be fiscally safe until the next century. Without this change, we’ll continue to hear Republicans yelling for cuts in Social Security benefits, which they have cleverly named “entitlement reform.”
And while the idea of limiting deductions may sound promising as a means to raise money and reduce the federal budget deficit, there are some deductions that should be off limits.
As an example, it has been suggested that the tax advantages of 401 (k) plans should be reduced or even eliminated. We always encourage members to invest in the Union’s 401 (k) program exactly because it offers tax savings to workers. The 401 (k) investment opportunity was created by Congress to help workers save for their retirement. Eliminating the reduction in taxes workers enjoy by investing in 401 (k) accounts would defeat the very purpose of the program.
In another example, there has been some talk in Republican circles about ending the home mortgage tax deduction and instituting a tax on employer-provided benefits These ideas are frightening because they could easily cause another collapse in real estate prices and complete chaos in the employment market.
No one denies that the budget deficit in Washington needs to be addressed. But any changes in tax regulations to raise revenue should impact the wealthiest among us, not middle class families.
