Revenue Neutral Might Work

Reader comment on: Keith Hennessey on Tax Reform

Submitted by Eugene Patrick Devany (United States), Jan 25, 2013 11:07

A budget will force Mr. Obama to show his hand on tax reform and it may be downhill from there for the poor and middle class. Mr. Obama has already approved the 2% increase in payroll tax rates for 2013 - a big step in the wrong direction. If typical workers paid only the 15.3% payroll tax and no income tax at all; they would still be paying more than the high earners with their $1.3 trillion in tax expenditures (exemptions, special rates, deductions and other loopholes which reduce tax revenue). The tax revenue collected from the individual income tax base was only 14.1% of the total $12.5 trillion in income ($898 billion from the income tax and $865 billion from payroll taxes for Social Security and Medicare [FY 2010]).

Since the high earners, on average, are paying less than 14.1% it should be possible to eliminate or reduce the business tax expenditures that help a few without going after the tax expenditures that help the 90% that have been struggling. Between 1995 and 2010 the tax code redistributed wealth so that the top 10% increased their net wealth by 10%, the next 40% (the middle class) lost 8% and the lower 50% lost an astounding 70% of their net wealth. It is so bad that half the country only has 1% of the wealth - an amount which is less than half of the annual tax expenditures given to business and high earners.

The lesson may be to keep it revenue neutral but return all the savings to individuals in proportion to the damage caused by the current tax code. Even a 10% reduction in wasteful tax expenditures would be enough to guarantee a part time job to every man and woman who needs one.

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