A Tax Day Alternative

This being April 15 and all, you will need to stay in an isolation tank all day to avoid the usual conservative demagoguery about the enslavement of the American people–and particularly Job-Creators–by taxes. Some will even mobilize The Beatles (on in this case, George Harrison and Eric Clapton) in this cause:

So how’s about a quick preemptive strike? Here’s Rutgers’ James Livingston at the New York Times suggesting a major shift in the federal tax code back towards greater reliance on corporate taxes instead of payroll taxes:

For most of the 1950s, corporate income at large companies was taxed at 52 percent, according to the nonpartisan Tax Policy Center. The federal government, meanwhile, collected about a third of its revenues from this source. Today, thanks largely to the “reforms” ushered in by President Ronald Reagan, the ostensible tax rate on corporate income is no higher than 35 percent — and the corporate-tax share of federal revenue has fallen to about 9 percent….

As corporations lobbied and learned to avoid taxes, the government began to close the revenue gap with payroll taxes. These were negligible before the creation of Medicare in 1965, but they now account for more than a third of federal revenue — in effect, they replaced the income taxes once paid by corporations.

Personal income taxes (which have stayed at about 45 percent of federal revenues since 1950) and payroll taxes now provide the federal government with almost 80 percent of its yearly revenue.

What? Wait a minute: aren’t the cool kids moving in exactly the opposition direction, urging further reductions in (or an abolition of) corporate taxes? Aren’t we all racing to the bottom to make sure our corporations don’t send capital and jobs offshore?

Livington argues that’s already happening now and can’t get much worse; nor can capital left idea:

As corporate profits soar and full-time job creation languishes. American corporations are now sitting on $4.75 trillion in cash, according to the Federal Reserve Bank of St. Louis.

The other well-worn objection to an increase of corporate income taxes is that it would encourage companies to invest and hire overseas, where tax rates are presumably lower. Here, too, the retort is obvious: the tax code already works exactly this way by postponing taxes until profits from investment overseas are repatriated. American companies routinely avoid taxation by moving their idle cash offshore.

In view of these facts, there’s no downside to replacing payroll taxes with increased taxes on corporate profits, wherever they’re made or held. By doing so, we make the tax code more progressive, and mobilize capital that is otherwise inert. In other words, we can lay solid foundations for economic growth simply by going back to the tax principles we used to have. What could be more conservative than that?

Any “tax reform debate” worth its salt needs to include consideration of this alternative. It’s outrageous to start with the assumption that the wealthiest and most powerful individuals and entities in the country at a time of ever-increasing inequality are doing everything they can, and actually need tax relief while regular working folk need to “dig deep” and “make sacrifices” and “think about their grand-children.”

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.