Radical Reform of the Tax System Is Urgently Needed

Is what I am proposing pretty radical and does it face an uphill battle in Congress? Absolutely. But the stakes are enormous for the country and nickel-and-dime tinkering with the tax system will not fix the problem.
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Let me be clear up front. I am not proposing the expropriation of the current resources of America's billionaires, multimillionaires and huge corporations, although a pretty compelling case could be made for such action in some cases, given the way those individuals acquired their wealth and the disastrous consequences of their behavior for the rest of the country. What I believe is urgently needed is a steeply progressive tax on income, however generated, as well as on inherited wealth. In addition, the tax code must be radically overhauled so that the existing plethora of tax avoidance mechanisms is eliminated. Only if these steps are taken -- and taken without delay -- will we halt the egregious and unsustainable concentration of the nation's wealth -- and the undue political power that goes along with it -- in the hands of the very few.

Is what I am proposing pretty radical and does it face an uphill battle in Congress? Absolutely. But the stakes are enormous for the country and nickel-and-dime tinkering with the tax system will not fix the problem. The massive concentration of wealth that has been engineered for the benefit of the powerful few over the last four decades needs not only to be stopped but reversed. Failing that, America will continue on track to being a country of "have-even-mores" and "have-absolutely-nothings," risking serious economic, political and social breakdown.

Fortunately, there are a few wealthy individuals - most notably, Warren Buffett, a multibillionaire with a conscience -- who have spoken out on this issue. He recently rattled the cages of his fellow 0.1 per centers by stating publicly that they should pay their fair share of taxes, noting that he and others like him pay lower rates than the folks employed in the most modestly-compensated jobs in their enterprises -- in his case his secretary.

Buffett followed up with an editorial in the New York Times on November 29, in which he declared that there was no risk that higher taxes would deter people like him from continuing to invest their money.

So let's forget about the rich and ultra-rich going on strike and stuffing their ample funds under their mattresses if -- gasp -- capital gains rates and ordinary income rates are increased. The ultra-rich, including me, will forever pursue investment opportunities.

He goes on to point out -- citing historical data -- that balanced budgets, robust economic growth and full employment have all occurred during periods when taxes were much higher on the earnings of people like him. Even when taxes on unearned income were astronomical in comparison to today's rates, he always found wealthy individuals and institutions eager to invest in the American economy, garner the rewards of doing so, and pay the taxes owed.

Buffett adds that America's wealthiest have done extraordinarily well in recent years, citing the total assets of the Forbes 400 - a record $1.7 trillion last year - a five-fold increase over 1992's $300 billion. The average annual income of the 400 top earners in 2009 - the latest year for which figures were available -- was $202 million, which he calculated would represent an hourly wage of $97,000. Meanwhile, middle class wealth and income have stagnated and the poor have gotten poorer.

Based on these historical and contemporary facts, Buffett proposes that the federal government impose a minimum tax rate on the income of the rich and ultra-rich -- specifically 30 percent on taxable incomes between $1 million and $10 million and 35 percent on those earning more than $10 million. Would this make a difference in the Federal Budget? Certainly, since he notes that:

More than a quarter of these ultra-wealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And -- brace yourself -- a few actually paid nothing.

He could have added that many of our largest and most profitable corporations also pay no taxes and some -- General Electric is only one example -- even secure huge federal handouts. In any event, the increased revenue generated by Buffett's proposed minimums would be significant and go a long way towards shoring up the federal budget, not to mention addressing some of the glaring inequities in the way the tax system currently operates.

Buffett deserves enormous credit for his integrity and the public service he is performing in discrediting the orthodoxy about taxation that has been so costly to everyone but the most wealthy. Now that a person of his background and credibility has put these issues in a national spotlight, we need to capitalize on his message and go even further than he suggests. The president was elected on a platform that promised to raise the taxes of the wealthy. We must hold him to that promise and push him to do much more than he has suggested so far. We need the tax revenue that the wealthy should be paying in order to rebuild the country's long-neglected infrastructure -- roads, bridges, mass transit, schools, libraries, public parks -- and create the well-paying jobs that will put the poor and the struggling middle class back on the road to the American Dream.

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