“We’re broke,” said John Boehner, Republican speaker of the House in arguing for $100 billion in cuts in the federal budget, cuts that impact students, poor and the elderly.
This argument is false.
The US is not broke – and neither is California.
We suffer from two problems: a huge concentration of income at the very top of the income distribution and a tax system that fails to tax that concentration. Our tax system asks those with less to pay more and those with more to pay less.
Who Doesn’t Pay their Fair Share?
Concern about budgets and taxes should begin with a focus on who doesn’t pay their fair share of taxes. The most recent IRS Oversight Board Report found that $290 billion in individual and corporate income taxes goes uncollected because of misreporting. Almost 2/3 of the misreporting by individuals occurs among the top 10% of households by income. So, you might think that John Boehner would be concerned about collecting these taxes. You would be wrong: instead Mr. Boehner proposes cutting $285 million from the IRS budget.
Even more illuminating is the comparison of who pays and who doesn’t with 1961, the year in which President Obama was born.
In 1961 there were 15,753 households who reported income of more than one 1 million in 2011 dollars – and their average federal income tax rate was 43.1%. Today there are 361,000 households with income over $1 million – almost a 20-fold increase. At what rate do these pay? 23.1%. If these very few extremely rich households paid at the 1961 rate, we would have an additional $231 billion in revenue – for roads, scholarships, health care and other public needs.
Who else doesn’t pay their fair share? At the head of the list would be companies such as General Electric, Goldman Sachs and Bank of America.
- During the past five years, General Electric made $26 billion in profits in the United States – and received a $4.1 billion refund from the IRS.
- In 2008, Goldman Sachs made a profit of $2.3 billion – and paid only 1.1 percent of its income in taxes.
- Bank of America made $4.4 billion in profits last year – and received a $1.9 billion tax refund from the IRS.
Both Goldman Sachs and Bank of America were saved by average taxpayer, you and me, in the bail out engineered by the Bush administration. Goldman Sachs received $10 billion, and Bank of America tapped us for over $25 billion.
The list of corporate tax evaders is much longer than these three but these cases illustrate the larger problem with our existing tax system at both the federal and state levels. Over the past 5 decades, corporations have shifted taxes from themselves to everyone else. If US corporations, who reported pre-tax profits in 2010 of $1.24 trillion, paid taxes at the same rate as they did in 1961, there would be an additional $485 billion in federal tax revenue.
And, who doesn’t pay their fair share in California ?
Well, Amazon for one. We should enforce the current California law taxing the sales of goods by out of state companies (such as Amazon) over the internet.
The companies that take our oil from the ground. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil. Alaska and Louisiana both charge 12.5%.
The corporations who received a middle of the night tax cut to in 2009 and 2008 tax cuts to gain the extra Republican votes for the budget.
The high income people who received a tax bonanza in the extension of the Bush Era tax cuts in the December federal budget deal, including the reduction of taxes to the wealthiest taxpayers. State tax rates should be increased so that these persons making over $250,000 each pay their fair share.
The corporations using a loophole in Proposition 13 to not accurately record the value of their commercial property.
These are just a few of the many available tax entitlements given to the wealthy and corporations in the state tax codes.
Where Else Should We Tax?
Taxes should also be used to discourage economically wasteful and/or socially harmful activity. Thus we tax tobacco and alcohol consumption. One additional tax fits this category and would raise a very large amount of revenue: a financial transaction tax (FTT) or a sales tax on finances. An FTT would levy a small fee on all trading of stocks, bonds and currencies as well as derivatives of these financial assets. If the tax were set at $1 on every $400 (0.25%) of the amount traded, it would raise over $500 billion annually. And the vast majority of this tax would be paid by the hedge funds, banks and other financial entities that caused the financial crisis of 2008 and the subsequent Great Recession.
Are we broke? No. All we lack is the political will on the part of Congress and the Legislature to solve our deficit problem by taxing those who have wealth rather than sacrificing the well being of those who have not. That may be a kind of deficit but it is political, not financial.
Dr. Duane E. Campbell and Dr. Bill Barclay.
Duane Campbell is a Professor (emeritus) of Bilingual/Multicultural Education at CSU-Sacramento and the Chair of the Sacramento local of Democratic Socialists of America.
Prior to retiring in 2004, Dr. Barclay worked for 22 years in financial services. His areas of expertise were financial product creation, including development of derivative products, and business strategy planning.
Currently he is an Adjunct Professor in the Liautaud College of Business Administration at the University of Illinois, Chicago