Tax Reform


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True Tax Reform to Benefit the American Worker

America has generally advantaged the asset holder at the expense of the wage earner for most of my lifetime. The scale has been rigged for far too long. For over a decade, Warren Buffet has opined repeatedly that he is the lowest marginal taxpayer in his organization. Even this attempt to demonstrate the absurdity of how our tax code fosters wealth disparity has fallen on deaf ears with policy makers of both parties. In the United States, the bottom half of Americans has captured just 3 percent of growth since 1980.

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Working Americans are simply being left behind. What President Trump and the Republican Congress just did will only serve to accelerate this gross disparity in economic growth, both by enabling the wealthy to keep more of the returns their money passively accrues, but also by starving the social safety net, and the maintenance of our infrastructure, and all the things that government provides that society relies on to ensure growth and collective opportunity. Despite the false narrative of the GOP, the ultra-wealthy have been looting our country for the better part of 50 years, and they just decided it wasn’t enough. It won’t ever be enough.

The chart below speaks for itself.

Productivity growth and hourly compensation growth, 1948–2016.

Chart: Economic Policy Institute

When an heir inherits appreciated wealth, that appreciation has not and will not ever be taxed.  Further, wealthy people, whether earned or windfall, are able to earn passive returns on that wealth at a lower rate than someone with no inheritance or no wealth who earns income from their wages for labor alone. This policy hurts ordinary hard-working Americans relying on earned money, so that someone can inherit $10 million and then earn $20 million trading in bitcoin and pay a lower marginal rate than many Americans earning far less through working often 40, 50, 60 hours a week.  This is how many owners of companies pay a lower tax rate than most of their employees, and it needs to change.

Democrats need to start explaining tax policy in a way, and more to the point, acting in a way that re-imagines the way the tax code works to benefit all Americans by unleashing growth through a more responsible, more equitable tax code and the resulting investments that come from such a restructuring of priorities.

Taxes aren’t just about taxes. They are about who we are as a people, and what we want to accomplish. Do we want to make sure billionaires keep more of the money they inherit and passively earn more than wage earners keep from their labor? Do we want to see America’s infrastructure continue to crumble and operate inefficiently, costing us all? Do we want to invest in education and job training for tomorrow’s economy? Do we want to protect social security not just for today’s earners, but for every American going forward? Do we want more people paying more incrementally for bad health care results, or do we want to invest in Universal Health Care?

Many innovative ideas and investments in America’s future will pay for themselves. But if we raid America’s bank account for the benefit of the wealthiest among us, as Trump and his Republican Congress just have, we cripple our ability to invest in an American future that we all need to sustain competitiveness in a global economy, while the rest of the world moves confidently forward. The stripping of our country’s ability to invest in itself by gifting more to those that have already gotten so much from our country is an unpatriotic disgrace.

End Preferred Status of Real Capital Gain and Dividends

Profits taxed and dividends are taxed at a reduced rate relative to labor, increasing inequality, and making the tax system regressive in nature. The current policy exacerbates growth of existing capital and wealth over labor and promotes increasing levels of inequality. We should tax dividends and real capital gains as ordinary income.

Raise the Corporate Income Tax Rate to 25%

On January 1st 2018, the corporate tax rate will be a flat 21 percent. While the prior rate was sub-optimally high, there is no compelling economic reason to drop the rate beneath 25 percent. The 400 billion dollars of additional revenue from this single adjustment would be more than enough to fund many projects to promote opportunity and economic growth for all of America.

Bring Common Sense to Estate Tax Reform

I would reduce the exempted amount to 2 million. Further, I would fight for end of stepped up basis, which allows for inherited appreciated assets to be exempt from taxation entirely. This gigantic accounting loophole that benefits only the wealthiest heirs in America allows the vast majority of inherited capital wealth appreciation in many cases to escape taxation entirely. The existing policy puts rocket fuel into the growth of ever-increasing levels of inequality. The first two million tax free should be enough for any heir. Above that point, such earnings should be subject to taxation.

Financial Transaction Tax

A Financial Transaction Tax is a simple, efficient, and progressive revenue source. Given the gutting of the treasury by the recent GOP tax cuts, revenue increases are now to ensure crucial public investment in America’s future.

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The financial crisis of 2007–2009 and the resulting bank bailouts have led to a justified feeling that a contribution from finance is owed for the damage this sector inflicted upon the Treasury and economy. A Financial Transaction Tax (FTTP) will both raise revenue and ensuring that financial transactions actually do provide good value to the economy.

Many proposals have been submitted by Members of Congress to institute a financial transaction tax, including the Inclusive Prosperity Act offered by Rep. Keith Ellison (D-Minn.). The bill would institute small (in scale) taxes rates on the sale of stocks, bonds, or derivatives. I applaud Representative Ellison’s efforts and will support such legislation in Congress.

Most Americans haven’t benefited from the extraordinary increase in the scale of financial transactions in recent decades. The rise of asset-based frequent transaction finance has been largely at the expense of other economic sectors.

End Carried Interest Loophole

Despite many loud promises from President Trump to be rid of it, the Republican tax plan keeps the carried-interest loophole that grossly benefits managers of hedge funds and private equity funds at the expense of every other American. Carried interest is a money manager’s share of the fund’s profit. It is taxed at the lower capital gains tax rate, while profit in other professions is taxed at the higher ordinary income rate. Until we normalize capital gains and wage income, this artificial tax break meant to enormously benefit a very few high income earners should end.

In Congress, I will fully support Rep. Sandy Levin’s H.R. 2295 – The Carried Interest Fairness Act.

End CEO Bonus Loophole

In 1993, Congress enacted reforms to ensure that large corporations couldn’t avoid paying taxes by paying out massive salaries to their executives by placing a $1 million cap on the deductibility of executive compensation. Unfortunately, a loophole was included in that legislation that exempts deductions for executive bonuses. This loophole allows CEOs to abuse compensation packages while boosting profits of the richest corporations, particularly on Wall Street. For example, former Wells Fargo CEO John Stumpf was one of the most significant beneficiaries of the CEO bonus loophole in 2014, even as he was overseeing a massive rip off of the bank’s customers through their fraudulent account scheme. He earned fully deductible bonuses and stock options worth over $40 million, which translates into a $14 million tax break for Wells Fargo.

This is unacceptable. In Congress, I will fully support Rep. Lloyd Doggett’s H.R. 399 – The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act.

Allow Deduction of Student Loan Interest

Currently, taxpayers with a modified adjusted gross income of less than $80,000 ($165,000 if married filing jointly) can deduct a maximum of to $2,500 of student loan interest from their taxes, per year.

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The only people who borrow money to go to school are people whose family situation doesn’t allow them to invest in education without going into debt. It’s people from poor/middle class families. If we want to have inter-generational growth opportunities, we need to give students saddled with debt due to their relatively unprivileged status growing up the advantages we give a more advantaged person buying a second home. Consequently, all student loan interest paid should be 100% deductible, not subject to the caps on income an interest under current law.

Carbon Pricing & Reinvestment

I support a gradually increasing fee on carbon dioxide emissions, along the lines proposed by the Brookings Institute. This fee should be implemented at the first point of entry of fossil fuels into the economy, i.e., the mine, well, or port. Consistently, studies have shown that a carbon tax is the most efficient and effective way to reduce carbon emissions.

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From the revenues generated, Congress should allocate approximately half of the proceeds from this carbon fee as a direct rebate to the American people via dividend checks, direct deposits, or contributions to their individual retirement accounts. The amount allocated per family would be tied to the urbanization of their zip code on a sliding scale, with more rural counties that rely more heavily on carbon-based fuels for transportation receiving a higher dividend to provide greater incentive for a conscious move away from carbon-based fuels and toward renewables. This amount would grow year over year as the rate increases, creating a positive feedback loop: the more Americans protect the climate, the greater the individual dividend payments to all Americans.

The other half of this carbon tax would be used to invest in our energy future. This money should be used to promote research and development, as well as adoption of new technology in storage, efficiency, and grid and distribution infrastructure.

This isn’t a new concept in America’s energy history. The same way government invested in distribution and production throughout the 20th Century (through pipelines, land leases, interstate highways, railway easements, and our antiquated grid), we must invest in our 21st Century energy future.