Occupy the tax code

By David Callahan
December 13, 2011

By David Callahan

The views expressed are his own.

Chalk one up for Occupy Wall Street. Last Thursday, the New York State legislature voted to raise taxes on high-earners after Governor Andrew Cuomo reversed his longstanding opposition to such a move. Cuomo cited a large budget gap in explaining his about-face, but that gap is hardly new. What is: taxing the top 1 percent is far easier now than it was a few months ago.

The victory in Albany comes just as the Occupy movement finds itself in need of a second act. With the tents gone from Zuccotti Park – and encampments vanishing from other major cities, too – it’s time for the movement to get serious about influencing public policy. Pushing for higher taxes on the rich is a perfect focal point for new activism.

Next year will see the biggest tax fights in a decade. The Bush tax cuts are set to expire at the end of 2012 and President Obama is determined that the wealthy should pay higher rates. In addition, both parties want to reform the tax code – an overhaul that would trigger a struggle over the generous loopholes that now favor corporations and rich individuals.

Taxes will also be on the agenda in California next year, where various efforts are afoot to raise taxes by ballot initiative. One plan, favored by Governor Jerry Brown, would raise $6 billion through a surcharge on the state’s top 1 percent.

There’s reason for tax reform, elsewhere, as well. In many states, the top 1 percent enjoy a light tax burden. Meanwhile working- and middle-class households are being slammed. In Texas, for example, the bottom 20 percent of households paid 12.2 percent of their income in state and local taxes in 2007 while the top 1 percent paid just 3.3 percent. Other states, like Florida and Tennessee, have even more regressive tax systems. A cashier in Miami making $23,000 a year literally pays five times more in taxes as a percentage of her income than someone who earns $2 million a year.

Targeting these glaring inequities would allow the Occupy movement to take on economic inequality – its most consistent concern – in a tangible way and channel activist energy that may otherwise dissipate. Moreover, compared to other underlying drivers of inequality, such as globalization, reversing years of tax breaks for the rich is relatively straightforward.

But the biggest reason that Occupy needs to join the tax fights is that, absent a grassroots push, the wealthy may continue to dodge higher rates. The fate of the “Buffett Rule” is a case in point. President Obama put forth this proposal back in September – coincidentally, just one day after Occupy Wall Street began – only to watch the idea sink without a trace in Congress.

It’s not just an intransigent GOP that has doomed efforts to raise taxes on the wealthy. Obama and Congressional Democrats haven’t shown much spine, and every budget showdown over the past year has resulted in big cuts, yet no tax hikes. Pressure from a more vocal and organized left would make it harder for Democrats to keep capitulating.

Grassroots power could make an even bigger difference in California, where ordinary citizens will decide whether to hike taxes on the rich. Conservative forces are already mobilizing to block Brown’s “millionaire’s tax” and, despite the state’s dire fiscal state, enacting new taxes will be a heavy lift. As the strongest progressive social movement in 40 years, Occupy could help provide the muscle to win that fight. While serious tensions now exist between Occupy organizers and mainstream progressive groups like MoveOn, a narrow shared goal could help bridge differences and, ultimately, build a far more powerful progressive infrastructure. Such clear stakes could even lead OWS to overcome its qualms about working with the Democratic Party.

Polls show very strong public support for raising taxes on the rich, but that support can soften fast in the face of counter-attacks. Many Americans don’t pay much attention to politics and can easily be stampeded into opposing any and all “tax hikes.”

Just last fall, a ballot initiative failed in Washington State that would have raised taxes on filers making over $200,000. The measure was supported by Bill Gates and the new revenue would have gone for education and healthcare. But opponents warned that it would lead to higher taxes on everyone and the initiative lost by 20 points.

While politicians like Obama and Brown are channeling public opinion in calling for higher taxes on the wealthy, they are also making themselves vulnerable to being cast as class warriors or old style tax-and-spend liberals.

Public concern about economic inequality is a real factor in American politics for the first time in years. There is a big gap, though, between these sentiments and concrete changes to policy.

Occupy Wall Street has started something big. The question now is whether the movement is focused enough to channel its energies to a winning issue like taxes and pragmatic enough to play well with others in order to get things done.

PHOTO: New York Governor Andrew M. Cuomo speaks during a cabinet meeting in Albany, New York October 12, 2011. REUTERS/Hans Pennink

4 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Personal income taxes should be composed of 2 opposite parts: Start with a flat tax (say, 20%), then, impose the actual US income curve on top of it, in a revenue neutral way, with the highest earner paying twice the base flat tax rate (in this example, 40%), so that all other taxes are proportionally less. No breaks, deductions, rebates, any of that BS. It’s simple enough it the entire law could be written on a single page, and it would be entirely self-adjusting.

If the bottom of the tax bracket hits zero before the top hits double the base, then the top gets a tax break. It would encourage a little less excessiveness at the top, and a more substantial base in the middle.

Posted by h4x354x0r | Report as abusive

California has the second highest official unemployment rate, but many of us know better. It is only a matter of time before California will have the highest official unemployment rate in the nation.

Governor Brown’s tax plan will further exacerbate that problem. California needs lower taxes and less unemployment and not more taxes and more unemployment.

Posted by Concerned11 | Report as abusive

Concerned 11, could you show any evidence that there is a correlation between state tax rates and unemployment? For example, Massachusetts has lower unemployment and higher taxes than Texas – and the average income in Massachusetts is 25% higher.

Posted by Dollared | Report as abusive

@Concerned11 and @Dollared, I have actually calculated the correlation between unemployment figures and several federal tax statistics, though unfortunately not state taxes. There actually is some moderate correlation between the two, only thing is that it happens to be negative. That’s right, higher taxes correlate with lower unemployment. Here are the numbers (all correlations are with federal unemployment figures from the BLS web site):

Effective Federal Tax Rate for top 1% (1979-2006): -0.5

Top Marginal Federal Income Tax Rate (1953-2008): -0.2

Corporate Tax Revenue as Percentage of GDP (1953-2006): -0.5

Total Effective Federal Tax Rate (1979-2008): -0.4

Of course correlation does not mean causation so one could not draw the conclusion that higher taxes cause lower unemployment. However this certainly destroys the myth that higher taxes cause higher unemployment as that simply has not been the case over the past sixty years. I think it is also worth noting, anecdotally anyway, that federal taxes are at the lowest levels they have been in decades and unemployment is near the highest it’s been during that same timeframe.

What’s even more telling is to look at federal government tax revenues as a percentage of GDP vs unemployment over presidential administrations. Going all the way back to Eisenhower, unemployment was at 3% the year before he took office (1952) and federal tax receipts were 19% of GDP. By the end of his last term tax receipts had fallen to 17.9% of GDP and unemployment had risen to 5.5%.
Tax receipts remained nearly the same over the Kennedy/Johnson administration ending up at 17.7% of GDP in ’68 while unemployment had fallen to 3.6%.
Tax receipts fell slightly over the Nixon/Ford administration (though they initially increased substantially to 19.7% in the first year, when unemployment fell to a historic low of 3.5%) to 17.2% of GDP while unemployment rose to 7.7%.
Tax receipts rose during Carter’s term to 19% of GDP while unemployment fell slightly to 7.2%.
Tax receipts fell during Reagan’s presidency to 18.2% of GDP while unemployment fell to 5.5%.
However Bush I doubled down on the falling tax receipts which ended up at 17.5% of GDP while unemployment increased to 7.5%.
Tax receipts increased significantly during Clinton’s presidency to 20.9% of GDP while unemployment fell to 4.0%.
Then Bush II again cut tax revenues to 17.6% of GDP and we all know what happened to unemployment.

Given this information it is simply absurd to suggest that lowering taxes will lead to lower unemployment or that raising taxes will lead to increased unemployment. History has clearly shown the exact opposite to be the rule. Then again not many people are likely to let a little data get in the way of their ideologies.

Posted by jtfane | Report as abusive