If John Kerry is elected this fall, his no. 1 task will be to deal with the huge budget mess George W. Bush's tax cuts have created. Which begs the question: How could President Kerry build public support for the higher taxes our country desperately needs?
So far, Kerry hasn't shown any inclination to talk seriously about taxes. Yes, he has proposed rolling back some of the Bush tax cuts for people making more than $200,000 a year. But he wants to devote all the revenue that raises to new tax cuts, mainly for the middle class. In fact, the Tax Policy Center calculates that Kerry's overall tax plan would reduce revenues by $617 billion over the next decade.
Congress seems on the verge of enacting a major new corporate-tax giveaway bill this summer. Ostensibly designed to protect American manufacturing jobs, it will almost certainly have the opposite effect. But hardly any of our lawmakers seem to understand -- or care.
These days, every dollar we add to our budget shortfall is another dollar that we have to borrow from foreigners. That in turn is another dollar that foreigners won't use to buy our exports. So if our politicians really wanted to help manufacturing jobs, they'd be working hard to attack our enormous budget deficit by rolling back George W. Bush's tax cuts and raising additional revenues wherever they can find them.
America's tax system, the juice that fuels our nation, isn't doing well lately. Income-tax revenues have fallen to their lowest level as a share of the economy since before World War II, causing enormous deficits and threatening our nation's future. But one piece of our income-tax code is on track to do something to mitigate this fiscal disaster: the individual alternative minimum tax, or AMT.
The AMT was enacted to make it harder for very wealthy people to avoid taxes. For a recent example, take Dick Cheney, a man who's been known to have "other priorities" when it comes to inconveniencing himself for the country that made him a multimillionaire.
When then-presidential candidate John Edwards complained that "something is deeply wrong when a billionaire has a lower tax rate than his secretary," he was talking about George W. Bush's cut in the top tax rate on dividends and capital gains to only 15 percent. But it got me thinking: Even with Bush's huge new loophole, do we really tax total personal investment income much more lightly than wages? This April, I spent a few weeks working out the arithmetic.
The short answer is that when Edwards charged that workers pay "at more than twice the rate" of wealthy investors, he understated his case. In fact, these days the average tax rate people pay on earnings is a lot more than double the rate on investment income.
Twenty-five years ago, I wrote a playful spoof pretending that the top Republican member of the House Ways and Means Committee had proposed capping the income tax at $50,000 in earnings, with everything above that tax-free. Although GOP affection for unfair taxation was almost as strong then as it is today, nobody really went that far. But Federal Reserve Chairman Alan Greenspan has recently offered his own version of my ostensibly nutty idea. In February, he told the Senate Budget Committee that he wants to keep the capped Social Security payroll tax while slashing those pesky retirement benefits. He would use the savings to help finance a permanent extension of President Bush's tax cuts.