If you have been reading the initial prongs of the “We’re Better Than This” platform on climate change, health care, and infrastructure, you may already be skeptical of how we are going to pay for this and make it work. Have no fear, we can do it, and now is a good time to turn to the tax/revenue and regulation/government accountability prongs of the platform.
We are right to be on guard when new tax or revenue proposals are pitched to fund new programs, and to do so we need to be able to make the case that it is a fair and effective way to make things better. On that note, I offer two theme songs for this prong, Taxman by The Beatles and Carnival World by Jimmy Buffett.
For starters, the bulk of the costs for “We’re Better Than This” health care plan can be funded by realigning how we spend current resources; remember, we spend twice as much as other advanced countries on health care without the attendant payoff in health outcomes. Similarly, the new carbon tax in the environmental platform could provide the primary funding for the infrastructure plan.
That said, we already were running big deficits before the pandemic and the revenue gap has only widened, and more strategic and efficient spending alone is not going to cut it. While the solution to our budget challenges is not simply to jack up rates on the wealthy as some on the left have proposed, we should remember we had strong economic growth in the 1980’s and 1990’s with higher top-end tax rates and significantly lower budget deficits than we have today.
Three more targeted approaches can raise more revenue in a way in a fair and efficient manner for all.
Treat all income equally: One of the core problems with the current tax system is that many types of income that wealthier Americans are most likely to receive are taxed at lower rates than the “paycheck income” income that most of us receive.
Capital gains are the biggest example of this, and while there were policy reasons for originally treating this and some other forms of personal income differently, the net effect over time has been to drive further income inequality and give many wealthy Americans a huge tax break simply by virtue of how they made their money. We should gradually phase in over the next several years a new system that treats all income the same for taxation purposes. It will more fairly and efficiently raise more revenue for the government without making big changes to rates.
Replace the estate tax with an inheritance tax: The estate tax has long polled badly among all Americans even though only about 1% actually are subject to it. A better way to tax unearned revenue received by wealthy Americans would be an inheritance tax that only applies when people receive inheritances above a high threshold (let’s say $2 million for starters). When the inheritance is a family farm or business, this tax could be deferred for as long as they own and operate the business.
A national sales or consumption tax: A modest sales tax at the federal level could raise a lot of revenue that often goes untaxed today, and in a naturally progressive way. The more you buy the more you pay. I recognize that Americans at all income levels would pay this one, and, like the carbon tax, it can be regressive without other changes like lowering overall tax rates for poor and middle-class Americans. We can do that though and still raise significantly more revenue overall in a fair and efficient manner for all.
These three changes would put us on a path to solving our revenue challenges. To sell them though, we need to both sell the benefit of the programs and services being funded as well as the accountability for those programs and services being efficient and effective. More on that in the next prong of the platform.