1) Eliminate the lower tax rates for capital gains income.
Income is income, and all should be taxed the same . For years we’ve heard that the rich need special treatment of investment income so they will re-invest it and prosperity will “trickle down” to the rest of us. But that was never true. Nearly all new wealth in recent years has gone to the wealthiest 1% or .1%, and wealth disparity has grown to the highest levels since the Robber Barons.
If you had the good fortune to have $1 million in a US stock market index fund in 2013, you made about $250,000 without doing anything. If you had $1 billion in such a fund, you made $250 million. Without doing anything.
One could argue that capital gains should be taxed at HIGHER levels than regular income. Famed tax cutter Andrew Mellon apparently concluded that ‘unearned income,’ that is, income from capital, should be more heavily taxed than ‘earned income’, from labor .
But probably treating all income the same is fairest, with higher tax rates for the wealthy, elimination of loopholes, and/or stronger alternative minimum taxes.
Certainly, taxing Capital gains at LOWER rates than income obtained by real work by real people is crazy, and the fact that has been the case since 1921 largely reflects how well the government does what rich people want.
The Inversion of the Income Tax
(bold emphasis added)
“That was almost a century ago. Since then, the original vision has been turned upside down. The income tax has come to fall almost entirely upon the workers and entrepreneurs it was intended to spare. In 1918, some 85% of American households paid no income tax at all, and almost 80% of federal income tax revenue came from the top one-half of one-percent of households. Very little of the burden fell on work. By 1990, almost three-quarters of federal tax revenues came from work.
Nurses and janitors are paying twice the rate that millionaires paid in the version of the tax that Congress first enacted, in payroll taxes alone.
The payroll tax ostensibly financing Social Security has become a monument to this inversion. It falls exclusively on the wages and salaries of working people up to a cap, and comprises some 35% of federal revenues-and more than half of the federal taxes that the average American pays. The payroll tax rate today is double-yes, double-the top income tax rate in 1913. Nurses and janitors are paying twice the rate that millionaires paid in the version of the tax that Congress first enacted, in payroll taxes alone. Then there’s the corporate income tax, which back in the 1920s yielded almost a third of federal revenues. Today corporations pay just a little over one-ninth. A surprisingly large share of corporate income derives from real estate and resources, which comprised over 40% of the total assets of almost a third of the Fortune 500 companies in 1990. So the decline of the corporate tax is part of the inversion of the income tax generally.
The economic impact is perverse. The work tax system penalizes the human qualities the nation most needs to encourage-ingenuity, intelligence, constructive endeavor of all kinds. It promotes the waste of natural resources, and speculative gain-in real estate for example-that produces no new real wealth. The work-tax system especially burdens those who struggle hardest to make ends meet. Yet mainstream debate barely notes this fundamental perversity. For all the partisan polemics and chest-thumping about “radical reform” there is little disagreement on this basic point: the federal tax burden should fall mainly on work.
The various “flat tax” proposals, for example, would fall almost entirely on work. (When you exempt non-work income at the personal level, as these would do, you are left with a work tax by a different name.) Among the flurry of reform plans in recent years, only one even begins to address the work tax load–the plan offered by Senator Pete Dominici and former Senator Sam Nunn, which includes a credit for payroll taxes. If you’ve even heard of Nunn-Dominici, you are more attentive than most.”